Thursday, July 15, 2010

Using ACC/DIST to find true Support and Resistance


Many times, simply looking at Price Action to find support and resistance can be deceiving, One way to spot these is to use the Accumulation/Distribution Indicator. I use a volume based acc/dist to better spot true support/resistance and keeping me out of false breakouts and false reversals. Attached is this morning's S&P Emini Futures chart. I've attached both 1600tick chart on the left, and 512 tick on the Right. One thing I noticed this morning in the first 15 mins of trading was what looked like a double bottom forming in the 1087 area. At the time, just looking at price action, on the 512 tick chart, it looks like a pretty standard double bottom forming, which would be a textbook Long Trade, however looking at ACC/DIST, we clearly see we broke that support from the o/n session lows and acc/dist even came back to test that resistance and was rejected. Based on this, I would have stayed out of taking a Long trade at the double bottom. Which turned out to be a false one.
Now looking at the 1600tick chart. This is a classic Textbook Support turns into resistance trade, HOWEVER, it would not have been clear on the price chart. If we only looked at charts, 1086 would have been the support and we would have been trying to wait for the 1086 area again to short. However, looking at acc/dist we see that as we approached 1083 level, that acc/dist was showing us that, that was the true resistance.

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