Identifying Support Resistance From Old Highs Lows - rsi pro forex trading system download

Identifying Support Resistance From Old Highs Lows ~ rsi pro forex trading system download

Old Highs & Lows can be used to represent a simple form of horizontal support and resistance based on action taking place in the background. Support can be simply defined as a level at which a down move was interrupted or reversed, at least temporarily; while resistance simply inverts that idea - an up move that was interrupted or reversed. When we are trading in the live markets, we often pay attention to the concepts of support and resistance such as pivots and trendlines which relate directly to the current trading environment. However, it is important to remember that the market has a memory, i.e. it pays attention to levels in the past where a reaction of some kind has occurred.

If you think about it, thats hardly surprising: if a downtrend is defined by lower lows and lower highs, then the break of a prior support level in the background would tend to confirm that the downtrend is still valid, whereas a failure to break that support would suggest at least a correction is underway, if not possibly an outright reversal.

In the following chart, we see an Old Low which represents a support level ending a pullback in an uptrend (marked by the long green arrow, left to right). After the top had been created and the market reversed into a downtrend, the first major pullback on the way down started on a bounce off of exactly that same support level, as indicated on the right side of the chart. Given the strength of the trend, however, that support level held for only a short while, and when price breached it to the downside, further confirmation was provided that a bearish trade is still valid.

In between those events, we also see an Old High from which price initially pulled back quite substantially (marked by the shorter red arrow). Another rally attempt came later, but ended exactly at that same Old High, which represents resistance. It is as if the market realized that if the level could not be breached further to the upside, then long positions were ready for liquidation. In traditional terms, this could be called a Double Top, while in Elliott Wave theory we could call this a Truncated 5th. Either way, the implication is the same - the end of an uptrend on an Old High serving as resistance.

One of the most important aspects when using Old Highs & Lows is that we need to look for them on all the time frames that we work with, from Monthly down to hourly and below. For instance, an Old Low from five years ago on a Monthly chart, will not be apparent on a Daily chart, which might leave you scratching your head as to why price bounced off that level if you missed it on the higher time frame. Therefore, we always look for these reference levels everywhere: another reason why top-down analysis is so crucially important.

Another useful aspect of Old Highs & Lows - like any other form of support/resistance - is that when they are breached, they usually (but not necessarily always) become their opposite, a reflection of the so-called polarity principle. This means that a support which is broken in a downtrend becomes resistance, while a resistance which is broken in an uptrend becomes support. This is useful for us to identify potential levels that mark the end of corrective pullbacks, i.e. the points at which we sell the rallies in a downtrend or buy the dips in an uptrend. Once a broken support is turned into resistance, price may come back to that level from the other side, test it, and if that test is successful (meaning price did not go back through again), it is free to continue on in the direction of the higher level trend.

In the chart below, we see three instances (each colour coded) of where, after the market headed into a downtrend, a specific level of support was encountered, price later breached that Old Low, and then later still came back up to test the broken support as resistance. In all three instances, the test was successful, which confirmed the trend and set up a potentially great opportunity to sell the rallies.

On this chart example, the lowest low on the far right (which did not even come close to marking the ultimate bottom) was at the 1.7566 mark. A short entry at resistance on Old Low #1 (price: 2.0282) was worth up to 2,716 pips. A short entry at resistance on Old Low #2 (price: 1.9811) was worth up to 2,245 pips. A short entry at resistance on Old Low #3 (price: 1.8614) was worth up to 1,048 pips. In total,  three opportunities for a scaled-in position trade worth more than 6,000 pips in a little over one calendar month!

Of course, application of this principle on lower timeframes will result in smaller sized opportunities, but you probably get the idea. Broken support followed by a retest of Old Lows as resistance can offer up great selling opportunities in a downtrend, just as broken resistance followed by a retest of Old Highs as support can offer up great buying opportunities in an uptrend.

Identifying Old Highs & Lows On Your Chart
So how do you apply this principle? First, you need to simply train your eyes to see Old Highs & Lows on your chart. Its an art rather than a science, but because there are so many places where price bounces around, it really comes down to filtering out the noise and looking for evidence that the market really did react significantly at the level in question. In other words, a sharp move in one direction, followed by a sharp reversal in the opposite direction (and/or a measurable price rejection wick), will serve as a valid Old High or Low.

This in turn implies that its most efficient to look for levels that will confirm the trend reading you think you see: if in a downtrend, you want to look for Old Lows to be broken as support, and tested successfully as resistance; if in an uptrend, you want to look for Old Highs to be broken as resistance, and tested successfully as support.


By now, you may be wondering whether Old Highs & Lows bear any special relationship to the concept of Swing Points. The short answer is: Yes, absolutely. In fact, they are often one and the same. If Swing Points tend to mark the start and end of wave structures, and these structures in turn are either impulsive (aligned with the higher degree of trend) or corrective, then Old Highs & Lows in the background where the market reacted sharply should also be denoted by Swing Points. If not on one higher level chart, then when drilling down lower - its absolutely guaranteed that on at least one timeframe the Old High or Low will be delineated by a Swing Point structure.

Whether as an analytical practice, or preparing your charts ahead of an actual trade, a simple yet effective way to capture Old Highs & Lows is illustrated below.

First circle them where you see them, then draw a horizontal line out from the candle wick marking the price extreme (the high or low) with an extension through the right-hand side of the chart. To make things obvious, you may wish to initially color code lows in green (for support), changing them to red later when they are broken and tested as resistance; and vice versa for highs (red initially, then green). As the market eventually moves further off these levels, they can simply be erased from the chart to avoid clutter.

