Support & Resistance Trading within the Channels

130 West 42nd Street, New York, New York, 10036 * Tel: 866-59-VELEZ * Fax: 646-417-6537
Accolades for Todd Hanson Ph.D.
 Trading within
Support and
R i t
Resistance Ch
Channels
l
Support and Resistance
pp
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels

When prices hit the bottom trend line

(Support
Support)) this may be used as a buying area.
When prices hit the upper trend line
(Resistance
Resistance)) this may be used as a selling
area.
Support and Resistance
pp
Trading within the Support & Resistance Channels

When the currencyy shifts between 2 p parallel

trend lines (Support
(Support and Resistance)
Resistance) the
channel is created. The first thing to do in
creating a channel to depict the primary
trendline, above the highs for a downward
trend or below the bottoms for an up
up--trend.
trend
Connecting at least 2 subsequent highs
draws a downward straight line. It can be
used to demonstrate profit opportunities
received during a trend.
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels

A channel is effectively working in two trend lines

(Support
pp and Resistance)
Resistance) which are depicted
p p
parallel
to each other, the lower line acting as the support,
and the higher line as the resistance. It can be
upward downward or sideways
upward, sideways, as other trends
channel. In an up-
up-channel the support line is the most
essential trendline, in a
a--down channel the resistance
li iis th
line the mostt essential.
ti l

Penetration of the bottom trendline (Support)

Support
pp ) shows
a falling currency and a potential trend reversal.
Penetration of the upper channel trendline
(Resistance
Resistance)) demonstrates the currency appreciation.
appreciation
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels
Trading within the Support & Resistance Channels

Range, or the horizontal channel is characterized by absence of a

Range,
strongly pronounced uptrend or downtrend trend of an exchange rate rate.
As the range channel prices fluctuate in a range of the average value.
 Price Support Types
1) Prior
P i High
Hi h Support
S t – This
Thi fform off supportt occurs when
h a currentt
low (dip) revisits or retests a prior high/peak. Often, this support point
coincides with the 55% retracement level.
Prior High
Prior High

Low Retests Prior High
g

2) Prior Low Support – This form of support occurs when a current

low (dip) revisits or retests a prior low. In essence, this is a 100%
retracement of the prior rally.
rally

Low Retests Prior Low(s)

Buy Rule #1: Any trades or Grey Box Signals that occur at or near these support
points have very high odds of success
 MA Support Types
3) Trending Moving Average Support – This form of support occurs
when an up trending pair pulls back to or near the rising 48ma or
14ma and stabilizes. Often, this support point becomes stronger after
the first successful rebound off the 48ma.

48ma
48ma Retests
4) Flat Moving Average Support – This form of support usually
occurs when there is a flat 14ma beneath the price. It is not often that
a pair falling back to a flat 14ma fails to at least stall for a period of
time. The first move to a flat 14ma will usually result in some form of
rebound, if only temporarily.

Flattish 14ma

Flat 14ma Support
B R
Buy Rule
l #2
#2: Any
A trades
t d or Grey
G Box
B Signals
Si l th
thatt occur att or near these
th MA supportt
points have very high odds of success
 Price Resistance Types
1) Trending Price Resistance – This form of resistance occurs when
a current high (rally) revisits or retests a prior low/dip. Often, this
resistance point coincides with the 55% retracement level.
Hi h R t t P i L
High Retests Prior Low

Prior Low

2) Prior High Resistance – This form of support occurs when a

current high (rally) revisits or retests a prior high. In essence, this is a
100% retracement of the prior decline.
decline

High Retests Prior High(s)

Short Rule #1: Any trades or Grey Box Signals that occur at or near these
resistance points have very high odds of success
 MA Resistance Types
3) Trending Moving Average Resistance – This form of resistance
occurs when a down trending pair rallies back to or near the declining
48ma or 14ma and stabilizes. Often, this resistance point becomes
stronger
t after
ft the
th first
fi t successful
f l decline
d li offff the
th 48ma.
48
48ma Retests
48ma

4) Flat Moving Average Resistance – This form of resistance usually

occurs when there is a flat 14ma above the price. A pair that rises to a
flat 14ma will rarely fail to experience some form of resistance. The
first move to a flat 14ma will usually result in some form of price lapse,
if only temporarily. Flat 14ma Resistance

Short Rule #2: Any trades or Grey Box Signals that occur at or near these MA
resistance points have very high odds of success.
 Correlation in the Forex
Market
Statistically speaking, correlation is the measured relationship between two units
over a series
i off time.
i C
Correlation
l i iis measured d on a range off -1 ((perfect
f negative
i
correlation) to 1 (perfect positive correlation). A positive correlation implies that
the two units move in similar directions, the higher the correlation the closer and
more accurately these moves are. Conversely, a negative correlation represents
opposite
it movements t with
ith a smaller
ll ((more negative)
ti ) number
b representingti a
stronger relationship between the opposite movements.
 Range Trading

– Floor traders use pivot points to determine critical

price and support/resistance levels. Notice the
stops and orders are usually at 80 or 20 cents of
the whole number

– 80% of the market trades in ranges

g

– We see it work in a multitude of markets

• Equities
• Futures
• FOREX
 Remember
• You have to think it before you can act it.
– Trade Your Plan

• Keep your emotions balanced! Balance is the key.

• Find the rhythm of the market

• Times when
hen NOT to trade
 FULCRUMS

– What is a fulcrum?
• the support about which a lever turns
• Statistically to be points of inflexion
• To fine tune our trading plan—
plan—in volatile, liquid
instruments we add the Fulcrum grid:
– 00 the figure fulcrum
– 20 cents over the big figure
– 50 half the figure fulcrum
– 80 cents over the figure
The Art of Placing Stops

3 Keyy Points to consider:

• Let the charts dictate where to place

stops
t and
d profit
fit targets
t t
• Ensure each trade has a superior
Risk/Reward ratio
• Consider the charts’ time frame
• Tailor Stops and Targets accordingly
based on the market movement.
 The Art of Placing Stops
Let the charts dictate where to place stops

• Protective stops should be placed below Support (in

long trades), and above Resistance (in short trades)

• Support and Resistance levels should be drawn by

connecting at least two significant low and high
prices

• In trending market conditions, we should make every

attempt to only trade in the same direction as the
trend