How to Determine Support and Resistance Levels
Expert: Jerry Furst, Founder & President of InvestorsEducationNetwork.com
Start: February 8, 2006 - 15:00GMT 10EST
End: approx. 16:00GMT 11:00EST
Topics that will be covered for above session are:
- How to Determine Support and Resistance Levels
- Determining Entry points for a trade
- Determining Exit Points for a trade
- Using Moving Averages
- Drawing Regression Channels
- How to apply Fibonacci Retracements
Who is Jerry Furst?
Jerry Furst is president and founder of Investors Education Network (IEN), an educational networking group for active traders and investors. He is a former senior analyst programmer with IBM and consultant to Fortune 100 companies. Mr. Furst has been trading his own account since 1987 and primarily trades and invests with forex currencies and equity options for his own accounts. He has found that running a networking group for traders is extremely rewarding as he continues to learn from the experts in the industry and the traders in his group.
Speech Material:
Support Resistance and Determining Entry and Exit Points.
Usually I would drill all the way down from the monthly, weekly, and then look for patterns and trade setups on the daily, 4 hour, 60, 30, and 15 minute charts. After doing this for so long it is actually a quick exercise, however the time flies by because it can get quite detailed. For the purposes of this brief presentation, we will not drill up or down. And only focus on the four hour chart.
Ok – Furst! Let’s look at Moving Averages:
Click to enlarge:
I have the 7(Green), 50(Blue), and 200 (Black) MA’s plotted here.
The concept is that MA’s act like magnets. By themselves MA’s are weak price targets, but you can be sure a lot of people are looking at the 50, and 200. In this case, we have a great example on The Euro Monday night around 1am EST with the Euro trading at 1.975. You can see the two moving averages converge at the 50 and 200, that’s a stronger magnet than just one.
Now, Let’s add my Linear Regression Channel:
Click to enlarge:
The concept of Linear Regression Channels (LRC) is that they are plotted at a standard deviation on both sides of the closing price. Similar to the concept of Bollinger Bands – but different. Without getting too deep, look at how price is behaving in between the blue outer bands and the Red “Heart Line” in the middle.
This is showing potentially a fantastic target @ 1.2067 as the top of the LRC is converging with the 200ma and the 50 ma. The 50 ma is also running parallel to the LRC.
And saving the best for last – Fibonacci Retracements and Extensions:
Click to enlarge:
I have drawn the Fibonacci Retracements from the top left Pivot Point @ 1.2322, to the Bottom of the current run down @ 1.1943. Notice the 25% retracement @ 1.2037 is showing a prior Resistance area. That will be my first price target.
We now have all three technical analysis tools in place on this four hour chart.
Click to enlarge:
We have a perfectly Symmetrical Trade of 27 pips per target!
The trade will be triggered to buy 4 lots @ 1.2008 with a 10 pip trailing stop.
PT1 @ 1.2035 = 27 pips exit two lots (just below the 25% retracement)
PT2 @ 1.2062 = 54 pips exit two lots (just below the 200ma and top of the LRC)
SL @ 1.1981 = 27 pips exit trade at loss (Risk Reward = 1:1)
Now lets see the order placed on the Proedge FX – GTS Platform
to auto execute in a “Set it and forget it trade”:
Click to enlarge:
Session Transcript:
Fxstreet Moderator (Feb 8, 2006 9:59:41 AM)
Thank you for joining today’s Live Q&A Session. We will begin with the pre-registered users’ Questions in approximately 5 minutes. Meanwhile please read the text speech that you will find on the left of this chat window
Fxstreet Moderator (Feb 8, 2006 9:59:56 AM)
Thank you for your participation.
Jerry1st (Feb 8, 2006 10:00:02 AM)
Greetings Everyone from Sunny South Florida -
Jerry1st (Feb 8, 2006 10:02:06 AM)
Thank you so much – This is my “Furst” of hopefully many presentations for FX Street. I hope you enjoy, and learn from some of my techniques of Technical Analysis today.
