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.

THE SUPPORT/RESISTANCE OVERLAP STRATEGY: CL Z7 ON DEC 2017

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 60.20 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 56 and selling a call with a Strike at 60.

BULL CALL SPREAD: Leg 1    
Trading Symbol LO Z7    
Option Type CALL
Option Strategy LONG
Strike 56.00
BULL CALL SPREAD: Leg 2    
Trading Symbol LO Z7
Option Type CALL
Option Strategy SHORT
Strike 60.00

ADAPTIVE FUTURES STRATEGY

Trading Symbol CL Z7
Strategy LONG
Entry Point 55.00
Target 60.20
Stop Loss 54.80
Contract Expiry Dec 2017

POTENTIAL GAIN PER CONTRACT

A target of 60.20 is a key resistance, representing a Fibonacci projection level.

POTENTIAL DOWNSIDE PER CONTRACT

Once prices break below 54.80 (an overlap support), the position should be closed with limited loss.

ACTUAL OUTCOME

The Support/Resistance Overlap Happening Now

Natural Gas: NG

Copper: HG

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