Most traders whether they are newbie’s or seasoned veterans with 20+ years of experience have come across Support and Resistance in some way. The methodologies available to calculate Support & Resistance levels are as varied as there are markets to trade. You’ll often hear gurus on Bloomberg TV saying the market is currently hitting resistance at a 50% Fibonacci Retracement, shortly followed by someone else saying that the same area is resistance because it is a Double Top. If you watch for long enough you will hear people talking about Moving averages, Volume Profiles, Floor Pivots, Elliott Waves and an endless list of methods for identifying Support and Resistance. The question facing most traders is which of them, if any work? Well the easy answer is that they all do! (To an extent)

Market Personality

Most traders recognise that the market goes through various phase’s. These include accumulation, distribution, bullish, bearish, trending, range bound, high volatility, low volatility and various combinations of these. These personality shifts lead to one of the most common issues for traders, the “OMG! My strategy worked so well last month, but this month it’s getting killed!” syndrome. Most trading strategies are built for certain market phases, and when the markets personality shifts they struggle. This is an experience we are sure that many traders have experienced. Where does this tie in with our PowerZones? Well at any given point in time, based upon the markets phase or “personality” certain methods of Support and Resistance will do very well and others may lag.

PowerZone Core Concept: Confluence

The answer lies in one word. Confluence. In the same way that a rope is made up of multiple strands for strength; the Pivotfarm Confluence PowerZones are made up of the confluence of multiple Support and Resistance methodologies including:

• Market Profile (TPO)
• Volume Profile
• Elliot Wave
• Calculated Pivots
• Open Gaps
• Naked VPOCs
• VWAP
• OHLC
• Trendlines
• Initial Balance
• Fibonacci Retracements/Extensions & Clusters
• Intraday/Prior day/week/month swing highs and lows
• Moving Averages

The depth of analysis and confluence required to form our PowerZones puts the probability of price stopping and reversing heavily on our side. For example if there was a PowerZone with a Volume Profile peak at 1121.00, an Elliot Wave ending at 1121.25, a Fibonacci cluster from 1121.00-1122.00 and also a prior day high at 1121.50. What do you think are the chances of price stopping and reversing here? The answer is very high! One of the main reasons is visibility; this PowerZone is combining methods used by at least 4 different groups of traders. There are more eyes on this area and thus it is likely to be a significantly liquid and highly probable area for price reversal.

A Statistical Edge

If combining all these methods into a Support and Resistance soup wasn’t enough we go one huge step further. A great deal of our research time is spent in statistical back testing, to help us gauge which methods to give more weight to at any given point in time. Say the market is in a trending phase our statistical testing may indicate that Volume Profile levels tend to outperform other methods. During this phase the Volume Profile Support and Resistance method will have more weight in our analysis. We pay more attention to some methodologies than others, based upon the short, medium and long term performance statistics of that method in specific market environments.

At Pivotfarm our mission is to create Support and Resistance levels that are based upon the confluence of multiple high probability methods. We then combine these methods with thorough statistical analysis to create Support and Resistance levels that are consistently evolving with the market environment. The comprehensive and unique nature of our research will give you the edge to perform in any market.