Auto Support-Resistance - Tips and Tricks

Auto-
Support/Resistance –
Tips and Tricks
Himanshu Patil
email : hpatil@investarindia.com
twitter : himanshugpatil
Copyright © 2009-2015 Proseon Technologies
May not be reproduced without permission

Topics
 Auto-Support/Resistance – An introduction
 Auto-SR – Tips & Tricks
 Risk/Reward Ratio
 Auto-SR based scans

Importance of various tools
 Support, Resistance & Trendlines
 Technical Indicators
 Japanese Candlesticks
MORE IMPORTANT
LESS IMPORTANT

Support and Resistance
Resistance
Support
Price

Using Resistance & Support for
Buying
Resistance
Support
Break of Resistance Close to Support
At start of new uptrend In a sideways trend

Using Resistance & Support for
Selling
Support
Resistance
Break of Support Close to Resistance
At start of new downtrend In a sideways trend

Drawing Support/Resistance
(the manual way)
 Resistance
 Draw a line through as many highs as possible
without violating it (i.e. without a close above
resistance)
 Support
 Draw a line through as many lows as possible without
violating it (i.e. without a close below support)

Drawing Resistance

(the manual way)
 Resistance and Support change roles:
 Resistance when broken turns into Support
 Support when broken turns into Resistance
 Support/Resistance Analysis allows us to predict
the future levels based on past levels
 Drawing support/resistance:
 Draw a line through as many highs and lows as
possible with minimum violations

Determining the Strength of
Support/Resistance
 How many highs or lows does it touch?
– The more the touches, the stronger it is.
 Volume accompanied by break?
– The stronger the volume, stronger it is.
 How recent are the touches?
– The more recent the touches the stronger it is.
 How long is the support/resistance line?
– The longer it is, the stronger it is.
 How many violations does it have?
– The more the violations, the weaker it is.

Auto-Support/Resistance
(the automatic way)
 Use Artificial Intelligence to draw lines that
are touching the maximum number of
lows and highs
 Rate the lines based on:
– No of touches
– Recency
– Length

Auto-SR
 Top 20 %ile - Very Strong Support/Resistance
 Next 20 %ile - Strong Support/Resistance
 and so on…

Tips for using Auto-SR
 Keep the default settings – scans are done using
the default settings
 Make sure your chart duration has the number
of bars that you have selected in Tools-
>Options. E.g., if you have 240, then you should
have at least a one year duration.

Auto-SR options

Tips for using Auto-SR contd…
 SR lines are dynamic
 How to make them permanent?
– Right-click and select Auto-SR line
– Select “Make Permanent”

What timeframes to use?
 Long-Term Traders (Holding Period > 6 mos)
– Use Daily and Weekly charts.
 Short-Term Trader (few days < Holding Period < 3 wks)
– Use Daily and 1-hr charts
 Intra-Day Trader (Holding Period < 1 day)
– Use 1-hr and 15-min OR
– 30-min and 5-min OR
– 15-min and 3-min
Copyright © 2009 Proseon Inc. May not be
reproduced without permission

 Sometimes an SR line in higher timeframe
is also valid in lower timeframe
 Make it permanent in higher timeframe to
see it in any timeframe on same “Layer”
 If timeframes you use span DWM and
Intraday Layers, then create a new layer

 E.g. Swing Trader using Daily and 1-Hr
timeframes
 To propagate a level from Daily to 1-Hr or
vice versa
 Create a new Layer:
– Select Line and make it permanent
– Right Click on Line, and Change Properties
– Click on Create Layer
– Select Daily and 1-Hr timeframes

 How to deal with too many nearby lines?
– Maybe you are just in a sideways trend, stay
out if you are a trending trader
– Treat them as a Supply/Demand Zone?

Supply/Demand Zones
 Nearby Support/Resistance lines can be
clubbed together to create a
Support/Resistance zone.
 Using S/R zones instead of S/R lines can
improve accuracy

Using Support/Resistance Zones
 Setting targets:
– Long (i.e. Buy): Use the lower resistance line
in the resistance zone as a target
– Short (i.e. Short Sell): Use the upper support
line in a support zone as a target
 Buying/Selling on breakouts/breakdowns:
– Buy only if stock goes above upper resistance
in a resistance zone
– Short Sell only if the stock breaks down below
lower support in a support zone

Nifty with Auto-SR

Nifty with Auto-SR Zones

Risk/Reward Ratio
– Maximum Profit/Stop-Loss
 Risk: maximum loss you can have.
 Reward: maximum profit you can have.
 3:1 Risk/Reward ratio means:
– Reward is 3 times the Risk.
 High Risk/Reward minimizes your risk and
maximizes your profit.
 Widely used by professional traders

Risk/Reward Calculation
 Risk: maximum loss you can have.
– Usually the Stop-Loss
– Depends on type of trade because your
expectation of gain is different based on type
of trade
– Stop-Loss is set to keep Risk/Reward ratio > 3
Trader Type Ideal Gain Typical Stop-Loss
Long-Term > 50% 10%
Short-Term 15-25% 5%
Intraday 2-3% 0.5%

 Reward: maximum profit you can have.
– long trades (i.e. when you buy):
 Profit = (nearest resistance – close)
– short trades (i.e. when you short sell):
 Profit = (close – nearest support)
– Maximum Profit/Stop-Loss

Risk Reward Ratio

Interesting Composite Scans for
trending market
 High Volume Breakout (at start of an uptrend):
– Very Strong Resistance Breakouts
– Volume Gainers
– High Risk/Reward Ratio (Long)
 High Volume Breakdown (start of a downtrend):
– Very Strong Support Breakdowns
– Volume Gainers
– High Risk/Reward Ratio (Short)

High Volume Breakout - High RR

Auto-Support/Resistance Scans
 Crossing Support/Resistance
 Support/Resistance Breakouts
 High Risk/Reward Ratio (Risk/Reward ratio > 2)
 Near Support or Resistance (within 0.5% of
support or resistance)

sideways market (for non-
intraday)
 Buying with a High Risk/Reward Ratio
– Near Strong Support
– High Risk/Reward Ratio – Short Term

trending market
 High Volume Breakout (at start of an
uptrend):
– Strong Resistance Breakouts
– Volume Gainers
– High Risk/Reward Ratio (Long)

Composite Scans in fresh
Investar installation
 Potential Buys Intraday Breakout – High
RR
 Potential Buys Breakout
 Potential Sells Breakout

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Auto Support-Resistance - Tips and Tricks

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