Support and resistance with touches [Paul Lenosky]How the indicator works, in a nutshell
in 3 steps
Touch detection
1. Touch detection
The indicator automatically identifies strong support and resistance levels that the price has touched multiple times. Only those levels that the price has touched at least several times appear on the chart. The minimum number of touches is selected in the indicator settings. For active trading, I use a minimum of 2 touches to display the level on the chart; for more passive trading, I use a minimum of 3 touches.
Touch detection area
2.Ā Touch detection area
The touch search areaās width is determined automatically through volatility analysis. This was the most difficult task. I needed to create my own volatility analysis since the existing implementations didnāt fit.
Sends an alert
3.Ā Sends an alert
As soon as a new support or resistance level is detected on the chart, the indicator will draw it on the chart and send a notification
Why it works
āø For decades, people have been taught to stop losses at the highs and lows of the price (depending on the direction of the trade). It was relevant 20 years ago; it works today and will work tomorrow. I can assume that you set stop losses in the same way.
āø The more often the price touches a level, the more participants appear who see this and enter a position in this place, at the same time putting a stop loss for the price minimum, as in the example.
āø When the price approaches the level again, it is broken by a large trader or many smaller ones. At this point, the stop losses of all those who placed them at the price minimum are activated en masse. When the price starts its strong movement, the rest of the stop losses, which were placed as far away as possible, are activated. This results in an avalanche of stop losses, and the price rushes into space.
How to trade on the indicator. One of the options.
in 3 steps
1. PlaceĀ anĀ order
As soon as the indicator has drawn a new level on the chart or you have received a notification about it, place aĀ Stop Market BuyĀ order on the exchange just above the price indicated inside the level (you can enable the display in the indicator settings).
In this example, the maximum price is 2.7704, so the Stop Market Buy order should be placed at 2.7705.
Stop loss should be placed at the minimum, which is also written inside the level.
2.Ā Waiting
Once the order is executed and you are notified, do not rush to close it too quickly; otherwise, you may earn much less than you could.
(The screenshot of the trade is not from TradingView, so the indicator is not shown here.)
3. Take a lot
Remember that the main thing in trading is mathematical expectation. In trading, it is not and cannot be true that all trades are profitable. That is the nature of the market.
Example: Letās say you received 10 stop losses in a row, which is an incredible amount. You lost 100 dollars in each of them. Minus $1,000. But the 11th trade, which you didnāt close immediately, brought you $6,000.
Bottom line: You made $5,000. To explain it as simply as possible, this is how it works. Thatās what mathematical expectation is in trading.
Remember that one good trade will offset the loss from even an incredible 10 bad trades.
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