12-19-12 08:24 PM
Quote from clarodina:
how you guys deal with overshoot or undershoot of support and resistance level? How to know whether price would overshoot or undershoot?
Homework (to be done on 50 occurrences of the setup in your trading time frame):
1. Choose an S/R level (trend line, parallel channel line, previous horizontal S/R, moving average).
2. On smaller time frame chart (such as 1-min chart for 5-min traders, or an hourly chart for very short term swing traders), compare the patterns of trades where S/R holds (with or without an overshoot) to the patterns of trades where S/R fails.
3. Note if any particular price action pattern occurs more often than not.
4. Use patterns that occur more often than not as a guide to setting up rules for trading off S/R levels.
5. Repeat for each type of S/R level.
As a 5-min trader, I use the classic 1-2-3 reversal pattern on a 1-min chart. Highest probability pattern I've found so far.
http://www.dacharts.com/123.htm
The examples show the LH and HL reversals, but DT/DB's and FBO's work just as well.
I also tend to take the early entry (the "X"), because I'm cheap these days.
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