Jerry1st (Feb 8, 2006 10:02:47 AM)
1st time using the FX Streey platform as a presenter so I hope I catch on quick
Jerry1st (Feb 8, 2006 10:03:04 AM)
We are going to discuss how to determine support and resistance with my three favorite technical analysis tools; Moving Averages, Linear Regression Channels, and Fibonacci Retracements and Extensions. Then we will enter a trade to auto execute in a “Set it and Forget it” mode with two profit targets, a stop loss, using trailing stops as well.
Jerry1st (Feb 8, 2006 10:03:52 AM)
My standard disclaimer is that Trading and Investing involves significant risk of loss and is not suitable for all traders. No communication by me or Investors Education Network should be considered trading or financial advice – IEN is all about education and helping traders come up with their own style of trading that fits an individual’s personality. We bring in authors, trading mentors, software vendors, and even the exchanges to help you learn how to trade. We also have Traders Special Interest days where traders get together without speakers to share ideas and techniques
Jerry1st (Feb 8, 2006 10:04:50 AM)
In my training sessions, I use over four different charting platforms depending on what we are trading or individuals preferences. I find each charting platform offers unique advantages and strengths over the others. Plus running my group, Investors Education Network, I get to try and use all these for little or no cost. For this presentation I will be using eSignal, but most charting platforms offer these same tools.
Jerry1st (Feb 8, 2006 10:05:29 AM)
Before we get started I would like to invite you all to see me live at the International Traders Expo in NYC coming up in two weeks and in the spring at the FX Traders Expo in Ft Lauderdale. In NYC I will be speaking on Tuesday the 21st at 1:30. It’s the last time slot of the four day event. If you are even vaguely thinking of attending - register for this free event at: http://www.newyorktradersexpo.com/tradersexpo/newyork/?scode=005434
Jerry1st (Feb 8, 2006 10:06:06 AM)
In the spring, the Forex Traders Expo in my home town of sunny Ft Lauderdale I speak March 31st at 2:00pm - You can register for that event at: http://www.intershow.com/forex/florida/?scode=005439
Fxstreet Moderator (Feb 8, 2006 10:06:37 AM)
Fxstreet.com Team will also be at the NY event booth 6608 come meet us!
Jerry1st (Feb 8, 2006 10:06:50 AM)
Some background on me before we get started: I have a background in the high tech computer industry – starting my career with IBM in Boca Raton two months before we released the personal computer on the world. Bill Gates was often seen walking the halls in Boca Raton before OS/2 was broken off into Windows.
Jerry1st (Feb 8, 2006 10:07:11 AM)
That was in the early 80's
Jerry1st (Feb 8, 2006 10:07:27 AM)
Fast forward to 2000, computers have changed the trading world on its head. Real time quotes, $7 a trade, Charting platforms that 20 years earlier would have cost millions and required a main frame computer and a 9600 baud modem.
Jerry1st (Feb 8, 2006 10:08:08 AM)
Options were for the country club crowd
Jerry1st (Feb 8, 2006 10:08:37 AM)
now we trade currencies alongside the major corporatins and banks and govts from the comfort of home
Jerry1st (Feb 8, 2006 10:09:13 AM)
in 2001 I was tired of sitting in a cube, and my internet access allowed me to explore the world of equity options and I began trading the Q’s, had a good streak of luck – decided to become a full time trader. After trying to maintain 16 open positions at a time I quickly learned that I needed to learn – and then I learned I needed to learn some more!
Jerry1st (Feb 8, 2006 10:09:43 AM)
So I took the rains of a local active investors and traders group that I used to attend. The group had a revolving door of leaders that quickly found out how much work it was and often gave up after a few months. I decided to treat trading as a business and formed Investors Education Network.com
Jerry1st (Feb 8, 2006 10:10:05 AM)
For anyone who strives to become an educated trader – I encourage you to consider starting a traders group of one kind or another. The benefits are huge, if you put in the effort.
Jerry1st (Feb 8, 2006 10:10:24 AM)
After three years of running Investors Education Network, I now have a unique view and perspective of the trading and investing industry that very few have
Jerry1st (Feb 8, 2006 10:10:43 AM)
More importantly – I have personal knowledge of the personalities of successful and unsuccessful traders in my group, as well as the ones still on the road to achieving that “Ah Ha” moment.