More info for Identifying Support Resistance From Old Highs Lows ~ rsi pro forex trading system download:

Using Pivots as Secondary Support Resistance - forex trading pro system download

Using Pivots as Secondary Support Resistance ~ forex trading pro system download

Basically, there are three major forms of support and resistance which can be represented specifically by way of horizontal lines drawn from left to right, all of which serve the same basic functions. They include: Old Highs & Lows, Fibonacci retracements and extensions, and pivots.

While it may seem to be a minor technical detail, it may be worth knowing how pivots are actually calculated. Firstly, we input the High/Low/Close (HLC) numbers for the last completed trading session into the calculation of the Central Pivot (CP) value for the following session. Ideally, the calculation is automated, but such is not always the case. This is why it might be handy to know how to do the calculation yourself.

The formula for the Central Pivot is as follows:

Central Pivot (CP) = (High + Low + Close)/3

As you can see from the formula above, the Central Pivot is in effect a simple average of these three parameters of the prior trading range. While you might find some variation among analysts (and charting packages) as to what constitutes a standard pivot set, my approach provides for four Resistance (or R) pivots, and four Support (or S) pivots, each sequentially numbered outwards from the Central Pivot (CP).

These S and R pivots are calculated with reference to the Central Pivot, as follows:

In addition to these major intervals, we can also plot both half and quarter pivots. A convenient method for labelling these levels is to simply add to the respective R or S pivot name, a suffix for 25 corresponding to the first quarter pivot beyond the major interval (again, in the outwards direction from the Central Pivot), 50 for the half pivot (or M level) and 75 for the third quarter pivot. Therefore, as illustrated below, the third quarter pivot up between RI and R2, for example, would be labelled R175; the third quarter pivot down between S1 and S2 would be labelled S175, and so on. This scheme is then repeated through all the remaining whole pivot levels in the set. Once you take a moment to get used to it, this labelling system makes it spontaneously obvious exactly where you are in the spectrum of pivot values from S4 to R4.

The calculation for quarter-pivot levels is straightforward: the half-pivot labelled 150 simply splits the difference between the adjacent whole pivot levels (e.g. Rl and R2); the smaller quarter pivots labelled 125 and 175 split the difference again between the half and two adjacent whole pivots. While the market is less likely to make a major turn on a quarter than on a whole pivot, these levels can be useful and should be watched within a potential confluence of events.

So now that we have figured out how to calculate pivots for different degrees of trend, and plotted them on our charts, what do we do with them? With all three varieties of horizontal support and resistance mentioned above, what we are most interested in is finding a confluence of events suggesting that price should either:

• Provide an interim take profit opportunity prior to a retracement of some kind; or
• Conclude the retracement (either at resistance in the downtrend, or support in the uptrend) and continue in the direction of the higher level trend; or 
• Reverse outright at or near the horizontal line, changing higher level trend direction from down to up, or vice versa. 

In other words, we plot horizontal support and resistance lines on our charts to identify potential levels where price could possibly change direction.

Example 1

In this chart, which plots Daily pivots on a H1 chart, lets say we have a valid reason to go long following a Swing Point Low completing a pullback in the uptrend. The open price for this trade was 1.6628. We see that the trade might have carried through to the next Daily session, as indicated by a second set of pivots painting in to the right. While the Daily Rl pivot (the lowest red line on the right-hand side of the chart) provided a minor take-profit objective, the next higher resistance level at R2 did a better job, in real time underscored by a still bullish confluence of oscillator readings higher up.

Realistically, it would have been prudent to trim a few pips off that target for the sake of safety (i.e. not missing a fill on the exit limit), but putting that issue aside for a moment, we can see price ran up precisely to the R2 pivot, before hitting resistance and commencing a relatively steep retracement. From the open price to the close on this level at 1.6752, the run up was worth 124 pips as a day trade. Holding the trade open beyond that level would have resulted in a disappointing drawdown of 116 pips as price fell almost all the way back down to entry, which would have triggered a stop loss if previously trailed to breakeven. This serves as an excellent example of why booking profit on anticipated support or resistance levels can be a useful tactic.

Example 2

In the above chart, which plots Weekly pivots on a H4 chart over a span of 10 weeks, we see a total of seven instances where retracements in the downtrend ended - sometimes literally to the pip - on either a whole- or half-pivot level. (As denoted by the green arrows underneath price action on this chart, there were also a few instances when a retracement started on a bounce off a support pivot; however, trading with the trend, we would have more likely used these as take-profit targets rather than opportunities to go long against the trend).

If we were poised throughout this downtrend to sell the rallies, these pivot resistance events would have provided an important part of the confluence of events desired to execute a trade to the short side (and bear in mind, this is only one pivot set; it would be interesting to see what kinds of resistance events were  confirmed on the Daily and Monthly time frames as well).

With reference to the chart above, from the open of each candle following the confirmed pivot resistance, and carrying the trade open through to the lowest low on the right-hand side of the chart, this 10-week span offered the possibility of the following gross profit potential:

Example 3

Finally, in this chart, which plots Monthly pivots on the Daily chart over a period of roughly 13 months, we see from left to right that there had been a long uptrend covering a distance of at least 2,242 pips. The final leg of this larger move sub-divided perfectly into a smaller 5-wave impulse pattern, the fifth and final leg of which ended with a high degree of precision at the Monthly R3 pivot (solid red line). As is typical of major reversals, we can recognise a Swing Point High in the area of this resistance pivot, which was followed several weeks later by a so-called Death Cross of the Moving Average pair plotted in blue, which helped to confirm the new downtrend underway.

From this top reversal to the lowest low on the right-hand side of the chart, the resulting down move covered a distance of 1,469 pips. Whether viewed as an important take-profit target on the preceding long move, or a signal to position trade to the short side (or both), this high level pivot event correctly foretold a reversal of major importance.
More info for Using Pivots as Secondary Support Resistance ~ forex trading pro system download: