Exact Swing Points -Support & Resistance

■ By Adrian Jones

Learn a Swing Trading strategy that’s so easy even a beginner trader could be trading it in no time! In this article, you will learn how to determine where exactly the support and resistance points and the swing points are on a chart. This is a particularly important lesson! Just about every system or method of trading at least takes note of where the key support and resistance levels are. I’ll discuss a double use for this method of identifying these points.

Now, how do you know where support and resistance really is?

The problem with Support and Resistance (S&R) is that it is not a definite number. It is not an exact point on the chart at which price will, without any hesitation stop.

In fact, S&R is actually an area – it is not an exact number as we would all like to think.

The dilemma, of course, is that in order to do our calculations we need an exact point. You can’t enter $50.10/20 area when using Fibonacci or working out your stops and limits. You need an exact number even though S&R is not an exact number.

Try telling your broker that you want a stop loss at somewhere between 50 and 55 and watch him burst a blood vessel. This is what I want to concentrate on in this lesson. This is a technique I have found to be particularly good at not only identifying strong S&R points but also swing points. In order to find S&R, we must first identify market swing points. There are various ways of doing this but I am going to use the one I have used for years.

 

■ Swing Up

For the purpose of swing points, we are not interested in the open or close of the bars only the high and low. Take any bar and think of that bar as the start bar (S). If there are two consecutive higher highs than the bar you marked (S) then that is a swing up e.g. bar (1) has a higher high than the bar (S) and bar (2) has a higher high than the bar (1). If there are not two higher highs than the bar (S) then you move to the next bar and see if there are two consecutive higher highs.

This can be particularly useful if the market is trading sideways and you are trying to determine the breakout point. There may be many peaks and valleys but for me, there is only one real point – that is the most recent swing up or swing down. Look at the next diagram

You can see that although there were a few highs and lows that you could have taken as support or resistance, it wasn’t until bar (M) that a definite swing point had been identified and you could mark bar (K) with an (S).

 

■ Swing Down

To work out the swing down point – take any bar on a chart and think of that bar as your start point – bar (S). If the next two consecutive bars make lower lows than the previous bar then that is a swing down e.g. bar (1) has a lower low than the bar (S) and bar (2) has a lower low then bar (1). If there are not two consecutive lower lows then it is not a swing point and you move to the next bar.

Just as in the example above you can see exactly the same thing with the swing down. Even though price made a few highs and lows it wasn’t until bar (M) that you could mark bar (K) as the (S) point.

 

■ Support And Resistance

Only once we have clearly marker swing points can we go on to identify our support and resistance points.

As you can see from the chart I have marked all the swing up points and swing down points. When we are in a downtrend then the swing down points act as resistance and when we are in an uptrend the swing up points act as support.

Marking the support and resistance points using this method of first identifying the swing points will give you definite points on a chart from which to calculate your stops, limits and projections.

Support and resistance don't have to be confusing. We can mix and match any methods and create a healthy amount of price levels that we can trade. The above method worked for me and I encourage you to try it and see its amazing results.

To learn more on how to use support and resistance levels in your trading strategy to improve your trading results,

 

■ For TradingCenter.org Adrian Jones, CEO, Tradeology.com