Jerry1st (Feb 8, 2006 10:11:05 AM)
I also have achieved an insight into the industry made up of: professional traders, authors, mentors, software vendors, and members of institutions that provides me with an insight in the trading and investing world that very few see.
Jerry1st (Feb 8, 2006 10:11:18 AM)
Most players in the industry (not all) have tunnel vision and only see things through their own perspective.
Jerry1st (Feb 8, 2006 10:12:02 AM)
I hope you had a chance to pre view the charts and text before logging in but lets go through it together here
Jerry1st (Feb 8, 2006 10:12:27 AM)
OK – Support Resistance and Determining Entry and Exit Points. Usually I would drill all the way down from the monthly, weekly, and then look for patterns and trade setups on the daily,
Jerry1st (Feb 8, 2006 10:12:43 AM)
4 hour, 60, 30, and 15 minute charts. After doing this for so long it is actually a quick exercise, however the time flies by because it can get quite detailed. For the purposes of this brief presentation, we will not drill up or down. And only focus on the four hour chart.
Jerry1st (Feb 8, 2006 10:13:21 AM)
Ok – Furst! Let’s look at the first chart with only Moving Averages:
Jerry1st (Feb 8, 2006 10:13:31 AM)
then I will get the charts real messy
Jerry1st (Feb 8, 2006 10:14:01 AM)
I have the 7(Green), 50(Blue), and 200 (Black) MA’s plotted here. The concept is that MA’s act like magnets.
Jerry1st (Feb 8, 2006 10:14:13 AM)
Or think of them as rubber bands
Jerry1st (Feb 8, 2006 10:14:40 AM)
the smaller the MA - the tighter price will bind to the MA
Jerry1st (Feb 8, 2006 10:15:13 AM)
In this case, we have a great example on The Euro Monday night around 1am EST with the Euro trading at 1.975. You can see the two moving averages converge at the 50 and 200, that’s a stronger magnet than just one.
Jerry1st (Feb 8, 2006 10:15:30 AM)
*** Now lte me preface this **
Jerry1st (Feb 8, 2006 10:15:34 AM)
let
Jerry1st (Feb 8, 2006 10:15:50 AM)
In FX trading - THE TREND IS KING
Jerry1st (Feb 8, 2006 10:16:16 AM)
THIS EXAMPLE IS FOR EDUCATIONAL PURPOSES AND IS IN FACT A COUNTER TREND SETUP
Jerry1st (Feb 8, 2006 10:17:08 AM)
Just by looking at the small thumbnails - you can see how price is reacting
Jerry1st (Feb 8, 2006 10:17:40 AM)
sliding down the heart line of the Linnear Regression Channel and
Jerry1st (Feb 8, 2006 10:17:58 AM)
then popping up... only to continue the path down
Jerry1st (Feb 8, 2006 10:18:34 AM)
this example - is for a higly agressive spike up
Jerry1st (Feb 8, 2006 10:19:03 AM)
Now, Chart 2 - Let’s add my Linear Regression Channel:
Jerry1st (Feb 8, 2006 10:19:23 AM)
The concept of Linear Regression Channels (LRC) is that they are plotted at a standard deviation on both sides of the closing price. Similar to the concept of Bollinger Bands
Jerry1st (Feb 8, 2006 10:19:55 AM)
The concept of Linear Regression Channels (LRC) is that they are plotted at a standard deviation on both sides of the closing price. Similar to the concept of Bollinger Bands – but different. Without getting too deep, look at how price is behaving in between the blue outer bands and the Red “Heart Line” in the middle.
