17 August 2023

Resisting And Supporting Order

Does support and resistance and other 'weighty' patterns offer a kind of order in Forex moves. Support and resistance is past support and resistance and in effect provides containers for different types of moves. When reading a chart, these containers are viewed in different ways, including by looking at them on multiple time frames.

The idea of multiple time frame analysis is to offer a sense of more persistent support and resistance, as well as the origin of these levels. Multiple time frame analysis also has the effect of creating 'reinforced' containers, i.e. defining the top and bottom. Which is to say that detail on one level may appear more significant across multiple levels.

What happens at resistance or support is unpredictable. For example, a Forex pair may cut through only to fall back, or it may take a number of more horizontally inclined moves, themselves focused around the big figure (if this is the locus of the resistance or support). It can be noted that the early numbers above the big figure (to use a resistance example) provide both targets and atttaction back down. In fact above 20 can be seen as a limiter and a marker sometimes, requiring a deep retrace perhaps below the big figure to reinforce a renewed move in that direction.

While these moves are unpredictable, in terms of how far the pair can move and its direction, they do at least impose pattern order on the pair. That is, when viewed after the event, it can be seen that relatively clear patterns have been formed. In fact, this kind of movement can provide a basis for a more sustained move in a given direction once the resistance is established as support.

It can be seen that the movement around resistance helps also to establish support, which when this happens frees the pair to create further patterns. These patterns may be more directional. Traders want directionality, but even directionality becomes muted and reversed as different traders have different perspectives. However, it can be said that the logic of support and resistance as interpreted by traders is that less directionality may be expected and values between may allow for directionality, even if complex.

Forex support and resistance may be viewed from different perspectives such as value levels and trends

This said, multiple time frame analysis itself may add layers of resistance, as can indicators and charting analysis. However these may be more like levels which produce complexity rather than reversing a move. An example would be a indicator which produces a bounce off it (such as a popular moving average), but only a bounce. This said there are traders and programs for whom this is significant, adding further complexity. And as always a bounce can become something else.

Another pattern with weight on it is a trend end, when it happens, instead of being teased via retracements. This can be seen as a disordering, from the perspective of the trader, but a re-ordering perhaps from the perspective of the logic of the market. However this end may emerge from a resistance or support layer (both of which can produce bounces).

It might be said that the part between the trend end and beginning, when it happens, is more susceptible to being overwritten by the market, as traders exiting positions and fading the move make this more likely. However there is a kind of certainty as a trend end appears (even though it may not be such) which gives them an appearance of determinism in the sense of direction being altered. Trend beginnings do not necessarily have this 'I knew it' feeling, they are prone to different outcomes, but once apparent they can have a certain weight of determinism to them. All this said, a key perspective in trading is to believe in the trend middle, while watching for signs of the end.