There are certainly no shortage of oscillators, proprietary indicators, and specialized trading systems on the Market today. While I have not looked at every single trading system on the market, it is my impression that most are a rehash of old principles and the same tired indicators. Even the newest quantitative computer trading systems have done little to enhance the overall return in e-mini trading. Just the same, many skilled traders continue to crank out profitable returns year in and year out, and they do it without fancy new techniques or proprietary algorithms.
How do they do it? They simply know how to trade.
Knowing how to trade involves utilizing a variety of time-tested techniques and applying your intellect in utilizing those techniques. In my trading, one of the most important techniques I employ is the charting of Support and Resistance. By the end of the day, my charts generally have a variety of lines arcing across most of the daily price action. Once I draw a particular line in place, I leave it there for the entire day. Often times, lines drawn early in the day become extremely important later on. For that reason, it is important to leave all drawn lines in place.
Let’s review one very important fact, yes I said fact, regarding price movement: The market tends to start and stop in the same places. Further, the market often pauses and reverses on at the same places. There is, of course, many raging arguments about why this is true. Some see these starting and stopping lines as natural lines that form through the course of price action. Others believe that these lines are cause by technical trading and are, in a sense, a self-fulfilling prophecy because of the large number of technical traders. As a trader, I do not worry about the “why” of the situation, I simply understand that the market tends to pause and stop along the same lines.
These lines are referred to as support and resistance. A line that is higher than the current market price represents potential resistance, and a line that is lower than the current market price represents potential support. It is imperative in your trading to be aware of the exact location of support and resistance when initiating a trade. For example, if you are looking at a 12 point profit target and there is a line of resistance six points above your potential entry point, it would be unwise to expect the market to move 12 points. That is not to say that the price action could not move through the line of resistance, because some resistance lines are easily broken. Unfortunately, it is impossible to determine which support/resistance lines will hold firm and which support/resistance lines will be compromised.
It is my experience that support lines are more often compromised than resistance lines. Why? In general, the market moves downward much faster (according to scientific study, about three times faster) than the market moves to the upside. This is fairly logical if you think about it, it is not unusual for traders to sell in a panic, yet they tend to buy in a more pragmatic fashion. In short, I give resistance lines more credence than support lines. That being said, it would be a terrible mistake to ignore support lines because they often hold firm.
Very experienced traders often times can see support and resistance without drawing physical lines on the chart, but I find it far more useful to draw my support/resistance lines, lest I forget they are there. The notion that the market tends to stop and start along the same lines, or points on a chart, is imperative to understand and utilize in your trading.
In summary, we have emphasized the idea that the market tends to stop and start along the same lines on a trading chart. Further, we have emphasized the importance of being aware of support/resistance lines when initiating the trade, especially when your potential profit targets may require crossing through support/resistance lines. Personally, I avoid taking trades directly into support and resistance because more often than not the price will stop short of your profit target. Be aware of support/resistance at all times, and remember to trade with the trend.
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