Forum Archive Index - July 2001

[Phaedrus <Phaedrus@techemail.com>]

Peter,
      I tend to favour Market Psychology as an explanation for the existence of 
Support and Resistance levels. In John Murphy's classic TA books, he devotes 
many pages to detailed explanation of this concept. Support and Resistance 
levels have been a recognised phenomenon for a very long time. This is not to 
say that charts can not influence the market, but I think it is important to 
keep in mind what comes first! 
  An interesting (if somewhat circular) argument could run like this:- Because 
of the proven existence and utility of levels of support and resistance, 
increasing numbers of people are using them to trade (buying at support and 
selling at resistance). This tends to reinforce the locations of these levels, 
and make them more persistent than they may otherwise have been, and thus more 
dependable.
  I had a look at the chart of MU. It certainly is in a clear trading range.
  Re the RNS chart. The most useful feature was of course the really good 
trendline marking the rapid run-up from 85 cents to $1.35. What makes a good 
trendline? One that is "respected" (confirmed) many times before it is broken. 
This happened about 8 times in this case. Selling at the trendline break would 
have got you out at $1.32, only a few cents off the high of $1.35. How good can 
it get?
                Phaedrus.



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