Jerry1st (Feb 8, 2006 10:20:28 AM)
I beleive I have this set to 61 bars at 1 standard deviation
Jerry1st (Feb 8, 2006 10:20:48 AM)
I will curve fit my LRC's based on trading instrument and time frame
Jerry1st (Feb 8, 2006 10:21:24 AM)
indexes, workdifferently than GOOG, and the EUR, will be set differnt than the CAD
Jerry1st (Feb 8, 2006 10:21:30 AM)
on my charts anyway
Jerry1st (Feb 8, 2006 10:21:45 AM)
remember - you need to find a technique that works for you
Jerry1st (Feb 8, 2006 10:22:09 AM)
The LTC I have plottedThis is showing potentially a fantastic target @ 1.2067 as the top of the LRC is converging with the 200ma and the 50 ma. The 50 ma is also running parallel to the LRC.
Jerry1st (Feb 8, 2006 10:22:31 AM)
I should type potentially - IN CAPS
Jerry1st (Feb 8, 2006 10:22:53 AM)
And saving the best for last – Fibonacci Retracements and Extensions:
Jerry1st (Feb 8, 2006 10:23:28 AM)
I have drawn the Fibonacci Retracements from the top left Pivot Point @ 1.2322, to the Bottom of the current run down @ 1.1943. Notice the 25% retracement @ 1.2037 is showing a prior Resistance area. That will be my first price target.
Jerry1st (Feb 8, 2006 10:23:54 AM)
– but different. Without getting too deep, look at how price is behaving in between the blue outer bands and the Red “Heart Line” in the middle.
Jerry1st (Feb 8, 2006 10:24:55 AM)
If I start typing about Fib's we will be here for a long time - I love them and I just tell people they work - for me
Jerry1st (Feb 8, 2006 10:25:16 AM)
We now have all three technical analysis tools in place on this four hour chart.
Jerry1st (Feb 8, 2006 10:25:50 AM)
For this example - We have a perfectly Symmetrical Trade of 27 pips per target!
Jerry1st (Feb 8, 2006 10:26:11 AM)
Profit targets 1, 2, and stop loss
Jerry1st (Feb 8, 2006 10:26:31 AM)
The trade will be triggered to buy 4 lots @ 1.2008 with a 10 pip trailing stop.
Jerry1st (Feb 8, 2006 10:26:52 AM)
PT1 @ 1.2035 = 27 pips exit two lots (just below the 25% retracement)
Jerry1st (Feb 8, 2006 10:27:06 AM)
PT2 @ 1.2062 = 54 pips exit two lots (just below the 200ma and top of the LRC)
Jerry1st (Feb 8, 2006 10:27:16 AM)
SL @ 1.1981 = 27 pips exit trade at loss (Risk Reward = 1:1)
Jerry1st (Feb 8, 2006 10:27:41 AM)
Now lets see the order placed on the Proedge FX – GTS Platform to auto execute in a “Set it and forget it trade”:
Jerry1st (Feb 8, 2006 10:28:50 AM)
I like this platforms ability to allow me to scale out of a trade - and do a CAR
Jerry1st (Feb 8, 2006 10:28:56 AM)
Close and Reverse
Jerry1st (Feb 8, 2006 10:29:12 AM)
and it allows me to Hedge a position
Jerry1st (Feb 8, 2006 10:29:24 AM)
taking a long and short position
Jerry1st (Feb 8, 2006 10:29:31 AM)
at the same time
Jerry1st (Feb 8, 2006 10:30:10 AM)
there are so many strategies that lend itself to those execution
Jerry1st (Feb 8, 2006 10:30:37 AM)
Ok - well at this time I would like to open it up to quesions from my host and then from you
Jerry1st (Feb 8, 2006 10:30:49 AM)
How did I do?
