Swing Highs & Lows, Support, Resistance & Confluence Zones
Hello. Welcome to some random guy's educational post on Tradingview - who thinks he knows enough about trading to teach other beginners. Whether you are a beginner at trading or investing, these tutorials will help you tremendously in gathering a basis for your interest in this game. Because in fact, this is a game. A game of wins and losses, how we manage them, and how we profit over time. The most important piece to this game is 'Risk Management'. However, I need to make sure that at least the basics of swing lows/highs, supports and resistances are covered before I can go into a higher detail of what I want to cover in Risk Management.
Well. What the hell is this? What in the living hell are swing highs and lows? Why do they matter? What is the point? Doesn't the price just go about randomly?
Ahah! No. The misconception that many people have is that TA (technical analysis) is completely bogus. And that there isn't any correlation between where the price goes in comparison to where it's been. That my friend, is a lie. Though, predicting very far into the future using TA is extraordinarily hard, and I've learned that its just best to keep things short-term (most of the time), TA is a grounds to price action and the POSSIBILITIES and PROBABILITIES of the market. With TA, you are just accounting for what the market CAN do based on what it already HAS done. TA is never 100% accurate all the time, and is always likely to fail at some point because the probabilities in the market are never 100% probable and are never guaranteed.
The only probability that is guaranteed is that the price will go "up, down or sideways." If you say that, you will always be right :).
So let's get to it! What is a swing high? A swing high/low is a price point in the market before a reversal. Swing highs happen at the peak of the trend, swing lows happen at the valley/bottom of the trend. On the chart above, you will see the major swing highs in white, and swing lows in blue.
What is a confluence zone? Confluence zones are areas where there is a lot of activity, multiple supports and resistances. Typically either areas of indecision, consolidation OR areas of accumulation or distribution.
Consolidation: Areas where price volatility settles down, volume decreases, and the market is getting ready for a choice of a direction in price.
Accumulation: Typically referred to as an "accumulation phase," this is an area where traders begin to slowly accumulate (purchase) the stock, while shuffling out short orders. This typically is low volume, and reflects a level of consolidation. This happens before an uptrend.
Distribution: Typically referred to as a "distribution phase," this is an area where traders begin to slowly distribute (sell/short) the stock, while shuffling out long orders. This typically is low volume, and reflects a level consolidation. This happens before a downtrend.
Accumulation and Distribution levels are a part of the Wyckoff Theory. It's a pretty simple diagram that can be googled.
Now why are these even important? These levels can be used as points for a target on your trade, or even stop losses. Updates to come with examples of how these would be useful tools in trading.
Well. What the hell is this? What in the living hell are swing highs and lows? Why do they matter? What is the point? Doesn't the price just go about randomly?
Ahah! No. The misconception that many people have is that TA (technical analysis) is completely bogus. And that there isn't any correlation between where the price goes in comparison to where it's been. That my friend, is a lie. Though, predicting very far into the future using TA is extraordinarily hard, and I've learned that its just best to keep things short-term (most of the time), TA is a grounds to price action and the POSSIBILITIES and PROBABILITIES of the market. With TA, you are just accounting for what the market CAN do based on what it already HAS done. TA is never 100% accurate all the time, and is always likely to fail at some point because the probabilities in the market are never 100% probable and are never guaranteed.
The only probability that is guaranteed is that the price will go "up, down or sideways." If you say that, you will always be right :).
So let's get to it! What is a swing high? A swing high/low is a price point in the market before a reversal. Swing highs happen at the peak of the trend, swing lows happen at the valley/bottom of the trend. On the chart above, you will see the major swing highs in white, and swing lows in blue.
What is a confluence zone? Confluence zones are areas where there is a lot of activity, multiple supports and resistances. Typically either areas of indecision, consolidation OR areas of accumulation or distribution.
Consolidation: Areas where price volatility settles down, volume decreases, and the market is getting ready for a choice of a direction in price.
Accumulation: Typically referred to as an "accumulation phase," this is an area where traders begin to slowly accumulate (purchase) the stock, while shuffling out short orders. This typically is low volume, and reflects a level of consolidation. This happens before an uptrend.
