The Support/Resistance Overlap Strategy

The Support/Resistance Overlap Strategy Currently, we can identify many overlap situations happening right now in the markets. Before showing you new ones, let’s explain in detail the psychological process involved in such situations. In other words, why does a former support level becomes a new resistance mark (polarity principle) ? We will describe 3 steps to this very clear process: Step 1: you’re a seller above 10 // you’re a buyer above 10 Step 2: the price breaks below 10 and so you earn money // the price breaks below 10 and so you lose money Step 3: the price pulls back on 10 and you take this opportunity to consolidate your shortselling position around your average price, therefore contributing the price to turn down 10 again // the price throws back on 10 and you take this opportunity to clear your buying position with no loss, therefore contributing the price to reverse down on 10.

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 47 target, a Bull Call spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a strike at 44 and selling a call with a Strike at 47.

Bear Put Spread: Leg 1

Trading Symbol LO Q7
Option Type CALL
Option Strategy LONG
Strike 44.00
Expiration AUG 17

Bear Put Spread: Leg 2

Trading Symbol LO Q7
Option Type CALL
Option Strategy SHORT
Strike 47.00
Expiration AUG 17

ADAPTIVE FUTURES STRATEGY

Trading Symbol CL Q7
Strategy LONG
Entry Point 43.49
Target 47.00
Stop Loss 42.30
Contract Expiry AUG 17

THE SUPPORT/RESISTANCE OVERLAP STRATEGY: CL Q7 JUN 17

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 47 is overlapped resistance (the low of March).

POTENTIAL DOWNSIDE PER CONTRACT

Once prices broke below 42.3, the position should be closed with limited loss.

The Support/Resistance Overlap Happening Now

Canadian Dollar:6C

Palladium:PA


Copyright TRADING CENTRAL
The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects TRADING CENTRAL current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

Services in the U.S. are offered through TRADING CENTRAL Americas, Inc.

TRADING CENTRAL is not registered in France as an Investment Services Provider but complies with the following rules and directives, including:
- General Regulation Handbook of the AMF, Book III, Title III, Chapter VII "Investment Analysts Not Associated with an Investment Services Provider"
- EU Commission Directive 2006/73 dated 10 August 2006, Articles 24 and 25
- EU Commission Directive 2004/39 dated 21 April 2004
- EU Commission Directive 2003/125 dated 22 December 2003

This message is intended for recipient only and not for further distribution without the consent of TRADING CENTRAL. Although TRADING CENTRAL attempts to sweep e-mail and attachments for viruses, it does not guarantee that either are virus-free and accepts no liability for any damage sustained as a result of viruses.

About Trading Central

Trading Central is a leading provider of independent investment research to financial market professionals, specialising in the field of technical analysis. Founded in 1999, Trading Central now has offices across North America, Europe and Asia, providing research to over 200 leading investment banks, FCMs, hedge funds, brokers and exchanges in over 45 countries.