Support and Resistance Lines

The concepts of resistance and support are part of the foundations of technical analysis. Like trend lines, resistance and support convey assumptions about price patterns that are ambiguous. Just when is resistance or support broken? When is resistance and support simply being probed? Current technical analysis of resistance and support treat those concepts as firm and quantifiable. They are not. We can see the inherent ambiguity in finding resistance and support

Price patterns such as triangles and channels are patterns that exhibit similar degrees of vagueness and are imprecise when the trader attributes
powers to the patterns that they do not have to predict future price direction Keep in mind that the patterns, which are perceived by traders, are
subjective and at best ex-post facto. They are easy to see after they have formed.

True patterns in nature are mathematical and can be tested by scientific methods. More importantly, they are intersubjective, which means that other people can confirm them.

Price patterns are flawed because they are bestcase interpretations. However, patterns do provide
evidence of the status of emotions in the market.
Fibonacci levels are among the most popular tools for trading and do give insight into the nature of price action. Although the field of technical analysis ascribes nearly magical powers to Fibonacci levels, they are still not reflective of any inherent direction.

When prices seem to move in Fibonacci retracement ratios it is because that is the way energy moves everywhere (the famous Nautilus shell is a classic illustration of Fibonacci
patterns, and the proportions of the human face follow Fibonacci ratios), but this does not mean that they predict where the price is going. Furthermore, markets recognize where the Fibonacci points are and use them to create trading triggers. This creates a self-fulfilling process. Fib lines need to be seen as providing zones of possible resistance and support.

The most important weakness in applying Fibonacci analysis relates to the confusion of where to locate a bounce or break off a fib line. This kind of thinking creates a lot of room for error. Just when can a break of a Fibonacci line be considered a break? A break is a very subjective concept. Do we consider a break when the price reaches above or below a Fib line? Or do we have to wait for a candle to close more than once above such a line? The answer may vary among different traders
Chart wave analysis (Elliott Wave) is another popular form of technical/teleological analysis that offers traders the promise of finding and riding a direction more accurately.

The problem with wave analysis is that it is not falsifiable. Prices are defined as being in waves that are part of an impulse or a corrective sequence. Within each sequence there are mini waves as well. Those who follow wave analysis find comfort in this detailed set-up, until prices do not follow the wave prediction. Rather than accepting the fact of being wrong, wave analysts will say that the price is correcting and then will resume back in the right direction. Many traders have heard the statement: the price will go down and then go up.

This is nonsense. It is subjective and vague. It is misleading to the trader who wants to use a method that is reliable. When is a wave based trade wrong? Wave trading is a form of forecasting that has huge degrees of ambiguity. Riding the wave is easy when one is looking in the rear-view mirror.