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Recently, I've been looking at an idea that I read in one of my trading books.
Unfortunately, I can't remember what book I read it in but the authors idea was to
produce floating support/resistance lines.
While it is easy to produce manually on a small number of charts, I am curious to
know if it can be coded for backtesting and ease of use on numerous charts.
Someone with more experience and resources (I'm using Supercharts 4.0) may
have better luck with it than I have.
The idea is this:
1. If the market is in an uptrend and todays low was higher than yesterdays,
mark today as Day 1.
2. Draw a line to the left from the low of Day 1 until it hits a bar with a lower low
and label that Day 2.
3. Draw another line left from the low of Day 2 until it hits another bar with a lower
low. This would be Day 3. Draw a line to the right from the bottom of this bar into
the future.
This line becomes the Short Countbackline (a floating support line).
As the next bar is formed, if the low was higher than yesterdays, a new line
would take the place of the previous. If the next bars low was lower, not higher,
our original line would remain. A sell signal would be produced if prices in the
future close below our line.
To generate a Long Countbackline (floating resistance line) he used the same
technique as above, except higher highs are used.
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