I want to add a note about support and resistance when trading on a daily basis.
I was reading “the universal principles of successful trading” and Penfold is adamant to keep it simple, determine support and resistance. Unfortunately he does not assist in helping to determine that.
Lukeman helps a lot in “the market makers edge” by simplifying it (this is from chapter 15):
This may be basic but it is the basis for the market:
The market trades in a range for most of the time so there should be no fear in buying support and selling resistance. Trend days are not that common and the break is so fast that most of the time you wont be on it. There are the corny sayings “early bird catches the worm” and “2nd mouse gets the cheese”. There have been times that repeated entry at a setup are the only ways to profit.
More from the same book:
Following on from this is Stewart Taylors wyckoff analysis:
Looking at my composite I am starting to see how prior vpocs and closing prices are called in to provide support after price has gapped above them. (Closing prices are a lot more important than opening prices and are shown in orange). I am only looking at the are with the next high above current and the subsequent low.
These lines will be called in order of when they were last seen. Price may find support but like a plate of glass if it gets hammered enough it will break.
After the gap up it balanced around the 1272.5 vpoc and found further support at the nvpoc at 1270.
Next level on the way down were the 1267.75 vpoc and close from 11/08.
1263.5 from 12/05 and the low volume up day on 11/11 at 1161.5 (as mentioned previously it was veterans day).
The 1260 level has some more vpocs but after that it will have to rely on weak volume from thin trading in December.
The same logic holds for figuring out daily trade levels. I was trading mostly from the short side until support was reached when I tried some smaller long positions.
Here is the last week January gap shown in RTH time frame. Tuesdays VPOC provided resistance all week and after this the high volume node established in early trade that day capped the upside (high of day thursday, open swing high friday).
I was not afraid of the overnight high created during the NFP in a thin environment and took a stab short on the news spike. I did not overstay to the downside either. There was a distinct double bottom on the delta chart that warned me to cover.
Later on Friday I held my hypothesis from earlier in the week. As mentioned in another post, delta deteriorating, price going up on fumes. Another hypothesis I have (from the Williams VSA book) is that people tend to be invested rather than playing from the short side. As price goes up they cannot resist to buy more. As soon as people have started bailing and the price stalls other buyers begin to liquidate. It soon snowballs as greed turns to fear. (I read elsewhere that fear is far more of a motivator than greed). This is why price drops faster than it rises.
Following on from this a setup short appealed to me on Friday but I did not take it as I was done for the day and tired after a busy week. (Price rising on fumes, the corrolary to the snapback rally mentioned on marketdelta.com).
I thought of the downside and Thursdays overnight low of 1260.71 was due to Asian indices reacting to the drop in the Euro. In fundamental terms it means European imports are cheaper for them however their export market to Europe is put under pressure. This was all forgotten once the European indices opened again the Rally Monkey came back.