Jerry1st (Feb 8, 2006 10:32:12 AM)
Any questions
Fxstreet Moderator (Feb 8, 2006 10:32:15 AM)
Please refesh your page if you are having trouble viewing the material Apolgies all
Fxstreet Moderator (Feb 8, 2006 10:32:58 AM)
Thank you Jerry for that lets go to some Live Questions now
Jerry1st (Feb 8, 2006 10:33:10 AM)
great 0 fire away
traderchris (Feb 8, 2006 10:33:17 AM)
What do you think of using the previous day High, Low and Close to create Pivot and R1 R2 and S1 S2 levels as targets
Jerry1st (Feb 8, 2006 10:33:41 AM)
Pivot Points are great -
Jerry1st (Feb 8, 2006 10:34:08 AM)
I just try to keep my screen readable without too many lines for this example
Jerry1st (Feb 8, 2006 10:35:15 AM)
I have anywhere from 8+ charts up at a time and I may plot PP's to see tops and bottoms of range
Jerry1st (Feb 8, 2006 10:35:32 AM)
good question
Jerry1st (Feb 8, 2006 10:36:16 AM)
next
opnock (Feb 8, 2006 10:36:39 AM)
which do you think act as suppt and resit 50 and 200 ma or exponential versions of 50 and 200 ma
Jerry1st (Feb 8, 2006 10:37:10 AM)
I wll assume you mean simple vs exponential
Jerry1st (Feb 8, 2006 10:38:04 AM)
I have been a "simple" ma trader - however there is validity to using the EXP to improve the lag time that are inherent in MA's
Jerry1st (Feb 8, 2006 10:38:20 AM)
another great question - next
vsamo (Feb 8, 2006 10:38:41 AM)
A 10 pip trailing stop is pretty tight. Does that vary based on at trade's calculations?
Jerry1st (Feb 8, 2006 10:38:57 AM)
Yes - Absolutely
Jerry1st (Feb 8, 2006 10:39:27 AM)
Trailing stops are great tools to help preserve profits and minimize losses due to reversals...
Jerry1st (Feb 8, 2006 10:39:44 AM)
and you know how fast the FX can turn against you
Jerry1st (Feb 8, 2006 10:40:52 AM)
Trailing stops must be set apppropriately with enough room in the beginning of your trade and then tightened as as price moves in your favor
Jerry1st (Feb 8, 2006 10:41:07 AM)
Its all about "Preservation of Capital"
Jerry1st (Feb 8, 2006 10:41:39 AM)
The example I have posted is by no means a hard and fast rule
Jerry1st (Feb 8, 2006 10:42:31 AM)
in fact it is way too tight - but I did this at like 2am the other bight and wanted to make sure you saw that trailking stops are part of my methodology
Jerry1st (Feb 8, 2006 10:42:43 AM)
NAother fantastic question - next
hf (Feb 8, 2006 10:42:48 AM)
In my opinion, all the indicators which you have placed on the chart point to a short trade at confluence of 38% fib, LRC and MA, why you are taking along trade?
Jerry1st (Feb 8, 2006 10:43:18 AM)
Did you join us late ? let me repost
Jerry1st (Feb 8, 2006 10:43:57 AM)
Umm... I cant copy and paste
Fxstreet Moderator (Feb 8, 2006 10:44:17 AM)
You can read all in transcript after Thank you
Jerry1st (Feb 8, 2006 10:44:27 AM)
Your observation is valid - I posted in the beginning that this is a COUNTER TREND TRADE
Jerry1st (Feb 8, 2006 10:44:43 AM)
and I Prefaced it with sayng that in FX - The Trend is KING
Jerry1st (Feb 8, 2006 10:45:20 AM)
This was an aggressive trade expecting a spike up
Jerry1st (Feb 8, 2006 10:45:37 AM)
only to be triggered and watched closely
Jerry1st (Feb 8, 2006 10:46:09 AM)
I agree - ALL my indicators are pointing down - Its fun to go against the crowd occasionally
Jerry1st (Feb 8, 2006 10:46:30 AM)
next
axelm (Feb 8, 2006 10:46:38 AM)
I understand we can validate the use of a Fibo retracement by looking backwards, right ? could you give from your multiple point of views, which are the mot popular time frames used for Fibonacci and also LRCs ,
Jerry1st (Feb 8, 2006 10:46:43 AM)
I have tie for one or two more
Jerry1st (Feb 8, 2006 10:47:08 AM)
Hmmmm.
