How to Determine Where the Real Support and Resistance is Everyday

Posted on by The INO.com Team

Larry Levin is no novice to the markets, in fact he's a pretty well-known by traders worldwide. We've asked Larry to give Trader's Blog readers some tips he uses to find daily support and resistance levels and he gladly agreed. Be sure to comment and let us know what you think and some things you use to find key market levels.

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Secret Trading Tip #29
From the Desk of S&P Trader Larry Levin, President of Trading Advantage LLC

How to Determine Where the Real Support and Resistance is Everyday

Understanding support and resistance levels is an extremely important skill in any market, and it's absolutely critical if you plan on trading the S&P and NASDAQ E-Mini markets. Professional floor traders are aware of an entire range of major and minor support and resistance levels before the market opens each day. They also know how to calculate new levels as the trading day progresses.

Knowing where the market may turn gives you an effective road map to guide you through the day.

Most traders calculate support and resistance levels incorrectly, and to make their job even harder, they generally don't know how to trade around them. Many traders will use an old high or an old low and assume they've found support or resistance. That just doesn't work. Think about it for a moment. If the market always stopped at old highs we could never have an up trending market, and if the market always stopped at old lows we couldn't have a down trending market.

These Are the Same Numbers I (And Other Pro Traders) Use Every Morning

The technique I discuss below is broken down into specific support and resistance numbers that I provide in my daily report. These are the same numbers I and many other floor traders utilize each morning. Can you imagine the "edge" this information gives you over the average trader?

Let's face it; we all want to catch the big trending days, days when the S&P moves 15 or 20 points without looking back. Unfortunately those big trending days just don't happen that often. Most days the market doesn't trend very much in either direction, instead it will move between known support and resistance levels.

Knowing the location of these price levels is important, but knowing how to trade around them can be the difference between success and failure.

One of the simplest ways to do technical analysis is by using the pivot points. This method has been around for years and is described below:

A pivot point is approximately the center of today's price range . From there, I calculate three different sets of highs and lows.

These pivots are then potential support and resistance, when prices have gone outside the Value Area.

Pivot Point = (High + Low + Close) /3

  • #1 high pivot = Pivot Point + (Pivot Point - Low)
  • #1 low pivot = Pivot Point - (High - Pivot Point)
  • #2 high pivot = Pivot Point + 2 (Pivot Point - Low)
  • #2 low pivot = Pivot Point - 2 (High - Pivot Point)
  • #3 high pivot = High + 2 (Pivot Point - Low)
  • #3 low pivot = Low - 2 (High - Pivot Point)

This is Easy to Do By Hand Everyday, After the Market Closes, So You are Ready for the Next Trading Day

I have this formula in Lotus so I just plug in the numbers and the different sets of pivots are given to me. I do not use the pivot # for trading; I only use it to determine the "sets" of pivots. I also do not use the #1 high pivot as support, if the market opens or trades above it. I use them as "envelopes". Lets say the market opens above the #1 high, I'll look at the #1 low for support and the #2 high for resistance.

In my own experience, I have noticed that the #1 pivots work the best over time. If the market gaps over the #1 pivot high, you'll have a #2 and #3 to work with. You can either use limit orders to buy or sell at these pivots and use a money stop, or wait for the pivot to "hold" the market. If the pivot "holds" the market, trade an engulfment, doji-star, tail or whatever you see, which is a more conservative entry.

Did you like this trading tip?  Receive 1 FREE trading tip per week from Larry Levin by clicking: Larry’s Free Trading Tip Newsletter

Best Trades to you,
Larry Levin
Founder & President- Trading Advantage

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Special Offer to INO.com Readers: Purchase Larry’s Book: How I Made $1,900,336,82 Trading Commodities. Get a 50% discount if you purchase within the next 5 days! Use Coupon Code: 'larry'

19 thoughts on “How to Determine Where the Real Support and Resistance is Everyday”

  1. I am a member and have never regretted joining market club!! I like all of Adam's presentations,and always learn or remember something I forgot. I use the triangles for swing or long term trades,as well as keeping me on track with my day trades. (less daily homework.) I think all traders who are serious will be looking constantly for ways to improve their trade success. As well as working on their own self to deal with success and failure,greed and fear,nerve and patience.

