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SMAs and S&R Levels

Dear Mark D,

Support and resistance levels are very dynamic and, to newbies like me, oftentimes, they are not easily recognizable.

How would I use SMAs to help me identify S&R levels? With what settings?

Thank you!

Doctor T

Best Answer

  • markdmarkd ✭✭✭
    Accepted Answer
    I wouldn't use SMAs at all to identify support and resistance. Sometimes price will bounce off them, but to me that is just a coincidence.

    Support and resistance occurs most often when price returns to a level that showed heavy volume, either in a single bar or several bars in narrow congestion. The increase in volume shows that buyers or sellers think the price is important and are committed to it. So, when price returns, it's a test of whether that commitment still exists. If it does, buyers support it again, or sellers resist it. If the SMA happens to arrive at that level at the same time as price, it appears the that the SMA is support or resistance, but it's not.

    To me, the best way to identify support and resistance on a chart is with price channels of different lengths. Price channels track the highest high and the lowest low in the chosen look back period. Past highs mark resistance and past lows mark support, however temporary. However, the longer a high or low remains untested, the more significant it is likely to be when prices come back to it. Channels keep track of these points. So I use 10, 21, 63 and 251 price channels.

    For the sake of scanning. you can use Fast K (x, 1) to find symbols where price is approaching and upper, lower of mid channel. So, for instance, if you think price returning to a monthly low is important, you could write

    and [20 x Fast Stoch %K(21,1)]

    That says price ( represented by %K(21,1)) has crossed into the lower 20 per cent of the past month's range. If you look on the chart, you will see the close is very near the 21 day lower price channel. So, you would look left on the chart to see if there are prior lows near that level with heavier than usual volume. Assuming there's an up trend, and there hasn't been heavy selling off the top, this would be a trade to consider. You might confirm it by applying fib lines with the annotation tool to see if the heavy volume falls inside the 38-50-62 lines.

    But, if you want to use SMAs, the most popular are 20, 50 and 200, and you would look for price crossing below those levels, so

    and [sma(20, close) x close]

    Try it both ways and see which you prefer. Everybody is different.


  • Dear Mark D,

    Thank you for your reply!

    I did not mean to use SMA to identify S&R levels. I meant to ask if there was a way to use SMAs to actually draw straight S&R lines.

    I'll look into Price Channels.

    Doctor T
  • lmkwinlmkwin
    edited March 11
    Another option that may be beneficial is to add Horizontal Lines as a chart overlay.
    I use Gerald Appel's Magic numbers. These are levels that he observed to be where expected support or resistance is shown on most charts. Kind of Darvas box like. I combine these horizontal lines with the ZigZag indicator overlay to get a pretty nice visual of Wyckoffian type action.

    I use a zigzag 6 and a zigzag 14. These sort of line up with point and figure box and column reversals. I'm really more of a PnF analyst, using dynamic CSS patterns. Line charts come in handy for secondary review and looking at indicators that you can't currently display on StockCharts point and figure charts. The 6 more closely approximates the P&F activity for prices over $50 and the 14 for stocks under $50.

    The magic numbers are approximately 15 to 20% apart. I've included them below (for copy/paste), but you can put your lines at whatever spacing works for you. His only go up to 154 as there weren't very many popular stocks in the 70's and 80's higher than that.


    Gerald Appel authored several popular books and methods using technical indicators. In the 1970's, Gerald Appel began to develop and utilize statistical trading systems to spot trends to guide his trades of equity and income mutual funds, stocks, and derivatives. He was a pioneer in the field of technical trading, and he is still considered by some to be a market legend. He invented an indicator used today in most stock charting software called the MACD (Moving Average Convergence/Divergence) Indicator.
  • The zigzag 6 more closely approximates the P&F activity for prices over $50 and the zig zag 14 for stocks under $50.
  • Dear Imkwin,

    Thank you for your reply!

    How do you calculate the Gerald Appel's Magic numbers?

    Doctor T
  • The Magic Numbers are Gerald Appel's creation. They are just levels at which he observed a tendency for prices to find support and resistance, on their way up and down. They are the numbers, there is no calculation. If you add a Horizontal line overlay (you can copy and paste them into the parameter field for the Horizontal Line overlay) they will appear on your line chart. I use them on ALL of my line chartstyles.
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