Brett Steenbarger is a great blogger.He consistently comes up with posts that are useful for explaining and clarifying various aspects of trading.I worry that when my comments include support and resistance levels, they end up being too arcane to be useful to readers.Brett wrote a great post this morning to explain his use of support and resistance. The meat of his explanation was this
In other words, we’re using the ability or inability to hold price levels as an ongoing assessement tool for markets. These levels are not just price targets; they are reference points. (Clear areas of support and resistance in a range also serve as key reference points). If I’m an active trader, I’ll think about exiting a long trade at one level, waiting for a pullback to show me that the market can’t go to the next lower level, and then entering again in the direction of the day’s trend to target the next higher level. (From this vantage point, your trade’s failure to hit a target level is also diagnostic and can set up worthwhile trading ideas).
You can read his whole post here
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