(REQ) what is the differance & definicion for pivot levels & support resistance leve

[trduraikamaraj]

(REQ) what is the correct differance & definicion for pivot levels & support resistance levels ,many seniors and expertees are here in our forum , give your kindly explanation , Edited March 30, 2010 by trduraikamaraj
spelling mistake

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Hi trduraikamaraj,

 

The classic "floor trader's" pivots are calculated as follows:

 

R3 = (Pivot - S1) + R2

R2 = (Pivot - S1) + R1

R1 = 2*Pivot - LOW

Pivot = (HIGH + LOW + CLOSE ) / 3

S1 = 2*Pivot - LOW

S2 = Pivot - (R1 - S1)

S3 = Pivot - (R2 - S1)

 

I find that Fibonnaci based pivots are more accurate for Forex trading:

 

R3 = Pivot + 1.000 * (HIGH-LOW)

R2 = Pivot + 0.618 *(HIGH-LOW)

R1 = Pivot + 0.382 * (HIGH-LOW)

Pivot = (HIGH + LOW + CLOSE ) / 3

S1 = Pivot - 0.382 * (HIGH-LOW)

S2 = Pivot - 0.618 *(HIGH-LOW)

S3 = Pivot - 1.000 * (HIGH-LOW)

 

In addition to pivots, you need to be aware of price action S/R levels. These levels are formed where price has previously found it tricky to pass a certain level.

[trduraikamaraj]

Support and Resistance is the greatest invention

ever. Support and Resistance can make you

wealthy

 

need our experts decision about it.

[soundfx]

trduraikamaraj,

 

I agree with the last sentence of that statement, though S/R isn't an invention, it's a consequence of the actions of traders.

 

Natural (price action) support and resistance works because it's plain to see by every trader in the world looking at a chart of price.

 

Not everyone bothers to calculate pivots or has a pivot indicator. Though a substantial amount of traders do, as this used to be the classic way in the pits of setting boundaries in which price can be expected to move today based on yesterday's High, Low and Close and applies equally well to stocks, commodities or Forex trading.

 

There are a stack of different ways of creating potential S/R levels:

Normal pivots

Fibonacci range extensions

Psychological levels of price e.g. x.xx00, x.xx50 etc.

Fibonacci pivots (very similar to standard pivots)

etc.

 

However, the S/R levels which every trader can see and should be aware of are those which price has already shown to be there in the past (sometimes you need to move into the higher timeframes to see these).

 

Where price has hit a high in the past and struggled to get any higher - typically "knocking on the door" of the resistance level where each time it gets close to the resistance level it spikes and pulls right back again - these levels are clear to see and banks particularly like to place orders around these levels which guarantees their staying power in the future too.

 

If you were in a long trade and price was getting close to a 6 month high for example, wouldn't you be getting ready to take profits? So are all the other traders lol. Also there are traders waiting to see price fail at a resistance level and when it does, they pile on the Short trades ensuring that price descends rapidly.

 

Not being fully aware of S/R can leave you scratching your head after you've entered long in what seems like a never ending strong trend and price reverses immediately taking out your stop (and a load of other stops) all helping to fuel the downward momentum.

 

Exactly the same happens in reverse at support levels. Not all are strong and not all can hold, though you should be extra aware around these levels.

 

A breakout of a previous S/R level usually gives a nice easy profit with minimal drawdown and if you're in a short term trade getting close to an S/R level, then take your profits whilst you still can ;)