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RSI Indicator Buy and Sell Signals for Optimal Profits, Part 3

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RSI Indicator Buy and Sell Signals
RSI Indicator Buy and Sell Signals

This video on RSI Indicator Buy and Sell Signals will contradict some of the classic teachings. RSI is commonly referred to as a momentum indicator … but it really ISN’T! This video is part 3 of a 3 part series on the RSI indicator strategy.

The links for part 1 and part 2 of this series of videos on RSI indicator buy and sell signals are below, but watch this video first.

What most teachers, books and courses instruct about RSI indicator buy and sell signals, 180 degrees wrong!

Enjoy the video and please leave your comments below (even if they’re negative!).

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VIDEO TEXT:

Welcome to part 3 of this series. This is going to be the final installation of this series on RSI Indicator Trading Strategy. In the first 2, we covered some good ground and today I promised that I am going to show you, how to really make the RSI Indicator a momentum indicator because even though it’s called a momentum indicator, it’s really not.

The reason that RSI isn’t a momentum indicator just for review, is because momentum requires mass. Momentum is the product of mass and velocity. RSI only measures velocity or rate of change. But it does not include mass, or as we refer to in the markets, volume. That’s why I say, controversially, it’s not a momentum indicator.

WHY THE RSI ISN’T A TRUE MOMENTUM INDICATOR

So here’s the RSI, it’s the blue line. Now below it, I have put a different indicator, MFI. That stands for Money Flow Index. Now the Money Flow Index is also an oscillator that goes between 0 and 100. Some people refer to it as a volume weighted RSI because it does incorporate volume into the RSI indicator.

You’ll notice that actually it’s very similar. It moves in very similar ways but there are sometimes when it is quite different and those are the key times. For example, let’s take a look right here. We put in a high on the market, by the way this is my rubber band trade. If you want my rubber band trade, I do offer that trade setup for free. And little more than I can go into right now, but I’ve got a video that shows you how to trade that setup in about 26 short minutes. So feel free to go ahead and click on the box in top left corner there, and I’ll get that to you.

Notice how, in this situation here, the RSI is still going up. But the MFI is trending down. That means that there’s a lack of volume pushing this up, so velocity is up, but actually momentum, when you incorporate the volume aspect of that, which is down, and therefore in my opinion, the MFI gives us so much better signal here, saying this is moving up on weakness, and therefore we can expect a high and come back in the direction of the trend.

HOW TO DETERMINE IF THE STOCK MARKET (OR FUTURES OR FOREX) IS RETRACING OR REVERSING

So to me, this gives us a better signal, I say that, ‘Oh, okay. We are doing a retrace here,’ but that move up is on weakness, therefore I don’t expect the trend to reverse and go up. Actually I think that’s just a complex retrace up in and overall downtrend which is exactly what it was. So by incorporating volume, you see the weakness in the up move, whereas just with the RSI, without the volume incorporated into the formula, you don’t see that. You’re blind to that.

Now to support that, in the last 2 videos, I wanted to say that even with the MFI, as I said with the RSI, just reaching these so-called overbought or oversold areas, typically 70 and 30, does not mean you are putting in a high and should go short, it’s not really over bought here. Therefore the market continues to go, making higher high. Well guess what, the same thing applies with the MFI. So here it gets well over. In fact it gets even a little more above 70 than the RSI does. And then the market still continues to go up.

RSI INDICATOR BUY AND SELL SIGNALS WORK BEST IN THE DIRECTION OF THE TREND

I would only trade it in the direction of the trend, not looking for reversals. I’ll look for trend reversals. Lot of people actually do say that the MFI is better than the RSI indicator buy and sell signals, looking for trend reversals. And they’ll add some other qualifications in there as well which is good. Sometimes they look for divergences. Things like that. Personally, historically, I have not seen that to be very accurate, so I only use it to trade it in the direction of the trend.

Now here is an exception to that rule. It’s not really an exception to the rule, it actually supports the rule I just said. But it combines the two, which is very interesting. So here we have a situation where we do get the indicator being oversold. Reaches 30, that’s the magenta dashed line there of course. So but here’s the thing, we’re in an uptrend.

WHEN OVERBOUGHT AND OVERSOLD EXTREMES DO MATTER

So the one time that I would look for these extremes, these overbought, oversold conditions in order to take a trade is only if we are oversold in an uptrend, or conversely if we are overbought in a downtrend. So still, I am looking for a trend continuation though, that’s the key.

I’ll give you one last little tip here and again it’s still for trend continuations. Another signal you can use to get back in the direction of the trend.

USING TREND LINES WITH RSI INDICATOR STRATEGIES

Here we have an uptrend that’s and you can draw trend lines on this thing. And if you draw trend lines on it works a little better than with the RSI indicator buy and sell signals. Its forming a different pattern here. If you draw a trend line there and you wait for the breakout of the trend line that often indicates a shift of momentum. In other words we want to be trading a strong trend, not a weak trend. So we want strength to come back into this trend.

There are couple ways you can just do it on the break of the trend line if you want to. Or some people will draw a line above these highs. Wait for the price action to actually breakout above there. But only if it’s accompanied with the break of the trend line.

You can draw a trend line there and wait for the breakout here. Now if you wait for breakout, I wouldn’t wait for it to breakout of that high. I would say, well put it in here, but then at the same time you want to make sure, again trend continuation on strengths.

If you drew it on the RSI here, it didn’t really quite work out quite as well. Would have come in at this low, and I guess you’ll be okay. But again it’s just a matter of the MFI incorporating volume, making it more literally and accurately, a momentum indicator. So test it for yourself. Don’t take my word for it. Put it on your charts. Paper trade it or trade it on a demo account for a while. See if you like it. And if you do, great. And if you don’t, that’s alright. There’s plenty of other great indicators out there.

FREE GIFT!

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information you’d like about the RSI indicator buy and sell signals or other topics you’d like me to teach in the future.

Also I am giving away one of my favorite trend trading strategies that works today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For part 1 of the RSI Indicator Buy and Sell Signals video simply click here: http://www.topdogtrading.com/unusual-rsi-indicator-trading-strategy-rarely-taught/

For part 2 of the RSI Indicator Buy and Sell Signals video simply click here:
http://www.topdogtrading.com/rsi-indicator-strategy-part-2/

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RSI indicator strategy, Part 2

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RSI indicator strategy
RSI indicator strategy

This RSI Indicator Strategy video may be considered heretical. But it hey, if it makes money, then that’s what really matters. Try it out and prove it to yourself. This video is part 2 of a 3 part series on the RSI indicator strategy. Click Here for part 1.

What most teachers, books and courses instruct about how to trade the RSI indicator, is exactly the opposite of what you should be doing.

This is part 1 of 3 videos demonstrating how to correctly trade the RSI.

Enjoy the video and please leave your comments below (even if they’re negative!).

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.


VIDEO TEXT:

There will be 3 parts of this video, so look for part 3 of the RSI indicator strategy that will pick up where this one left off.

Welcome to this video on the RSI Indicator Strategy Part 2. If you didn’t see part 1, well go ahead and watch this video now you’re here, then go back and watch part 1.

We’re going to share a couple of extra things. You notice that my RSI Indicator looks a little different now. And let me point out to you what we’ve got.

SETTING UP THE RSI INDICATOR

The blue line here, that’s the RSI Indicator. And as I talked about before, its range bound. It can only go from 0 to 100. And so I put some extra lines on here. There is your mid line that’s 50. These are considered what we call the oversold line at 30, overbought line at 70 which I said are not good terms. And that’s what we talk about in part 1, so go and read that, or listen to that.

