Support and Resistance
The Support and Resistance tool uses specified chart prices to calculate Support and Resistance lines. The High, Low, and Close prices of a daily range are often used as 3 input prices.
To apply the Support and Resistance tool on a chart click the Support and Resistance button.
The cursor will change to a pencil while in the draw mode. Select the 1st point from a high point (usually the High of a bar), then hold down the left mouse button and drag to the 2nd point.
The 2nd point should be the Low of the bar or trading range. Release the mouse and then move to the 3rd point.
The 3rd point is the point where the market is currently trading, or the Closing point of the range.
Click the left mouse button once to mark the 3rd point.
Place a check mark on the tools' property form in the 'Find H-L-C' box to automatically find the Pivot value using the indicated prices in the drop-down list box.
The drop-down list box allows you to choose a few variations on which prices to use for the Pivot calculation.
Make sure that you place a check mark in the 'Find H-L-C' box if you want to use the prices indicated in the drop-down list box. Example, if you select (H+L+C+O)/4 from the listbox, the tool will auto-find these prices for you.
Support and Resistance lines are plotted based on the calculated Pivot point.
The lines indicate possible support and resistance levels. Watch for support and resistance on the lines.
NOTE: The first 4 Support and Resistance lines can be accessed by the Alerts Trading System draw tool.
Support and Resistance Lines Formula
Pivot = (High Point + Low Point + Close Point) / 3 (example)
Range = High Point – Low Point
4R [4th Resistance] = 2R + Range
3R [3rd Resistance] = 1R + Range
2R [2nd Resistance] = Pivot + Range
1R [1st Resistance] = Pivot + (Pivot - Low)
H [Yesterday's High]
P [Pivot Price, i.e. Midpoint]
L [Yesterday's Low]
1S [1st Support] = Pivot - (High-Pivot)
2S [2nd Support] = Pivot - Range
3S [3rd Support] = 1S – Range
4S [4th Support] = 2S - Range
Pivot Price
The pivot price is always contained within the range of the High and the Low
points. When the formula for the Pivot is (High+Low+Close)/3 then the
Pivot will be in the middle third of the High-Low range. The highest pivot
price would be when the Close is at the High, wherein the Pivot is at 66.7% of the
daily range. The lowest pivot price would be when the Close is at
the Low, wherein the Pivot would be at 33.3% of the daily range. The
following illustration shows the maximum extremes of the pivot price for the oft
used formula of Pivot = (H+L+C)/3.
1st Support and 1st Resistance
The 1st Support and 1st Resistance levels are created by inverting the daily
range vertically about the pivot point. I guess that is where the pivot
point gets its name. This illustration shows the effect of pivoting the 1st
bar which is shown in two colors to illustrate the part that is above the pivot and the
part that is below the pivot. The 2nd bar is the 1st bar inverted
about the pivot point, and it shows where the 1st Support and the 1st Resistance
levels come from.
2nd Support and 2nd Resistance
These two levels are calculated by adding the daily range to the pivot price
and subtracting the daily range from the pivot price. The daily range is
shown graphically as the vertical blue lines above and below the pivot price.
3rd Support and 3rd Resistance
These two levels are similar to the 2nd S&R levels. The daily
range is added to the 1st Resistance level and subtracted from the 1st Support
level. The graphical illustration of this is shown using the orange lines
to measure the daily range.
Other Formulas
There are other variations of the above theme for calculating Support and
Resistance levels. The most common variation is to use a different formula
for the Pivot Price. Ensign Windows supports the following variations
through the use of the drop down listbox to select the Pivot Price
formula. The most commonly used formula for the Pivot is the (H+L+C)/3
selection.
Other formula may look different that what has been presented in
this article. More often than not, algebraic rearrangement of the formula terms
simplify the formulas to those given in this article. | 
