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In a recent article I noted that I felt that the important indicator on my chart wasn’t an oscillator, or indicator or a set of moving averages. I like trading indicators that help me understand e-mini trading in real time. I can think of no better real time trading experience than watching price action move toward a known area of support/resistance (SAR) and evaluating what the possible outcomes may be when price collides with support lines or resistance lines. To be sure, there are several; possible outcomes when price and SAR meet: 1. The price movement may hit SAR and reverse course. We will talk about why this may happen later. 2. The price movement may hit SAR and continue upward or downward, depending on whether we are describing support or resistance. 3. Finally, the price movement may pause for a short period of time, and move through or reverse course at the SAR lines. As an e-mini trader, your ability to decipher SAR related variables like the strength of price rejection, breach probability, or SAR strength will have a profound effect upon your profitability, or lack of profitability. How price movement behaves around support and resistance and your ability to translate that price behavior into a consistently positive outcome is one of the universal skills successful traders possess. I have never encountered a consistently profitable trader who wasn’t adept at decision making around support and resistance. It is that important. Let’s take a moment and define support and resistance, as I consistently hear the terms used interchangeably, which is incorrect. • Resistance: Resistance is a zone where overwhelming selling pressure creates the potential for rising price levels to stop, reverse, or stall. • Support: Support is a zone where overwhelming buying pressure creates the potential for falling price levels to stop, reverse, or stall. As you may have surmised, resistance relates only to rising e-mini prices and support relates to falling e-mini prices. In short, the terms are not interchangeable and it is important to have the ability to articulate when resistance is being pressured or when support is being pressured. What variables tend to affect the outcome of the intersection of price movement and SAR? • The number of times an area of SAR has forced price action to stall or reverse direction is a powerful indication of its significance. If price continually is rejected at a given SAR level it is considered a powerful line. Of course, when the SAR line is finally breached, traders who have been trading a bounce off that line are forced to abandon their trades at a loss. On the other hand, most wise traders would not trade directly into a line that has consistently rejected price action. • A resistance line that is significantly breached will then become a line of support. I think this is where individuals get confused and use the terms interchangeably. A resistance line that has been breached becomes a support line should prices, at some point, change direction and approach the same zone from the opposite direction • The number of times e-mini positions change line at a given SAR line, the more relevant the line becomes in traders thinking. Individuals are loath to take a loss and far more inclined to hold a security until they break even. I can’t tell you how many times I have watched traders get within one tick of breakeven and are too stubborn to accept a 1 tick loss; then watch the price move against them until they are forced to exit their trades or stopped out. These are only a few of the variables that can affect the significance of a SAR line. With these principles in mind, it is possible to develop profitable strategies for trading around known SAR zones, which will be the topic of several future articles. In summary, I have stated that support and resistance zones are primary tools in my trading technique and the one set of indicators I could not do without. We have defined SAR in terms of supply and demand and listed some common variables that indicate the significance of a given SAR zone. Real Live Trading Doesn't Lie. Spend 3 days with me, along time institutional investor, in my trading room, and see if you are one of the many that can profit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.
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e-mini trading, support, resistance, support and resistance,
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