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.

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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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