Drawing Support and Resistance Lines

A step-by-step guide to drawing good SR lines.

Note : This is a simple SR discovery instruction - Detailed SR identification is available within the forum.

The Big Boss

First of all, open a Big Boss line chart and put horizontal lines where you think the levels are important (preferably tested a few times). This is how your chart should looks like after completing this exercise. Then switch to candlesticks and compare both with respect to the lines you draw. Did you all see 0.71 SR level where it was drawn originally from line chart due to 1996, 2005 and 2007 swings/tests but more importantly look at Feb 2004 shooting star where price reversed from 0.7099. Isn't that beautiful?

The Boss

We now have 9 major SR levels on the completed NZDUSD chart and we already drew 6 of them from Big Boss. Then all you have to do is to keep them on your chart and switch to Boss chart to draw additional major SR lines which may not be seen on Big Boss and to fine tune the ones already drawn from big Boss, if needed, based on Boss opens/closes and high/low of certain bars.

Attached are how both charts look like after switching to Boss chart. Everything looks OK except a fine tune may be needed at all time high and we also need to check 0.5650 SR due to 2008-2009 moves where we see too many violations (not respected). If it is so on Worker, too, then we may downgrade it.

And this is how both charts look like after adding SR lines from Boss chart and fine tuning the ones from Big Boss chart.

Note that also added were the 0.6450, 0.6700 and 0.7500 SRs which were not that obvious on Big Boss chart and fine tuned 0.8000 SR to 0.8150. Blue SRs are the additions.

Grading

After checking Worker with all SRs drawn, we start grading them. For NZDUSD, all are accepted as major SRs except 0.5650 where this SR was not respected in 2008 and 2009 as much as we would like, therefore it is downgraded by changing line thickness.

Attached is a zoomed-in view of that area for 2008-2009 for you to understand what is mean by “not respected”.

Use all-time high and low as major SR even though they are not tested too many times. In this case, all-time low and high tested several times.

Then one more thing to consider is if price moves into uncharted territory and remains there for a while. On NZDUSD, we can evaluate the area between 0.7500 - 0.8150 in this manner. Since they are newly formed, it is better to draw SR lines, if there are any, from Worker chart.

For NZDUSD, we have put an SR at 0.7750 and labelled it as Minor (medium grade) SR by drawing in a different colour.

The Final View

As a result of this exercise, this is the final view of our SR lines on Boss chart.

All you need to do is to trade these SR lines “BASED ON STRAT'S TEACHINGS”

Hope this exercise helps you improve your trading. Do not forget to keep your charts clean and trade major ones only in trend direction at this stage.



<< previous | next >>

 
path_of_learning/drawing_sr_lines.txt · Last modified: 2010/12/06 12:43 (external edit)
 
Contact Us | Site Map | Glossary | Testimonials | Partners Legal | Forex Disclaimer | Privacy | ©2008-2010 Strat's Forex Trading. All rights reserved