The other line to put on here are at 60 and at 40. These are very significant. So this is a different way to read RSI indicator strategy. Many people just look for these overbought, oversold signals and are doing them backwards. Whereas actually going up here shows strength. Once we start getting into the bullish territory, which would we above 50, then we are looking at a relative strength. Now remember that’s what this is, RSI. Relative Strength.

Once we get above there, and especially if we got to 30. But we are into bullish territory now where we get above 60. So not going to make it go all the way to 70 but above 60. So once we get above 60, then we are going to look at 40 as a support level. And as long as we can stay above 40 in a bullish trend, we’re going to consider that bullish momentum or strength. A strong trend. And again the RSI is a blue line. It’s a very choppy line, its one thing I don’t care about.

THEY’RE TEACHING THE RSI INDICATOR STRATEGY 180 DEGREES WRONG!

We don’t want it to be all the way down to 30 because otherwise that actually indicates strength to the downside, contrary to what most people think that it’s oversold. No. that would actually be strong bearish signal. But we do want it to stay above 40. And if it stays above 50, well even better. And so this whole time, you can see big move up and the RSI does stay above 40 and even mostly above 50. So that is another better way to read this.

Trading it in the direction of the trend is one of the keys. One of the biggest mistakes people do is they try to always use these oscillators. Especially these bounded oscillators to trade against the trend and that’s just disastrous. you use momentum or strength indicators to indicate the strength of trading with the trend, not for a reversal trade.

Here’s a situation where the RSI basically is just staying between our 40 and 60 line. And so it’s hovering around 50. And what happens during that, consider that our neutral zone. It’s not showing strength to the upside, or the downside. We want to show strength to the upside or the downside first. And as long as we are in that neutral zone, the market doesn’t really go anywhere.

Because there’s no strength or rate of change, great rate of change going to the upside or the low side. That whole area, as long as we get stuck in there, not just retracing to it, but when we get stuck in there, then I consider that just a neutral zone and that’s one way to help avoid getting into choppy markets. That’s a question I get often as, ‘Barry how to stay out of choppy markets?’ Well that’s one technique you can use right there.

MAKING RSI INDICATOR SIGNALS MORE CLEAR

Now in this shot, what I’ve done is I’ve added a moving average to the RSI indicator strategy. So this is a 9 period moving average, the black line of the RSI Indicator. So all that does is smooth it out a little bit, and because it is a moving average, it will be a little lagging. But it doesn’t create all of these jagged lines. That’s option if you want it or not. You don’t have to use that. But again, you’ll see the signals watching those different horizontal lines as to where it is.

Now one of the keys here is that you can actually use momentum, define the end of the move if you time it correctly. And it doesn’t work 100% of the time, well nothing does. But the only time that I would look for a trend reversal is late in a trend. I’m not going to look for it early in the trend.

So we have waves 1, wave 3 or 5 and so. It wouldn’t be until wave 5 that I would actually look for some kind of a divergence like we get here on the RSI indicator strategy with that. So early on trend? No. because here’s what you have to understand. Even though well, for example here we get a divergence. Don’t we? Right there. Higher high there, lower high here on the RSI.

BAD INDICATOR DIVERGENCE SIGNALS

So what happens is that yes there is a slowing of momentum if you will. But that does not necessarily mean it’s a reversal of momentum. Just because momentum comes out of the market. Okay, so we don’t get as big as swings, and what happens is, yeah the market does go sideways for a little while. But that’s all that means. And then it continues up.

So timing, and being able to, this is why wave counting comes in. so effectively is to know how far/long you are in that trend, the trend is your friend until the end. So the trend is your friend, your best friend early in a new trend. And earlier the better. That’s when I want to enter a trend, is at the very beginning of when it’s identified. Now I don’t want to get in late to a trend, in fact that’s the only time I actually would look for reversals. So that time of momentum shift is more likely to result in a reversal of a trend.

Now here is an example where we do get a 5 wave trend which is average. 1, 2, 3, 4, 5. We do not get a divergence on RSI indicator. So you get maybe look at, it’s not even really a divergence there. Because price is coming down at that same time. We had a5 wave but no real divergence so trends do not always end with momentum shifts. Sometimes they end with actually one of the best signals that I like to look for the end of a trend is the high volume spike.