Distribution: Typically referred to as a "distribution phase," this is an area where traders begin to slowly distribute (sell/short) the stock, while shuffling out long orders. This typically is low volume, and reflects a level consolidation. This happens before a downtrend.
Accumulation and Distribution levels are a part of the Wyckoff Theory. It's a pretty simple diagram that can be googled.
Now why are these even important? These levels can be used as points for a target on your trade, or even stop losses. Updates to come with examples of how these would be useful tools in trading.
評論:
Consolidation Level/Support Level
Here is another example of a consolidation level. This is a level of activity. Based on the amount of activity in the zone to the left, we'd assume that the next time we reach this level, there may be an increase of activity and volatility. Because the price was recently above this level, it could be considered a level of support, where a downtrend would take a break.
The market psychology becomes a bit indecisive at this level due to how long of a time it spends there. The market has trouble at this level because $10k is an actual psychological resistance. Price broke out of the $7k area very easily jumped to $9k. But when $9k was reached, the market is indecisive if the current value is actually above $10k. Because they are deciding that, the market consolidates at this level to decide whether or not it should break $10k.
Here is another example of a consolidation level. This is a level of activity. Based on the amount of activity in the zone to the left, we'd assume that the next time we reach this level, there may be an increase of activity and volatility. Because the price was recently above this level, it could be considered a level of support, where a downtrend would take a break.
The market psychology becomes a bit indecisive at this level due to how long of a time it spends there. The market has trouble at this level because $10k is an actual psychological resistance. Price broke out of the $7k area very easily jumped to $9k. But when $9k was reached, the market is indecisive if the current value is actually above $10k. Because they are deciding that, the market consolidates at this level to decide whether or not it should break $10k.
評論:
Using Swing Lows/Highs in Trade Setups:
This is how we would use swing highs and lows in trade setups. Swing highs and lows are not just major reversals points, they can be used at smaller peaks and valleys as well, as shown on this chart.I will get into this more in the risk management post, but any time you get into a trade, you should understand how much you are willing to lose in comparison to how much you are willing to gain. That is the risk to reward ratio, and it should very often be above a 2.0 RR. This set-up would be beautiful, because the RR is so high.
So what's going on here? Let's say you notice this accumulation phase going on here. And you want to go long. You enter at the white line. And you say to yourself "Based on the lowest point (swing low), if the price goes below that point, there is a very likely chance that there will be a large sell-off because support is broken. So I'm going to set a stop loss just below there. If that does happen, then I lose 6%. I'm very confident that the market has a major reversal at this point, so I'm going to set targets a previous swing highs where I may or may not want to take some profit, or at least scrape some profit off. The highest potential profit I can make based off of target 3 is a 45% gain. This to me is worth the risk. I'll take the setup."
So you take the setup and go long. You target each swing high. You expect price to consolidate a bit at those levels. But each time that level breaks, its likely to go to the next. So to secure some profit (for just in case purposes), you take a little profit at each target before target 3. Based on the swing high for target 3, we finally reach it and decide to take profit. Then the market actually reverses and you feel good about yourself because you had a successful trade.
Now what if we returned to that level 3 and broke through it with a lot of volume? What do we do? We would buy on that break because the next swing high is much higher at nearly $11.7k.
This is how we would use swing highs and lows in trade setups. Swing highs and lows are not just major reversals points, they can be used at smaller peaks and valleys as well, as shown on this chart.I will get into this more in the risk management post, but any time you get into a trade, you should understand how much you are willing to lose in comparison to how much you are willing to gain. That is the risk to reward ratio, and it should very often be above a 2.0 RR. This set-up would be beautiful, because the RR is so high.
So what's going on here? Let's say you notice this accumulation phase going on here. And you want to go long. You enter at the white line. And you say to yourself "Based on the lowest point (swing low), if the price goes below that point, there is a very likely chance that there will be a large sell-off because support is broken. So I'm going to set a stop loss just below there. If that does happen, then I lose 6%. I'm very confident that the market has a major reversal at this point, so I'm going to set targets a previous swing highs where I may or may not want to take some profit, or at least scrape some profit off. The highest potential profit I can make based off of target 3 is a 45% gain. This to me is worth the risk. I'll take the setup."
