CHAPTER 8

Support and Resistance

In a narrow market, when prices are not getting anywhere to speak of but move in a narrow range, there is no sense in trying to anticipate what the next big movement is going to be—up or down.

—Edwin Lefèvre

Nearest Futures or Continuous Futures?

For any application of technical analysis in which the accurate representation of price moves is essential, continuous futures, as opposed to nearest futures, are the only viable choice for depicting price series that extend across multiple contracts. However, in the case of support and resistance, actual past price levels, which are accurately represented by only the nearest futures, are also important. This consideration raises the question of which type of longer-term chart—nearest or continuous futures—should be used to determine support and resistance levels. There is no correct answer. Insofar as the accurate measurement of prior price moves is important in determining support and resistance, continuous futures charts should be used. Insofar as past actual price levels are important in determining support and resistance, nearest futures charts should be used. Essentially, strong arguments can be made for using both types of charts for defining support and resistance levels. Traders need to experiment with whether they find nearest or continuous futures charts more useful in identifying support and resistance levels, or, for that matter, if they find consulting both of these charts the most ...

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