Support Buying

[lukeaye]

Hi guys,

I'm a big fan of support buying and i have a number of rules associated with this sort of trade.

I am no whiz at creating amibroker codes or anything like that so i havent backtested this theory to the best of my ability.

What i would like to know, as i think it would be of great benifit, is;

What sort of expectancy would a sp have of rallying off support into a breakout, relative to the amount of times that support line is honoured.

From my way of thinking, a sp should be honoured off a particular price with high volume, meaning there are a lot of buyers or somebody with a lot of money buying at this point. But at some stage, surely if the price keeps getting sent back down from resistance, there will be an exhaustion on one side. Either, we will run out of buyers, or run out of sellers, hence a breakout.

How many times can a price be supported to give us the greatest expectancy of an upside break? Is it when the price is supported 3 times? or 10 times?

Because of my newbiness with amibroker, i havent been able to examine these sort of results over as many stocks and time periods as i would of liked.

Has anybody else done this? or does anyone know how to write a script for it?

 

[lukeaye]

This also leads me to another question, when a sp is rejected from a point of resistance, what does it do to the expectancy of a breakout with each rejection? Do we have the greatest expectancy buying from support after the price is rejected once, twice three times or ten times?

Once again i wish i knew how to ask amibroker this? does anyone know how, or has anyone done it and has results?

All i have really, on this topic is heresay and small sample data i collected maually, but i would like to test all stocks over the last 30 years. From what i have read and been taught, the greatest expectancy is after one price rejection, then its slides after two, then on the third our expectancy drops double. But i would love some hard data/evidence.

 

[nunthewiser]

Support and Resistance trading is my bread and butter

i do NOT use amnibroker

my strategy involves the use of tight stops with low % losses on MY defined stopout points on MY perceived break of support/ressistance

my capital position size varies in accordance to the % in which it takes to hit MY stoploss point

i often trade channels (long and short) and will skim part OR fully exit position at top of MY percieved channel dependant on volume and actual watched action with another entry to top up or re-enter on break of MY perceived channel

if the trade goes the wrong way on me i will exit full position on break of MY perceieved stopout point

i am happy to be wrong on the direction my trades take .......

pretty basic stuff from me posted and there is a heck of a lot more to it INCLUDING basic fundamentals on what the company is up to at the time , i dare say one of the more "knowledgable " people here can type it a lot better than i

it works for me , it may not work for you

 

[lukeaye]

Hi nun,

thanks for your input. I already have established rules for trading support plays, 7 in total, each with its own weighting to give a total score for each support play im looking to trade.

What im interested in, is data, evidence of what an expectancy can be for what i mentioned above.

 

[motorway]

Also give some thought to buying a break of obvious support

large quick moves come from one-sidedness

A real overbought or oversold situation
Can be where real strong trends start.

You also have to give some (a lot of ) thought how you would do this
When you would do this and ( --> Muti Scale analysis ?)

And how you look after risk
So as to get the reward...

Every time the price trajectory changes
IS Support and Resistance

motorway

 

[nunthewiser]

?)

And how you look after risk
So as to get the reward...

Every time the price trajectory changes
IS Support and Resistance

motorway

amen

hence why i say ..........MY percieved support/ressistance points

thankyou motorway

 

[Mr J]

Support and Resistance trading is my bread and butter

I might even say that it is all that matters to me, or at least all that I use. All price does is ping pong between S&R.

 

[lukeaye]

Also give some thought to buying a break of obvious support

large quick moves come from one-sidedness

Do you mean shorting if support is broken?

If not then possibly there is a greater reward, but also much greater risk, with a lower probabilty of being right? not my cup of tea.

A break off support may start an acceleration in price (momentum). buying against momentum is not what i would look to do. Especially when there is a real risk that momentum could quite easily continue in that direction

 

[nomore4s]

large quick moves come from one-sidedness

A real overbought or oversold situation
Can be where real strong trends start.

This has been shown by the market in the last 6-12 months - look at the rally we've had off the bottom. Been a very profitable opportunity for those that could identify that the market was oversold and then have the foresight to enter the market at that time.

Being able to identify these conditions is the trick.

 

[lukeaye]

This has been shown by the market in the last 6-12 months - look at the rally we've had off the bottom. Been a very profitable opportunity for those that could identify that the market was oversold and then have the foresight to enter the market at that time.

Being able to identify these conditions is the trick.

Unfortunetly i know of no technique, and nobody who can succesfully do that? (apart from hindsight)

How many times would you lose trying to pick the bottom? are you not better off buying off the pullback of a new trend?

have a look at some of the big companies like citgroup, $55 stock was showing oversold conditions at $45, 40, 30, 20, 10, 2. try to pick that bottom? id rather go with momentum to be honest.

 

[Wysiwyg]

I read about trading breakouts of both horizontal and angular resistance. Why??? An entry at support could be much more advantageous. If support is breached then vapourise. If a bounce off support follows through to a breakout of resistance you can sell to the breakout confirmers.

