I have a theory about the various methods of determining lines or zones of resistance and support. The latest that I am using are pivot points. These use a few simple formulae to determine where these lines may be over the course of the day. I understand that they have been used by traders for a long time to determine trading ranges expected over the trading day and have to do with "local" trading and public trading...I understand the idea but I cannot remember it well enough to relate.
I have been playing with lines for a few months now and have found an almost uncanny correlation between historical lines and fore casted price movements. I have also used recent opens, closes and highs and lows to create lines for the following days...they worked well also.
I do believe that no matter how anyone picks these lines, as long as they are based on some historically significant movements, they are a useful tool in trading. It is the consistent use of the same method for determining them in the first place combined with the consistent use as indicators and the familiarity of how the price moves relative to the lines chosen that makes them work. I think that one could draw equidistant lines on the price grid and have good luck as long as the spacing is of some significance.
I'll try to post a bit on pivot points another time as at least these seem to work and have an objective formula to find them...that makes them easier and less prone to erroneous judgment about line placement.
An observation. I was just looking at my 1 minute chart for the last 6 days for AEM and noted the pivot points from yesterday's activity and see that the have some very good correspondance with past action with respect to trading ranges, highs and lows that seem to see support or resistance with these lines.
JD.
Questrade, My direct access discount broker.
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