Over the past several months, this market has been tough to navigate as a swing trader, in my opinion and based on discussions with other traders. But despite so-called difficult market conditions, traders can always look for an edge, and that edge can be support and resistance.
Better Chance to Hold
As I say frequently in MTM’s daily group coaching class, support and resistance have at least a 70% chance of keeping the underlying moving through that level. At some point, those levels will be violated because of brisk buying or selling, whether due to an individual circumstance or a big move in the overall market. But think about that for a second: Knowing and trusting that percentage will absolutely produce better results, at least from a technical analysis perspective. So why would you not?
Recent Action in SPY
Take a look at an hourly chart of the S&P 500 ETF (SPY) below from about mid-June to almost the end of the month.
Notice how the $365 level was support and the $375, $380 and $390 levels all acted as both support and resistance through the weeks. Doesn’t it seem like knowing those levels had a better chance to hold could give you an edge? Clearly, the market gapped higher and lower above certain levels of support and resistance, but other levels were in the way at some point.
Take a look at the same chart two days later below. The resistance level at $390 held, and then the ETF pushed lower and found support at the $380 level. Coincidence? That is for you to decide.
Think About It
By just playing the odds of support and resistance, how could you not become a better technical analysist and give your trades more edge? Remember the 70% rule and let support and/or resistance prove to you that they will be violated because the odds are they won’t be on the first try like the $390 level from the chart above.