 

[motorway]

Id rather go with momentum

YES YES YES

BUT

when are you looking

I look at the down momentum when looking to go long
When a move down is extended and momentum goes to ZERO
a better word and what most people mean is Velocity

when velocity goes to ZERO
Acceleration is already maxing out
IN THE OTHER DIRECTION

This idea is very NEW

But also very OLD

Shake-out ,Springs , Pole reversals etc

The NEW versions have more fancy theory

FRANK D should have some comments on this too I think


Just because there is more reward
DOES not mean there is more risk
there could very will be less

IE PEOPLE ARE NOT RATIONAL

That is why we use charts for only 1 reason

I'd rather go with momentum TOO

--> Muti Scale analysis

Different groups acting in different ways
except at extremes
These extremes are the ones that make the $$$$
and initiate TRENDS

motorway

 

[nomore4s]

Unfortunetly i know of no technique, and nobody who can succesfully do that? (apart from hindsight)

How many times would you lose trying to pick the bottom? are you not better off buying off the pullback of a new trend?

have a look at some of the big companies like citgroup, $55 stock was showing oversold conditions at $45, 40, 30, 20, 10, 2. try to pick that bottom? id rather go with momentum to be honest.

There were people that did identify the market was reaching a major bottom and that there was going to be a very strong rally, some of this analysis was posted in the XAO thread by a number of posters.

You don't have to pick the exact bottom, you can wait for confirmation and buy on a pullback but you still need to be able to identify that a new trend is developing and the up move is not just part of the existing downtrend.

 

[lukeaye]

YES YES YES

BUT

when are you looking

I look at the down momentum when looking to go long
When a move down is extended and momentum goes to ZERO
a better word and what most people mean is Velocity

when velocity goes to ZERO
Acceleration is already maxing out
IN THE OTHER DIRECTION

This idea is very NEW

But also very OLD

Shake-out ,Springs , Pole reversals etc

The NEW versions have more fancy theory

FRANK D should have some comments on this too I think


Just because there is more reward
DOES not mean there is more risk
there could very will be less

motorway

very very interesting, let me ponder this a while.

And as to my questions can anyone help me in this area?

 

[nomore4s]

What sort of expectancy would a sp have of rallying off support into a breakout, relative to the amount of times that support line is honoured.

From my way of thinking, a sp should be honoured off a particular price with high volume, meaning there are a lot of buyers or somebody with a lot of money buying at this point. But at some stage, surely if the price keeps getting sent back down from resistance, there will be an exhaustion on one side. Either, we will run out of buyers, or run out of sellers, hence a breakout.

How many times can a price be supported to give us the greatest expectancy of an upside break? Is it when the price is supported 3 times? or 10 times?

Just to get back on topic a bit.

I'm not sure if you will find a correlation between the number of times support or resistance is tested, you may but I think it will vary from stock to stock and set up to set up.

But what you might be able to find is some sort of indication that one side is nearing exhaustion. Alot of Wyckoff (and VSA) is based around identifying this exhaustion of either the buyers or sellers

 

[motorway]

Just to get back on topic a bit.

I'm not sure if you will find a correlation between the number of times support or resistance is tested, you may but I think it will vary from stock to stock and set up to set up.

But what you might be able to find is some sort of indication that one side is nearing exhaustion. Alot of Wyckoff (and VSA) is based around identifying this exhaustion of either the buyers or sellers

Price trajectory can tell YOU
Volume can Tell you

& Time ( the duration of the moves ) can tell you

The three together ?

eg PRICE

When a move of x% occurs , then on average
The price will continue to move another X% before it reverses

OK If it moves more or less
and you keep a running score through
the congestion area or trend area

You have a indication on which side is stronger in its activity

These are the upside/downside failures

Ok faster slower
more volume or less
etc

also position where is the activity in relation to pivots etc

The number of times
= the work required to exhaust one side



motorway

 

[Mr J]

I read about trading breakouts of both horizontal and angular resistance. Why??? An entry at support could be much more advantageous. If support is breached then vapourise. If a bounce off support follows through to a breakout of resistance you can sell to the breakout confirmers.

I completely agree. If the situation is good, I think waiting for 'proper' confirmation gives up too much profit potential and requires too large a stop for the boost in probability that it brings. By the time it is 'confirmed', the early entries are running nicely, even if it reverses soon. Those who waited need the trade to move that much more. I would rather get in early or wait for a retracement (which may never come), rather than entering at 'confirmation' and possibly getting an average to poor price.

Something else I like to consider is my behaviour relative to the market. As a trader, I feel I have to think of myself as a predator, and that I have to be in a favourable position relative to other traders. If I wait and act when they do (at 'confirmation'), all I am doing is running with the herd. I am exploiting the herd if I can time it correctly, but I am betting that I can handle the position better than they can. If I enter early, I am anticipating the reaction of the herd, and am a step ahead of them the entire time. If I enter very late (at a retracement), I am preying on the weaker of the herd (those that got stopped out or exited prematurely).

 

[Kryzz]

So the majority of people would prefer to buy at the first box rather than the second? I guess some would argue one would be sacrificing probability for R:R? Risk reward obviously more important though, whatever can be done to improve this is always a positive i guess, if that comes in the form of an earlier entry so be it.

 

[nomore4s]

So the majority of people would prefer to buy at the first box rather than the second? I guess some would argue one would be sacrificing probability for R:R? Risk reward obviously more important though, whatever can be done to improve this is always a positive i guess, if that comes in the form of an earlier entry so be it.

This is were you need to be careful imo. In hindsight the first entry is clearly the best but how many trading plans would have allowed for that entry not to be stopped out before the breakout at point 2? Trading off the hard right edge is a lot different to curve fitting ideal entries and exits in hindsight.

If you got in at the first box on your chart at say $15.50, price rallied to resistance at $17ish and then fell back to around $15.80. I guessing not too many traders would have held a declining stock for over a month as open profits evaporated. So even buying at point 1 you could very well have captured less of the trend then buying at point 2 - depending on your exit plans and re-entry plans etc, etc.

 

[Wysiwyg]

And how many stocks have rallied strongly since the Markets hindsight low in February/March?