So you take the setup and go long. You target each swing high. You expect price to consolidate a bit at those levels. But each time that level breaks, its likely to go to the next. So to secure some profit (for just in case purposes), you take a little profit at each target before target 3. Based on the swing high for target 3, we finally reach it and decide to take profit. Then the market actually reverses and you feel good about yourself because you had a successful trade.
Now what if we returned to that level 3 and broke through it with a lot of volume? What do we do? We would buy on that break because the next swing high is much higher at nearly $11.7k.
評論:
Wyckoff Theory: Live Example
Here is a live example of accumulation and distribution with swing highs and lows. As mentioned before, Wyckoff Theory is the establishment of accumulation and distribution phases that occur between trading periods. Right now, it looks like we might be going through a large distribution phase based on pattern and volume. We will see how this plays out!
I will update on what happens with the market based on this assumption. But hopefully this post has helped on how you can use swing highs and lows efficiently; as well as what accumulation, consolidation and distribution zones are; and how volume interacts with these market cycles. The next education post will cover risk management, and how that SINGLE-HANDEDLY IS THE MOST IMPORTANT PIECE OF INVESTING/TRADING.
Hopefully this helped guys! Follow me for posts and updates, as well as MANY more educational posts to come for this series! Happy and safe trading :D
Here is a live example of accumulation and distribution with swing highs and lows. As mentioned before, Wyckoff Theory is the establishment of accumulation and distribution phases that occur between trading periods. Right now, it looks like we might be going through a large distribution phase based on pattern and volume. We will see how this plays out!
I will update on what happens with the market based on this assumption. But hopefully this post has helped on how you can use swing highs and lows efficiently; as well as what accumulation, consolidation and distribution zones are; and how volume interacts with these market cycles. The next education post will cover risk management, and how that SINGLE-HANDEDLY IS THE MOST IMPORTANT PIECE OF INVESTING/TRADING.
Hopefully this helped guys! Follow me for posts and updates, as well as MANY more educational posts to come for this series! Happy and safe trading :D
評論:
There it is guys! The distribution phase played out. That is how you spot them as they occur. They are far more technical than this, but with a keen eye, they can easily be spotted. Also note the price action around each swing low. Price will very likely find a way to consolidate at that level, it can bounce at that level before it breaks through it. Or if it breaks through it, it may return BACK to the level. It's price action guys. Price action is the most important thing about the market. Every price move is algorithmic and will find a to psychologically please the market! :) Safe Trading!
There it is guys! The distribution phase played out. That is how you spot them as they occur. They are far more technical than this, but with a keen eye, they can easily be spotted. Also note the price action around each swing low. Price will very likely find a way to consolidate at that level, it can bounce at that level before it breaks through it. Or if it breaks through it, it may return BACK to the level. It's price action guys. Price action is the most important thing about the market. Every price move is algorithmic and will find a to psychologically please the market! :) Safe Trading!
Let's check out this portion of the chart. In the green zone, we notice some activity, where the market reverses when it gets to these levels. To the left, we notice that as soon as it reaches this level, there was a major market reversal with a lot of volume. So we could assume that the next time it reaches this level, it could used as a support zone.
To the right, we notice that as it entered this zone, the sell off slowed down and there was a decrease in volume. It stopped right at the previous swing low, and an accumulation phase began. As the prices began to shuffle up and down within this zone, the volume continued to decrease, and a breakout was on the way. We can only confirm this as an accumulation AFTER we see it break to the upside. If it broke downward, we would just call this a level of consolidation. Sometimes, you can make the assumption and infer whether something is a level of accumulation/distribution before it breaks based on market experience.
Now, we call this level a support zone because we can assume that the next time the price enters this area, there will be some sort of consolidation. However, support zones, and resistances are made to be broken. It does not hold for forever, and will eventually break. If we enter this are of the low to mid $6k, we would actually assume that the possibility of it breaking down will increase. Think of it as a wall, and the price being a battering ram. The more the price strikes a resistance/support, the more likely it will break.
Now, this part is simple but important, if a consolidation level is BELOW where the CURRENT price is, we would assume it will act as a level of support. If a consolidation level is ABOVE the current price, we would assume it will act as a level of resistance. Right now the current price of this coin is $9400, the $6k-$7k zone is below that price, so we would assume this is a level of support.