northam -- not exactly
All I did was describe S/R lines and the range between them. Their application is up to you.
I'll try to change my language so it is easier to understand. I tend to write in the same style that I think, and my thought process is confusing to many. [In fact, there are often times when much later I don't even understand my own earlier writing.] What I am doing is describing two S/R lines that I found by computerized search. Each line is roughly centered within narrow price ranges where there have been many price reversals over many earlier months. For each line, the price range I used for the purpose of counting reversals was +/-200 cents. One of those lines is at 1104, while the other is at 1068. The number of reversals for those two lines were 25 and 21.
[ The range number I stated in the earlier message, +/-300 cents, was a mistake. I just checked, and it is the smaller number in the above paragraph. ]
Those two S/R lines are relatively close together when compared to recent daily trading ranges. Therefore, those two lines could be combined into one line drawn at 1086. In equation form: (1104 + 1068) / 2 = 1086 That value is what I called the middle of the range in the earlier message. It has nothing to do with the +/-200 cent price range used in searching for daily reversals.
I prefer not to combine the two lines into one, mainly because there are an unusually large number of reversals defined by each line, and no other S/R line of fewer reversals between the two were reported by the program. This is a very uncommon situation.
I'll stop here for a short explanation. The program looks for a minimum number of reversals before it reports a count. I set it to 3. The reason for this is that a count of 3 or less over a period of months usually doesn't have much effect on trading. If they were clumped together in time, and were recent, they probably would; if they were spread out in time, they probably wouldn't. So there could be reversals between those to major lines, but the program didn't report them.
So I think of the two S/R lines as simultaneously defining a very narrow trading range within which price can exist when the price swings are small enough (which isn't all that easy with today's volatility). Or I think of these two S/R lines as defining a "hard" S/R band. I emphasize "hard" because it is wide enough to make it difficult to step over the whole thing in one day, but not so narrow that price can't trade within it. So, maybe this is why I described it in such obscure ways. Or ... maybe you still don't understand me and I have to try again.
I hope this helps. And while I hoping, I hope nobody tries to replicate the method; because they wont be able to get my numbers. I use a statistical weighting on each reversal -- if it's far away in price, it's depreciated in value because it will have less emotional effect; if it's close in, it's appreciated in value because I think it has greater effect. In other words, each reversal doesn't count as exactly 1. Another reason I did the nonlinear processing is that many traders try to predict turning points, so they tend to jump in before S/R levels are reached, so I try to account for that by artificially promoting the lines as current price gets closer to the historical S/R levels. It's just an experiment. Some work, some don't.
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My personal interpretation of their application has not changed. Price is below both the upper S/R line and SMA(200), therefore price is in correction.
Both daily SMA(8) and SMA(20) are down, therefore price trend is down.
The same is true for weekly.
Statistical comparison of SPY prices over the last 15 years indicates roughly 90% chance that SMA(320) will be tagged. That 90% says that's worth waiting for because I can buy in at lower prices. I don't count that super-spike of a couple weeks ago as a serious test of SMA(320) -- statistically, outliers should be filtered.
Next time I turn on my charts, I'm going to check the history of SMA(20) tagging SMA(200) during corrections. SMA(20) is dropping fast enough such that it may be something worth waiting for and taking more into consideration.
