Why Trend Lines Irk Me

I've been to two trading seminars. Both of them talked about support-resistance (SR) lines being very important. "If the stock is moving up, and everything looks fantastic for a trade but there's an SR not too far away, don't get into the trade. Most likely it will hit it's head on the SR line and drop back," they would say.

It all works fantastically at the seminar - even if they have a live data feed (i.e. not pre-arranged charts). And I come away from the seminar just with a "knowing" kind of feel about me - like everything's going to be okay from now on.

I get home, put the lines on my chart, and those lines keep me out of what would have been fantastic trades. So I start taking lines off the chart - only keeping the *major* SR lines, where the price has reacted to that price level many, many times - so many times it's obvious that everyone in the world has drawn a line at exactly the same spot. That means I'm free now to get in on trades where, sure, the price has reacted there before, but only a few times.

Whenever I open a trade like that, the price *always* hit its head and dropped away.

So I put the lines back. I'm more cautious again. Now I only get in on trades where there is a decent amount of room to move before the next SR line.

Even after having done that, though, as soon as I open a trade it seems to hit its head and drop away. I ask myself "oh, should I have put an SR line there? ... Yeah, oh, I see, there's a couple of times there it did the same thing. Silly me. Be more careful next time."

I add that SR line so it doesn't happen again. I go through and add SR lines wherever they might just even have the smallest possibility of being an SR line. Now my chart is so covered with lines that it's impossible to trade - there is not enough room anywhere between lines for a decent profit, and I am therefore not able to place any trades.

And this, dear reader, is what happens to me time and time again when I try to use SR lines. I start off with a couple. I end up with hundreds. Seemingly impenetrable lines are broken without effort if I'm not in the trade. Places where the price reacted just once before become impenetrable if I'm in the trade. "Oh dear, that didn't seem like an SR line to me", I might say (but probably with many swear words thrown in), when that happens. Then I go to the next seminar. Repeat.

So the placement, and how many SR lines you put on your chart, are subjective. Different people will put different numbers of lines, at slightly different places, to the other people. It all depends on their past experiences, their recent experiences, and how they felt when they got up in the morning.

I've discovered that I absolutely suck at subjective things. Way too left-brain for that. Using trend lines and SR lines to trade is, for me, a losing combination.

Moreover, trend lines and SR lines work exceptionally well, except when they don't. From before, there were seemingly impenetrable SR lines that get broken in an instant when the market feels like it.

The above is a 5 minute chart of the Euro (EUR/USD). (Click the image to see it in full-size). I've drawn what I think are all reasonably valid support and resistance lines, and trend lines.

You can't trade with all those lines on the chart. There's no room anywhere for a decent profit between lines.

So maybe you won't agree with my placement, and that's one of my points - these puppies are mostly subjective.

It doesn't really matter anyway. Sure, on occasion the lines act as valid support and/or resistance levels. But when it feels like it, the price justs busts through them like they weren't even there. Because there not actually there, I just drew them on my computer.

Your (well, my) trading systems need to work without considering these "lines". Or at least create a way to identify the major ones mechanically.