THE CONFLUENCE OF EVIDENCE FOR TRADING STOCKS, FOREX AND FUTURES

You can’t trade any indicators. So RSI, stochastics, MACD, CCI, whatever you’re trading, none of them can be traded alone. Each one of them is a tool, and that’s it. That’s all they are. So use it as one piece of evidence, one tool in your toolbox. These are called indicators, they are not called moneymakers, and there’s a reason for that because they don’t make us any money.  They are just simply, there’s nothing magical about indicators. They are just mathematical formulas. That’s all they are.

So they are never wrong in the sense that you plug numbers in one side and they bring out the value of the other side, and that’s always correct. But then you have to take that information, plug it into a viable trading methodology in order to make money. And then trade it effectively with discipline, and with money management and risk management, which is utterly important. So those are the keys. Now I’m going to leave you with one last piece of controversy, and that is this.

THE RSI SCANDAL

RSI is not a true momentum indicator, in fact the indicator is commonly referred to as momentum indicator often seen as leading indicators, CCI, momentum, RSI here, stochastics, MACD. Those are commonly called momentum indicators but really they’re not. They are velocity or rate of change indicators, and the reason for that is that they are just measuring the rate of change of price. But momentum is actually the product of mass times velocity. These indicators are just velocity indicators.

So in the markets, in order to incorporate mass into it, we would have to use volume as well. And these indicators do not consider volume, therefore they do not consider mass. Therefore they are not literally momentum indicators. So there you go, another piece of controversy for you from Top Dog Trading.

Anyway, in our next video, in part 3, we’ll look at that, and we’ll look at how to solve that problem and create a true momentum indicator based around the RSI indicator strategy.

FREE GIFT!

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information you’d like about the RSI Indicator Trading Strategy or other topics you’d like me to teach in the future.

Also I am giving away one of my favorite trend trading strategies that works today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For part 1 of the RSI indicator strategy video simply click here: http://www.topdogtrading.com/unusual-rsi-indicator-trading-strategy-rarely-taught/

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Unorthodox RSI Indicator Trading Strategy Rarely Taught

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RSI Indicator Trading Strategy
Unorthodox RSI Indicator Trading Strategy

This unorthodox RSI Indicator Trading Strategy actually contradicts traditional teaching. But it works!

What most teachers, books and courses instruct about how to trade the RSI indicator, is exactly the opposite of what you should be doing.

This is part 1 of 3 videos demonstrating how to correctly trade the RSI.

Enjoy the video and please leave your comments below (even if they’re negative!).

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.


VIDEO TEXT:

Hey my friends, Barry Burns here with Top Dog Trading. Today I am going to show you an RSI Indicator Trading Strategy. I’m going to show you what not to do first, and this is the reason that lot of you are losing money. Let’s stop that right now and show you why it doesn’t work or lot of what you’ve been taught is bull.

Let’s plug the hole here of the money flow out of your accounts and then lets show you how to put it in. so this is the topic for today.

THIS RSI INDICATOR TRADING STRATEGY WORKS FOR OTHER INDICATORS TOO

This approach also applies to any, what we call bounded indicators. Whether they are stochastics, or others. They talk about the indicator getting oversold or overbought. Normally they’ll put the levels at 30 and 70 for overbought and oversold. Now, oversold being 30 of course. Let’s look at oversold first.

I hate that term oversold. It’s used by technicians all the time. So, I know that’s the classic term. When traders hear that term oversold, it implants in their mind an expectation that the market can’t go down any further. That’s the problem with using that term. If it’s “oversold,” it sounds like well then the market can’t go down anymore and it has to go up.

