bollinger band manual - mark deaton

PSR System Copyright 2008 Mark T. Deaton Inc.

PSR Manual

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Dynamic support and resistance uses the lows on uptrending stocks, and the highs on downtrending ones.


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Entry

Old dynamic Support New


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Adjustment to support


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New support


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Any missing support lines are simply a matter of trades we were in and waiting to close or similar.


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Bollinger bands

Bullish

In response to approaching price to upper band.

1. Upper band and lower band rising with price, slow and steady.2. Upper band rising lower band flat, rising slow and steady, maybe a little faster than #1.3. Upper band rising, lower band falling - fast sharp, explosive moves.4. Upper band flat lower band either, indicates reversal after band is hit / penetrated.

Bearish

In response to approaching price to lower band.

1. Lower and upper and falling with price, slow and steady.2. Lower band falling and upper band flat, slow and steady, maybe a bit faster than #1.3. Lower band falling, upper band rising, fast sharp explosive moves.4. Lower band flat upper band either indicates reversal after band is hit / penetrated.

I worte these rules in the manual so you would have clear rules for the bands, see the videos for ex-amples.


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Risk / Reward = Support & Resistance

Your risk is directly related to where you enter relative to your support or resistance thresh hold. If you enter a trade .75 cents away from your S/R thresh hold, you then allow yourself to much risk to justify the trade.

If price action won’t allow entry right on top of your support or resistance line, then don’t trade. The concept is simple and crucial to your long term success.

You need to have clear and precise, and low risk exit points. I’m reluctant to say “zones” because that implies discretion, when in fact this clear exit is so critical.

DO NOT participate in trades that can fool you into “holding on”. For example:

Avoid trades like this. A move against you here would cause you to wait until that true support line (blue) is hit because truly that is where support is.

This “waiting” for true support will blow out your account fast. This may seem simple but 99% of you have never even considered how important this is.

That green dot may become true support, but right now its not. This is where mastering your dynamic support and resistance comes in.

There are some very cool dynamic S&R tricks I use to generate very nice trades...


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On a short trade like this I will enter when I see the bullish sentiment fading into a long upper wick. This allows for great option pricing, staying 1 step ahead of the crowd, and an immedi-ate exit the next morning after the first 2 hrs if I’m wrong.

Usually it results in a long 10 day + trade. Notice we have 2 resistance areas here, our diago-nal line as well as the 21 day MA dashed line.

You missed it, this entry is to late, to much risk because your stop is at resistance.

Only the risk that you’re wrong should be taken here.

Let the previous low be your trigger


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Looking at the example on the last page I want to show you what gave us reason to enter short here. Couple of reasons.

After the first say 2 hours this red candlestick was pushing down. Price failed to penetrate the recent high, or we can say basically it’s a little double top, or double attempt. AND it’s at our brand new resis-tance area.

Because the diagonal line is brand new, and only there because of this new high, it needs other confirma-tion to enter.

So this entry is made about 2 hrs into the day because of everything here. Also note that near days end Bollinger bands already begins to turn down.


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We are measuring the trend down to identify potential reversal zones, so we need the top at 0 and the bot-tom at 100%. This way the lower retracement zones come first, 23.6, 38.2, 50 and so on...

Measuring the H and L of the 2 ovals.

We can see that we reached 161.8 which indicates a trend reversal. Noticed the bounce at 100% before 100% was penetrated 6 days later.


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A closer look.


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The dark ovals are the old areas we measured. Because price blew through our 100% its nec-essary to get a larger chunk of price action to see just where we are.

My action was to take this swing down here.


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Fibonacci is a valuable asset in applying your dynamic support and resistance entries.


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The black ovals represent our initial and second measurment areas, now we reverse and make the bottom 0% and begin measuring the move relative to this high and low. Again we want to be moving in the posative direction 23.6%, 38.2%, 50% and so on...

Old Fibs.


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Notice the reversal at exactly 161.8


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bollinger band manual - mark deaton

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