    Happy hunting everybody,
    Snowy

  2. Bill (and to a lesser degree Mike) make the point that is so obvious to us as reader/learners that the 'teachers' continually miss.
    Their teaching methods are often crap because they lack any proper training in teaching and learning!
    As Bill points out visual aids, for example, are vital to demonstrating processes, formulas etc.
    So many times one sees a video with a chart that is unreadable!

  3. Bill N,
    I gotta agree w/ you. Nothing drives me more crazy than someone trying to "teach" a concept and failing to realize the obvious that you pointed out above.
    From my standpoint, (new to MarketClub and new to trading) I wouldn't bother w/ a method like this at this point in my trading experience. I'm a firm believer in the Keep It Simple philosophy and right now Keeping It Simple for me, means following the Trade Triangles. Why would I pay MarketClub dues and then assume that I could somehow beat their system by performing my own tech. analysis? If that were the case, why join? I understand why a more experienced trader would want to look at their own research as well, but as a newbie, I'll stick to the triangles.

  4. You can find an indicator that will draw pivot points on the chart for you. I had one at one time, but don't remember where I got it. It was free. There is one also that will draw support & resistance lines also. If anyone knows where these can be found, please email me at

    jr***********@ya***.com











    .

    thanks, Jim

  5. You will learn all, you need to tomorrow on CNBC. The fun start at the market open, don't be late! You snooz-you lose! Remember buy DZZ and ZSL. You will be a happy camper. see you'll 9:30 AM est. "Thank you very much" Elvis

  6. It´s amazing this new tool is available now. I am happy to be able to act like a pro! ernest

  7. Gentlemen,

    The above points by various readers illustrate : MOST OF THE (commercial) TEACHERS FALL IN THE CATAGORY OF IDIOTS. I HAVE TRIED AND LEFT THEM ALONE LONG TIME AGO. They DO NOT THINK AS A STUDENT THINKS. The student has a missing link that needs to be filled and these guyes JUST DON'T GET IT !!

    The above verviage should have been illustratred on a graph at every pint OR on a VIDEO to make it simple as a teacher would on a BLACKBOARD. I tried Larry Levene and he is no different than the average RUN of THE MILL promoting his wares for a fee etc. etc. The free service of weekly recos are a waste of time and you will get plenty of them. For these guyes to become teachers is a waste of MY time UNLESS compensated and they still don't measure up to the task !! I must be a poor student, or am I?

    Bill N.

  8. A very lucid and convincing presentation. I found several pivot point calculators available that are free and ask nothing more of the trader than his entering the high, low, and close.
    Thanks for the lesson.

  9. The Value area is where 70% of the volume was traded the previous day. You can get this information from a Market Profile chart.

    What Does Pivot Point Mean?
    A technical indicator derived by calculating the numerical average of a particular stock's high, low and closing prices.

    For the next 5 months we can count on the market being manipulated everyday as the Fed puts more than $100 Billion dollars a month toward making people feel more wealthy by manipulating the market up. Hopefully then people go out, spend and get our consumer based economy kick started.

  10. most charting platforms supply a variety of pivots -so why do the work when you can try these for the one that suits you best?

  14. I respect and appreciate when an expert describes his way of thinking especially when his way is short and to the point.
    Thank you Larry.

  15. Thanks for this helpful tip.

    Question: If the price trades between resistance levels #1 & #2 (using Larry's pivot point calculations these would be #1 high pivot point and #2 high pivot point), what level is considered first line of support for that price? (i.e.; #1 high pivot point, #1 low pivot point, or #2 low pivot point).

    Also, what role does the pivot point play in trading other than telling us where the center is? Does it ever become a support or resistance level on its own?

    Thanks.

  16. Great tip but do yourself a favor.Unless you want to receive a huge amount of emails and numerous phone calls from the "office of Larry Levin" I suggest you leave it at that.

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