OVERBOUGHT AND OVERSOLD ARE FALSE CONCEPTS

Here’s the problem with that. Any bounded indicator like RSI or stochastic can only go from 0 to 100. Other bounded indicators have other perimeters but the problem therefore is once it gets down to zero or even not, for it to get down to 0, it’s got to be an extremely bearish move. Once it gets down even to that zone or that area, it’s very unlikely that it’s going to go any further. And if it goes to 0, then mathematically it can’t go any further. But the market still can go lower.

The signal is exactly the OPPOSITE of how you may have been taught. No, that’s a bearish signal because that’s showing the strength to the downside.

WHAT ABOUT RSI INDICATOR DIVERGENCES?

Now as you can see here, comes here for price and then price ends up making a lower low after that. So then there’s some people who will say, ‘Oh well yes that’s true.’ So what you want to do is wait for a divergence. So we wait for the higher low on the RSI and wait for that. Sometimes though you would say wait for the higher low to be above 30. And you get a lower low in price and you take that. Again not a great signal. Why not?

It does show a shift of momentum, that’s true. But the problem is that it’s a short term signal. And momentum is kind of a tricky thing, just because momentum is where the signal of momentum is going up, doesn’t mean that’s a real strong bullish. It just means the bearishness has come out.

ONLY TRADE IN THE DOMINANT DIRECTION OF THE MARKET

In this case, the market does go up a little bit, goes back up to 50 MA which is the red line. But that’s not really a major big trade. What happens after that is the market comes down and makes a much lower low. And again RSI gets supposedly oversold. So the point is this, what you’d rather do, so I will get into little bit of what you want to do, you want to do the exact opposite of that. You don’t want to be just buying oversold signals all the time. You want to take those as bearish, and trade in the dominant energy, or the dominant direction of the market.

Why? Because that’s where your big reward is. If you got in somewhere up here, and you got out somewhere down here, you’re making big money. Little risk, big reward. That’s where the big money is, that’s where the odds are too, that’s where better win loss ratio is and that’s where your better risk reward ratio is. If you took this that little divergence thing there, you are trading against that dominant energy. So your winners are small.

So why keep trading against the dominant direction of the market? That’s the point of this lesson today.

PROOF POSITIVE

In fact let’s take a little look in, and see how far they went. There you go. This was our first divergence we looked at here. look how much further it still went down. Here we get another supposed oversold signal. what if you bought that? Not so good. Not much money made there. There is another divergence right. Well that would have been your profit. Really? No. these are signals of strength to the downside. You could have been short whole time. And made some real money, and just held it.

That’s why for some of you, it may seem like you’re always on the wrong side of the trade, that everything always goes against you.

There will be 3 parts of this video, so look for 2 more videos on the RSI indicator trading strategy that will pick up where this one left off.

FREE GIFT!

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.

Leave a comment below telling me what other information you’d like about the RSI Indicator Trading Strategy or other topics you’d like me to teach in the future.

Also I am giving away one of my favorite trend trading strategies that work today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.

For another excellent trading video including day trading support and resistance clusters, simply click here:
http://www.topdogtrading.com/trend-lines-on-the-forex-and-stock-markets/

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Day Trading Support and Resistance Clusters

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day trading support and resistance clusters
Day trading support and resistance clusters

Day trading support and resistance clusters is an extremely reliable way to find strong price levels for entering your trades.

These clusters provide a higher probability that the market (stock market, Forex, futures or E-minis) will hold those levels. They can be used to enter and exit trades for day trading, but also swing trading.

Enjoy the video and please leave your comments below (even if they’re negative!).

PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.

VIDEO TEXT:

Hey my friends, Doctor Barry Burns here with Top Dog Trading. And today our topic is Day trading support and resistance clusters.

Let’s look at what type of support resistance we have on here today. And we’re going to use 3 different types of Support Resistance in today’s lesson.

FLOOR TRADING PIVOTS

The first one is the pivot levels, the floor trader pivots. So PP, that’s your pivot point. And that’s your central pivot, sometimes it’s called. And then above that we will have, well on this chart it’s actually hard to see, but way up there is R1. So that’s the next floor trader pivot above it. And then the floor trader pivot below it is S1. That’s support 1. That’s Resistance 1.

