One of the more difficult issues traders face is choosing prices that are apt to be extremes, or highs and lows, over a given time frame. Pinpointing daily entry and exit levels, also known as support and resistance areas, requires a view of recent history of the market you are trading.
When charting, it is important to label prices where momentum kicks in. Areas where buyers take control of momentum often provide support when retested. Resistance levels form where sellers previously emerged to force the market lower.
Extremes (highs or lows) made in the first hour of regular trading hours are often clues of whether the institutional traders are bullish or bearish. Generally, the highest volume and most liquid time of the trading session is the first hour of the day. Large orders from professional traders tend to be executed when volume is at a peak. When these prices are retested reversals often occur.
Extremes often form when previous high volume or fair prices are retested. The chart below shows the S&P in a consolidation phase just before rising sharply on 6/18. Note that the low was made at the high-volume price (2890) of the consolidation phase.
Extremes also regularly form when old very low volume prices are retested. That is shown in the chart as well. Note the low on 6/19 was made when a very low volume price from the day before was retested. Keep tabs on high volume prices and very low volume prices on your charts. By doing so you should become more adept at pinpointing entry and exit levels.
Senior Futures Instructor
Market Taker Mentoring, Inc.