Support resistance trading strategies

Support/Resistance
Trading Strategies
Himanshu Patil
twitter : himanshugpatil
Copyright © 2009-2015 Proseon Technologies
May not be reproduced without permission

Support/Resistance Strategies
 Pivot Levels
 Fibonacci Retracements
 New Highs/Lows
 Gap Up/Down
 Support/Resistance (manually drawn)
 Support/Resistance (automatic)
 Support/Resistance Zones
 Using Risk/Reward Ratio in trading

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

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

Pivot Points (Day-traders only)
 Calculated based on OHLC Data.
 Tomorrow’s intraday levels based on
Today’s OHLC data
 Pivot Point (PP)
 3 Support Levels (S1, S2, S3)
 3 Resistance Levels (R1, R2, R3)
 Valid only for intraday
 Test them on past data before using them
Copyright © 2009 Proseon Inc. May not
be reproduced without permission

Fibonacci Retracements
 Horizontal lines dividing vertical distance
between 2 endpoints of a trendline by Fibonacci
ratios of 23.6%, 38.2%, 50%, 61.8% & 100%
 How do you create them?
– Use Fibonacci Retracements tool to draw a trendline
between two extreme points
 How do you use them?
– Fibonacci Levels indicate possible levels at which
prices may retrace.
– Use only when you see them successfully working on
some scrips in the past.

Fibonacci Retracements
H
H*38.2%
H*50%
H*61.8%
H*23.8%

Pivot Points & Fibonacci
Retracements
 Mathematically calculated
 Only rational is that they work because
other traders use them
 Success rate will not be consistent and
varies from scrip to scrip
 So, test them well before using on any
scrip

New Highs/Lows
 Previous High as a resistance
 Previous Low as a support
 Long-term trader:
 New 52-week Highs/Lows
 Short-term trader
 New 8-week Highs/Lows
 New 15-day/5-day Highs/Lows
 Intraday trader
 Above Previous Day’s High
 Below Previous Day’s Low

Gap Up/Down (intraday)
 Due to imbalances of Buying & Selling pressure
 Gap Up – Absence of sellers
 Gap Down – Absence of buyers
 Inside Gap
 Open above previous close (Gap Up)
 Open below previous close (Gap Down)
 More likely to fill during the day
 Outside Gap
 Open above previous high (Gap Up)
 Open below previous low (Gap Down)
 Creates a stronger intraday support/resistance

Gap Up/Down (intraday)

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

Drawing Resistance

Drawing Support

Drawing with Auto-RS

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

Determining the Strength of
Support/Resistance
 How many peaks or troughs 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.

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

Auto-RS levels

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.

Risk/Reward Ratio
 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%

Risk/Reward Calculation
 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)
 Risk/Reward Ratio
– Maximum Profit/Stop-Loss

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

Support/Resistance 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 on breakouts:
– 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

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

Interesting Composite Scans for
sideways market
 Buy in Sideways trend
– Ensure it is sideways trend
– Near Strong Support
– High Risk/Reward Ratio (Long)
 Sell in Sideways trend
– Ensure it is sideways trend
– Near Strong Resistance
– High Risk/Reward Ratio (Short)

How can I get this feature?
 Risk/Reward ratio will be released in
Investar Beta soon
 Investar Beta can run simultaneously
with Investar 5.1

Feedback
 We need your feedback (it is still not late)!
 Within the next 2 weeks, we will end the
Auto-SR Beta and release it as Auto-SR
addon in the next release of Investar
 Top 3 feedbacks/suggestions will get the
Auto-SR addon for free for the remaining
part of their subscriptions!

Liked Auto-SR?
 Follow us on twitter:
@himanshugpatil
@investarindia
 Tweet with hashtag #AutoSR

THANK YOU
Thank You for Attending!

Support resistance trading strategies

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