In between there I also put what I call mid pivots. So PP-S1 is the midpoint between the pivot point and support 1 level. And right in there, the grey one is R1-PP. so that’s the midpoint between resistance level 1 and the pivot point. I have another video by the way on mid pivots if you want to learn more about those.

I would recommend you do look at that. It’s a great tool to use those mid pivots and not many people use them.

MAJOR SWING HIGHS AND LOWS

Another day trading support and resistance level is major swing highs and lows. We’ve got a high here. Comes up and therefore we draw a horizontal line to the right. Here, if you see this blue horizontal line that came off of this major low here. Significant low, market retested it here. That’s how we just draw that line into the future, and so this new day. That’s yesterday, that’s today, as far as the market goes. Even though the dates are little old down there. So we draw that forward.

Day Trading Support and Resistance Clusters

Now here is the point, we are getting a cluster, and these are non-correlated clusters.  So we’ve got our pivot point. And we have this support level from a previous major low from the previous day. They come in around the same price level. And that’s what we call a cluster, now why do clusters work. What’s the logic of clusters?

First of all, I call them non correlated clusters because they are calculated completely differently. So that’s why they are non-correlated because they come from two different calculations. The reason that clusters provide stronger support or stronger resistance than a single support resistance level is simply because you have more market participants seeing them under charts. So some people use floor trader pivots and others don’t. So the ones who do use floor trader pivots, it’s a very standard calculation, and they are all going to see this.

Then, there’s going to be other people who see this major previous low from the previous day. But they don’t see the floor trader pivots. So you got one group of market participants seeing pivot levels, you got another group of market participants seeing the major swing low from the previous day. That means now you got more people in the market who are seeing this support level and therefore they are more likely to respond to it, in other words, either buy off of it, or take profits into it.

TIME FRAMES INTRODUCE RELATIVITY TO DAY TRADING

Now again, as far as which major highs and lows people are looking at, that’s going to depend partly on what timeframe they use. This is just a quick little 2 minute chart. Someone trading a 60 minute chart, they are not going to see all the. On their chart, will look like minor highs and lows. But for someone using a 2 minute chart, it’s all relative, these will look like major highs and lows. So again, some people will see these, some wont, depending on the time interval they use. So that’s another way of looking it different times, but those are not uncorrelated day trading support and resistance clusters because they are calculated the same way, just on different time frames.

DAY TRADING SUPPORT AND RESISTANCE LEVELS ARE NOT LINES, BUT ZONES!

if we look at this, by the way some people might say, well wait a minute this support level didn’t hold because the market made a lower low below it. okay, so that is not quite accurate to say that, and the reason is support resistance, even though they look like lines, and well they are drawn as lines on our charts, in reality the way the markets move, support resistance, they are not lines, they are zones.

My rule for that is, as long as the bars are touching it, it’s still providing a support. And the reason you have to consider it these zone where the bars are at least touching it, and not just the line is because the movement of markets is not that neat and tidy.

You’ve got millions and millions of people trading this stuff all over the world, on different timeframes, minute charts, tick charts, all kinds of different stuff, and so you can’t expect that the market’s just going to come and stop right on that, you know pixel. That’s just asking way too much accuracy of the market. Therefore we give it that zone there to provide support. Same here, that’s still providing the same support. Comes down and retests that general area.

THE PREVIOUS DAY’S HIGH, LOW AND CLOSE

By the way, just to make clear, this is yesterday’s, yesterday’s close, that’s why C there. And YH is yesterday’s high. So those are more types of day trading support and resistance. Again very commonly used ones, pretty much everybody’s looking at yesterday’s high and low. Yesterday’s low by the way was way down here. I am going to have to squish up my scaling. There is yesterday’s low, alright.

