Drawing Support and Resistance from Fractals and Price Ranges
Summary
The article explains rules for an indicator that draws inclined and horizontal support and resistance levels. For inclined lines, it uses Bill Williams fractals as candidate turning points: resistance starts from a prominent upper fractal and support from a prominent lower one, with the next suitable fractal supplying a second point. The line is extended until price crosses it beyond an allowed deviation, or until it reaches a maximum length in bars. These settings aim to avoid treating small overshoots as decisive breaks and to retire lines that have become stale.
The article also discusses constructing horizontal levels from price ranges and using moving-average-based indicators, Bollinger Bands, or Envelopes to display levels. It illustrates price reactions around plotted levels, but gives no systematic test or quantified evidence that the levels predict future moves. The author cautions that a level can break, may reverse roles as support and resistance, and cannot by itself determine whether price will bounce or continue through it. The indicator is presented as a way to visualize candidate levels; a trading strategy needs additional entry signals and parameter selection.
Key ideas
- Resistance lines are anchored to upper fractals, while support lines use lower fractals.
- A second suitable fractal defines the slope of each inclined line.
- An allowed price deviation and maximum bar length govern when a line is invalidated.
- Horizontal support and resistance can be drawn from price ranges, and some band indicators can display levels.
- Levels can break or switch roles, so the article does not treat them as sufficient entry signals.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.