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Which S&R Lines Are The Most Important and Why? |
Commodity Futures Resources |
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Which Lines Are The Most Important and Why? Here is a picture of the current lumber market showing just a few of the many possible support and resistance lines. Which lines would you consider to be the most important? Why?
While all the lines shown were support and/or resistance only a few of the lines required the most attention. Obviously if you tried to frame a trade and considered all those resistance lines it would be impossible to put together any type of trade. So how do you choose the best lines? I would consider the following lines to be the most important because: (starting from the top) 413.7 – Because this is the contract high it always requires some respect. Also notice how abruptly the market fell off when it hit this level. This tells me that the market has some added sensitivity to this price.405.7 – I would likely ignore this line. There is no corresponding resistance to give it any strength. 396.3 – This is actually a resistance zone extending to the 397.4 area as well. Notice the cluster of resistance here and the small gap that occurred when the market traded here. Definitely worth considering when going long. 388.8 – Recent resistance in the form of the high of the last tick and several lows in recent history. If I were looking for a long position I would look for the market to break this level before getting in. 379.4 – Current support as well as current trendline support. It is also the 38% retracement line of the larger uptrend. This is an area that would need to be broken before committing to a short trade. 373.8 – Not a lot of support here; however the two previous gaps in the region might give it some strength. I'd probably pass it because of the lack of price activity. 367.1 – A significant resistance area both in price activity and the fact that it is the 50% retracement level. Definitely worth considering. 358.8 – A reasonable amount of support here coupled with the two reactions the market made at this price in August would make it an area I would consider in my calculations. Also close to the 62% retracement level and likely a "home run" profit target. 350.6 – Quite a bit of activity in this area; however most of it is old and may not have much affect on the market. 344.4 – Ditto as above. 337.9 – Same as above; however we have a few more reaction points here which would make me a little more conscience of this area. This is also close to a 100% retracement and prices may hold up here. 328.8 – A fair amount of resistance here, but more importantly it is near where the trend began and as such could be considered a 100% retracement. I would consider this to be a neckline on a rounded top formation and would likely expect to see some sort of reaction here. If you followed the market through the week you can see that Lumber lived up to it reputation as being a wild market, and in spite of its dramatic decline in prices it didn't pay too much attention to our support and resistance areas. This is primarily because it is such a thin market and price slippage is common. Remember this market was taken for illustration purposes only. I never recommend anyone trade lumber, either with futures or options. -Erich Senft, CTA Stay tuned, more trading articles to follow. |
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