As long as the market stays between yesterday’s low and yesterday’s high, this whole movement in the day will look like an inside bar on a daily chart. And so it’s going to be a very non-committal day. It can be a neutral day basically.

The other thing that I wanted to share is, as long as the market stays between the central pivot or the pivot point and yesterday’s close, I consider that whole zone a neutral market. Not bullish or bearish. Yesterday’s close is where yesterday ended, that was the value the market decided to give after all settled down, after all the news went through the market, after all the buying, after all the selling at the end of the day, that’s the value that the market participants decided for this particular market which happens to be the Nasdaq) 100 features.

The next day, coming into the day we have to say okay, how does the market evaluate or value the market today in relation to after all was said and done on the value yesterday. And then the pivot point is also another neutral point calculated in a very different manner. Some days those are very close, some days they are kind of far away. This day, they are kind of far away. But this whole zone then is neutral.

YESTERDAY’S MARKET COMPARED TO TODAY’S MARKET

If you look at the previous day, let’s bring that up. There’s the previous day, well there’s the central pivot or pivot point, and yesterday’s close they came in almost exactly at the same place. So that’s just during neutral line. There’s yesterday’s low, there’s yesterday’s high.

Okay, so let’s move on and finish up our video for today. Market goes up by the way, this blue line that, it’s kind of dashed as you can see, what that means is that’s a previous high from the, or low in this case from the previous day. But the market had pierced it so we keep it on their knowing that it’s been tested once already, but not broken. And so it comes close to it so creates another new line. This again coming down, testing the pivot again, it’s close, alright don’t expect it to go right down and have to touch it to the tick. It’s unrealistic.

PINBALLING BETWEEN SUPPORT AND RESISTANCE DAY TRADING CLUSTERS

We come back, what we do, we touch that high. We come back down, where do we go? Right to the pivot point again. That cluster of the pivot point, and that previous major low, retest that again. Go back up, where do we go? Now we go to yesterday’s close. So notice, and that’s the end of the day. This whole day was really much to do about nothing. There’s money that could have been made, certainly trading on a very short term time frame like the 2 minute chart. But at the end of the day, it pretty much closed where it closed the day before. Within what, 4-5 points. Now one last thing we could add our Fibonacci levels too. Let’s do that.

FIBONACCI LEVELS

Okay, so we added our Fibonacci levels, now talking about clusters of non-correlated support resistance. This was yesterday’s close as you remember. And it also happens to be what, 38.2 Fibonacci level, that red level right there. So this is a cluster of non-correlated resistance. We’ve got a 100% down here, notice that. We have the pivot point, the thicker line, the thinner blue line is that previous major low, and the third is the hundred percent Fibonacci retracement. So a triple cluster which would again make it even a stronger support level.  The more types of support resistance you have on your chart that are non-correlated, the more likely that level is to hold.

IN CONCLUSION

So on closing I do want to say that you got to have a balance. I think having 3 different types of support resistance on your charts is very good. But if you get more than that, what happens is you get too many lines, you get so many lines on your chart, the market really can’t go anywhere without running into a line, and you feel like the market can’t go anywhere. Essentially all those lines then become meaningless. It’s also very confusing to your mind. You’re always thinking, oh I’m buying into support, I’m shorting into resistance. Support resistance is broken all the time, all the time. So this is why it’s important to kind of figure out which ones are most important. And putting together the clusters is one way of doing that.

The last thing I’ll say about this is don’t try day trading support and resistance clusters itself. One of the big questions is how do I know which support resistance levels are going to hold, and the market’s going to bounce off of them, and in which ones it’s going to slice through? So clusters is one way of helping with that.

But again support and resistance, that’s just really one energy in the market, those are potential price levels for the market to bounce off of but just potential. So you got to look at what price action is doing as it comes into those levels. How much energy is coming into that, how much volume is behind that move? How much acceleration, what are the candle stick patterns. What’s the trend, all these different things. So it’s one piece of your puzzle, one variable in developing a probability scenario around your trading methodology.

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