In this episode of 2Traders Podcast, Walter and Darren talk about the idea of support and resistance, its advantages and disadvantages, the dangers that might come along with using it, and why a lot of people are using it. Also, Walter and Darren touch about the topic of trendlines and how this relates to support and resistance and to a person’s trading behavior, in general.

Also, you might find out here how a children’s fairy tale can help you realize the main point behind support and resistance.

Download (Duration: 29:15 / 33.4 MB)

In this episode:

00:45 – ideas of support and resistance

02:32 – others just use patterns

04:36 – overriding belief system

11:25 – trading a subset of the pattern

14:08 – technical strategy

15:33 – support and resistance being popular

17:22 – magical thinking

18:30 – trendlines

23:00 – key elements

28:15 – your own analysis

Tweetables:

People see patterns easily and see things that aren’t really there. [Click To Tweet].

Use your own analysis and stick to that rather than copy something else. [Click To Tweet].

It depends where you put your stop loss and where you exit. [Click To Tweet].

Download The Full Episode 41 Transcript Here

Walter: Because, I think what happens with a lot of traders is, they look at the one-hour chart to define their support and resistance. I would suggest rather looking at maybe the daily chart and finding those sweet spot on the chart where you’ve got repeated support…  

Announcer: Two traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.

Walter: Welcome back to the Two Traders Podcast. Walter here. I’ve got Darren on the line. Darren today, we’re going to talk about this idea, this nebulous thing that we see on the charts, this idea of support and resistance.

As you know, I’d drink the Kool-Aid, this is my thing. You can see this levels on the chart. I also admit that, as with a lot of things, we humans see patterns and so we have to be careful that it’s easy for humans to see things that aren’t there. It’s also quite true that, for a lot of traders, you can see these things everywhere. I’m trying to be pretty careful on how I draw these now.

I also think that, if I see them then I think that other traders also see them. It almost doesn’t matter if they truly exist or not. It’s like the “Emperor’s New Clothes” or whatever. If enough people go along with the gag, then it doesn’t really matter that he’s not wearing any clothes.

It’s like a self-fulfilling prophecy or whatever where if enough people see support and resistance on the charts, it doesn’t really matter if it exist or not. They’re going to react to that.

The other thing I should note is I am not one of those traders who say...