Jerry1st (Feb 8, 2006 10:47:50 AM)
I curve fit when I draw my Fibs and LRC's
Jerry1st (Feb 8, 2006 10:48:04 AM)
the MA's are the only static thing on my charts
Jerry1st (Feb 8, 2006 10:48:21 AM)
I look for fib clusters from multiple time frames
Jerry1st (Feb 8, 2006 10:49:11 AM)
and I curve fit my LRC's and then cahnge my time frames to see if the LRC is vallid on the other time frames as well
Jerry1st (Feb 8, 2006 10:49:47 AM)
be sure to visit www.ienweb.com or email me at JerryB1st@ienweb if you have any other questions
Jerry1st (Feb 8, 2006 10:50:47 AM)
My time is up I hope you enjoyed and I am invited back
Jerry1st (Feb 8, 2006 10:51:33 AM)
Good Trading to you all - and keep learning
Fxstreet Moderator (Feb 8, 2006 10:51:39 AM)
Thank you Jerry for your contribution
Fxstreet Moderator (Feb 8, 2006 10:51:53 AM)
I hope everyone enjoyed your presentation
Jerry1st (Feb 8, 2006 10:51:58 AM)
Thank you FX Street! Great forum you provide
Fxstreet Moderator (Feb 8, 2006 10:52:10 AM)
Please be sure to email Jerry at his email address above
Fxstreet Moderator (Feb 8, 2006 10:52:28 AM)
Everyone can read the transcript at this link in about 20 minutes
Fxstreet Moderator (Feb 8, 2006 10:52:45 AM)
Transcripts : http://www.fxstreet.com/chat/transcriptlist.asp
Fxstreet Moderator (Feb 8, 2006 10:53:00 AM)
Jerry will be back next Month for sure!
Fxstreet Moderator (Feb 8, 2006 10:53:09 AM)
Please join us now for another session
Fxstreet Moderator (Feb 8, 2006 10:54:01 AM)
Our Regular Fx speaker is going to present a new service
Fxstreet Moderator (Feb 8, 2006 10:54:04 AM)
FX Insight Company Name: Aspen Trading Group Presented by: Dave Floyd, President of Aspen Trading Group Start: February 8, 2006 - 16:30GMT 11:30EST
Fxstreet Moderator (Feb 8, 2006 10:54:21 AM)
Please sign in here to this room and begin reading the material
Fxstreet Moderator (Feb 8, 2006 10:54:33 AM)
http://www.fxstreet.com/chat/chatsigned.asp?tipus=showroom
Fxstreet Moderator (Feb 8, 2006 10:54:36 AM)
See you all there
Fxstreet Moderator (Feb 8, 2006 10:54:47 AM)
Rob Booker is back tomorrow at 15GMT
Fxstreet Moderator (Feb 8, 2006 10:54:54 AM)
Do not miss this show!
Fxstreet Moderator (Feb 8, 2006 10:55:16 AM)
Register here: http://www.fxstreet.com/chat/chatsession.asp?id=256
Fxstreet Moderator (Feb 8, 2006 10:55:40 AM)
We also hope you liked this Q&A look & and that, above all, you found it useful, educational, and beneficial to your trading day
Jerry1st (Feb 8, 2006 10:55:49 AM)
I would like to invite you all to see me live at the International Traders Expo in NYC coming up in two weeks and in the spring at the FX Traders Expo in Ft Lauderdale. In NYC I will be speaking on Tuesday the 21st at 1:30. It’s the last time slot of the four day event. If you are even vaguely thinking of attending - register for this free event at: http://www.newyorktradersexpo.com/tradersexpo/newyork/?scode=005434
Fxstreet Moderator (Feb 8, 2006 10:55:59 AM)
Feedback: I cannot stress how important feedback is for the continued success of our Live Q&A sessions. PLease email me any suggestions you may have topics for speakers anything that can make these sessions better and more enjoyable for all who attend. In order for us to continue providing informative and educational Q&A Sessions, feedback is vital. Please feel free to post feedback about today's session, topic ideas, & suggestions. We would appreciate this very much. I will be logged on for a while. claire@fxstreet.com
Jerry1st (Feb 8, 2006 10:56:03 AM)
In the spring, the Forex Traders Expo in my home town of sunny Ft Lauderdale I speak March 31st at 2:00pm - You can register for that event at: http://www.intershow.com/forex/florida/?scode=005439
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