14 March 2018

The Emergence Of Forex Pair Support And Resistance

Consider a move which may enter three states, that is consolidation, cutting through or reverse. Viewing consolidation as consisting at the boundary of a container of cutting through and reverse, consider just two possibility cutting through and reverse. If a higher time frame is expressing a directional momentum, should that express itself on a lower time frame ? Thus will it cut through or reverse ?

It can be considered that the higher momentum may make the pair move in that direction within the container, but what happens when it hits the limits of the container, namely support or resistance. Here, the higher momentum, may in fact make the pair move in the opposite direction, as hitting support or resistance with some momentum does not necessarily result in cutting through, in fact it can just as easily result in a reverse.

Why this is the case, can be considered by looking at the directional arrow which is forced in the time frame by the higher time frame momentum. When it hits support or resistance, the momentum is absorbed by these barriers.

This then releases the arrow, which in Forex is not naturally attuned to one direction. Thus it will tend to change. This can result in a change such that consolidation results. But this is being considered as either a reverse or cutting though (simply because in leveraged trading, on some scales the immediate direction will matter).

So it may tend to actually reverse its direction. This can result in a reverse in the higher time frame. If this happens it can then build momentum in that direction, supported by a partly independant move in the lower time frame, as traders seek to ride a move away from support or resistance.

But what about cutting through. This does happen and can confound an expectation for a reversal. It may be that on lower time frames there has already been a number of attempts to breach this container. This in effect signals that it is possible to move through it. A reason to check lower time frames. This means that a fuzzy apparent consolidation pattern on a given time frame can be composed of a clear pattern on a lower time frame.

For high momentum events such as the move to a big figure, this may be evident on signficantly shorter time frames. The point is there tends to be a logical story in the complexity of Forex, which is evident from a reading of how patterns make for moves within and beyond containers of support and resistance.

An exception as usual is news trading where values can be cut through all the way down. But here any final respecting of support and resistance can be seen as a delayed expression of market logic. It is not washed away in liquidity, it is just expressed further away, as time has in effect been sped up. Oscillations in news trading at release can be seen as a high speed expression of typical market movements as directionality flips.

However what causes oscillations, may be related to the establishment of short term flash support and resistance in these market conditions. Even in markets where directional movement is occurring relatively freely, the establishment of support and resistance can make for radical alterations. But these support and resistances can perhaps in some sense be seen as creations of such conditions and can disappear, even if referenced to numerical levels (as they may tend to be). This points to why numerical levels have a persistence and regularity which seems general: they emerge from market conditions, they are not an imposition on them.