Modifying the zones

The support and resistance zones can be modified depending on typical market behavior. For example, bar 2’s high and low (instead of bar 2’s close and bar 3’s high/low) can be used to define the upper and lower limits of a zone if research indicates the extra range is warranted. In other words, some markets may not retest the zone using the narrower parameters, so expanding the range is necessary.

Also, the setup used the RSI for illustration purposes. Similar indicators could be substituted, such as the Commodity Channel Index (CCI), the stochastic oscillator, or the stochastic- RSI (see “The stochastic-RSI,” Currency Trader, September 2005). Finally, you could include a component that identifies the broader market trend, and then look for setups that occur in the direction of that trend.

The terms “support” and “resistance” often seem to imply precise price levels, but this interpretation is not necessarily the most useful. The concept of using support and resistance zones provides necessary flexibility for real trading.