Great Educational Posts by Great Traders

[ZoZoStockWatch]

CLUSTERS

support and resistance...

idea of finding CLUSTERS of
support and resistance.

This is a really powerful technique, and one that is too
little used. Of course, many top traders and people on the
trading floors know all about this. But too many of your
average traders just aren't using clusters.

This is the deal - a single support or resistance number is
just that - a single number. It might or might not prove
significant. But when you can find two, three, or four numbers
that are grouped together in a tight area... then you have
something. That is a cluster.

And the more numbers coming together in a cluster, the more
you can take that cluster to the bank.

For instance, say you are trading a stock that is trading
around 32. You find a resistance number at 33.25. Then you
keep looking, maybe on a different time frame or with
different technique, and you find additional resistance at
33.20... and another resistance level at 33.28.

Now you have a CLUSTER of resistance from 33.20 to 33.28.

The general rule of thumb with clusters is that two numbers in
a general area is OK... and a lot more powerful than a single
number standing alone. Three numbers in an area is good. And
four numbers clustered together is great.

So how close do those numbers have to be? Well, that all
depends on what you are trading. That example above of a stock
trading at 32... well, all three of those numbers are
clustered together in a zone of 8 cents. That is a nice tight
zone. However, if you are trading the Dow futures, a cluster
might be a bunch of numbers within a 10 point zone.

In other words, there aren't any cut-and-dried rules about how
tight a cluster needs to be. If you just start looking for and
finding the clusters, you will quickly get a feel for what
type of zones to look for in whatever you are trading.

HOWEVER, there IS one surefire rule. The tighter the zone, the
better... this applies no matter what you are trading.


In other words, start drawing in support and resistance lines
on your charts. Then keep your eyes open for the places where
those lines are grouped together - those are the clusters you
are looking for.

Your trading will be better off for it...