The levels of support and resistance evolve over time, and the current points are the result of past confrontations between buying and selling orders. Generally, reaching a support or resistance level with a contract has the effect of increasing trading volume and temporarily halting or slowing down the speed of price movement. A lack of counterparties on an order can cause the surpassing and shifting of a so-called "historical" support or resistance level. Thus, it is more accurate to speak of a "zone" of tensions rather than a specific point.
The fixed exercise price of derivative products like options also contributes to the creation of these tension zones. They provide levels that trigger an interest volume, incorporating price movement into the mechanism described above. Analyzing open positions on these exercise prices may be considered a waste of time, as the majority of traded "blocks" occur over-the-counter (OTC), making them invisible to listed markets.
The supports and resistances presented in the currency and index sections result from a combination of various parameters, creating fixed zones resistant to time and disregarding temporary points.
Imagine a combat video game with two characters, each having a power gauge. Our indicator operates on the same principle. We monitor the confrontation between two characters— a seller and a buyer, each equipped with a power gauge. The goal is to detect, within a price movement, whether an index or other asset is rising because the seller is weakening or is it the rise of buyer power that is driving the movement. The reverse applies for a downward movement.
The green histogram represents the buyer's strength, while the red one represents the seller's. If both progress in the upper zone above 0, the price evolution will occur at a moderate speed in the direction of the stronger party. Once one of them starts to lag and enters the negative zone, the speed of the price movement will accelerate.
For the one lagging, two levels can halt its descent. Below the second level, we consider it a "market anomaly."
This indicator is a synthesis of the first one. Now you are thinking, "Why bother with the first indicator, you might as well look directly at the synthesis." Teu teu mistake ! You won't get the same information out of it.
The synthesis is composed of 3 curves :
One yellow and one green curve giving an indication of the short movement.
A red curve with a level below or above 0 gives an indication of the background movement.
Sales pressure began to pick up again around the first level, confirmed by a discrepancy in its synthesis.
- Deduction : The probability that the price will break the resistance upwards is extremely low.
Buying pressure begins to pick up again on the 2nd stage, confirmed by a stagnation of its synthesis.
- Deduction : Strong probability of the price returning above the resistance.
Buying pressure and synthesis are in the "market anomaly" zone. The entry in this zone is the result of an over-reaction of the analyzed support.
- Deduction : Exit from this zone is generally accompanied by high volatility.
The indicator at the top (white) is a basic index (oscillator) measuring historical volatility (HV). Putting online complex statistical indicators, requiring more attention and learning, did not seem appropriate to us. Visually, an oscillator will allow you to grasp the overall level more quickly and easily.
The indicator at the bottom (yellow) measures the sensitivity of the first indicator.
The bottom indicator (yellow) measures the sensitivity of the first indicator.
If all these explanations bore you, and you want a simple answer to the question: will it go up or down ? In this case only one solution.