Part 2. The Power of Algorithmic Support and Resistance - Apple

Welcome to Part 2 of the series examining algorithmic support and resistance (S/R).

Today we'll check out Apple Inc (AAPL), and how the algorithm defined S/R zones over the last 15 years.

So, as I mentioned in Part 1 (see the Related Ideas link below), the algorithm incorporates a number of factors to determine, in real-time, viable support and resistance zones. I primarily trade currencies, and dabble with some indexes, so I was interested to see how the algo performed in a upward biased equity market (equity markets, unlike currency markets, have an intrinsic upward momentum over the long-term). Spoiler alert: it was almost flawless.

Now, I have to admit that I've cherry picked this example; not every equity/currency/index/bond market will work this well - but it is a good example of how valid the algo is. But, like every tool in a technical analysts arsenal, nothing works every time.

Okay, without further rambling, let's check out some examples. We'll start back in 2006:

So far, so good! There were heaps of great tradeable signals provided by the algo. Remember, as soon as a zone is identified (the vertical background colours), you can trade any subsequent signal - there's no need to wait for confirmation of the zones validity. Let's have a look at the next chart:

The really interesting thing for me is how price gets stuck between Zone 3 and Zone 4. This is a perfect example that highlights how accurately the algo manages to identify zones, and how the market respects them in a consistent manner. Onto the next chart:

Here we can see how, even when a zone is initially breached, it can later provide significant support/resistance. We never know exactly when a market is going to respect a zone - we simply have to wait for market/price confirmation. The next chart:

Again, some really great trading opportunities here. Breakouts and retests of S/R zones are particularly great trades. You will sometimes experience false breakouts, but that's where trade and risk management comes into play. I really love how zones can come back into play years after they're formed. Okay, the last chart:

Now we're up to date! Zone 8 again provided some great opportunities, and Zone 9 has yet to be re-tested by the market.

That's all I wanted to cover for today. Basically just providing further examples of how the algo forms zones, and how the market (fairly) reliably reacts to them. Knowing where the market may react and where price may turn is half the battle. As you can see, you could have made a great deal of money trading these signals (ignoring the fact you could have made a great deal just buying and holding Apple, but that's not what we're looking at today).

Feel free to get in touch if you have any comments or questions!

All the best,

DD