E-mini Trading: Is Support and Resistance Really That Important?

In the world of trading, experts sputter about Donchian Channels, obscure oscillators and indicators are named in a manner in which I can scarcely pronounce. Make no mistake about it; there is an e-mini chart pattern and indicator wrapped into a neat package that stands head and shoulders (no pun intended) above the self-important sounding chart patterns and oscillators whose names sound a tad too grandiose. Given a choice of just one e-mini trading indicator/chart pattern I would select, hands down, support and resistance. In my little world of trading, support and resistance (SAR) reign supreme.

So you ask me, “What is this support/resistance thing all about, and why do you think it’s so gosh darn important?”

Let’s start at the beginning, and give this nebulous idea we call support and resistance some substance and placement in relation to its placement on a typical trading chart. Support can be defined as an area on an e-mini trading chart where overpowering demand halts a decline in price. Resistance, on the other hand, is an area on an e-mini chart where overpowering selling pressure halts a rise.

A bit confused, you remark, “So you are telling me that you are all excited about a couple of vertical lines on a trading chart? That’s it?”

I take the view that SAR is more than a set of lines on a trading chart. While some traditionalists view SAR as finite points on an e-mini trading chart, I am of the belief that support and resistance exists as “zones” centered on a specific line. I think my definition gives an e-mini trader some latitude in interpreting the significance of specific stopping point. For example, if price breaks through a simple SAR line by a single tick, does this represent a breakout? Does stopping short of a SAR lines by 3 ticks disqualify resistance line as invalid?

I think not, though there is certainly plenty room of discussion on this topic.

It is my belief that support and resistance exist as loose zones around SAR lines and only a significant level of movement short of the line or through the line is cause for a dramatic change in thinking about future movement on the e-mini chart. I’ve seen many traders overreact to a slight deviation in the stopping point near support and resistance and initiate changes in their trading plan with disastrous results.

A bit confused, you ask for more clarification, “Okay, the price movement doesn’t have to stop exactly on the support and resistance line. What’s the big deal?”

One of the axioms I teach is: The market tends to stop and start at specific points on an e-mini trading charts. Of course, the action starts when the market doesn’t stop in our previously defined (by earlier stops in that zone) support and resistance lines. Let’s say, for example, a line accelerates straight through our SAR zones and breaks out (on a long trade) or breaks down (on a short trade). Well, that is cause for concern, as our earlier definition made the assumption that the market tends to start and stop along SAR zones. When that specific event occurs, a new area of SAR is formed and adjustments are made in the e-mini traders’ strategy.

The specific changes traders implement when SAR lines are the topic of a future article, but breakouts and breakdowns require careful consideration and implementation of an alteration in the previous trading strategy. Perhaps the market will continue on a sharp upward trajectory, or maybe stagger up 10 ticks then fail. This is all the stuff of trading strategy and the start of a series of articles on how to handle and profit from SAR changes.

In summary, I have defined support and resistance as the one chart formation/indicator on an e-mini chart that I cannot do without. Further, I have amended the traditional definition of support and resistance from a specific line to a zone surrounding the SAR line. Finally, I have suggested that a breakthrough of an existing SAR line is cause for a change in an e-mini trader’s trading strategy.

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