User Guide: Walnut Levels

Chapter 1: Support & Resistance

I have been sharing my Walnut Levels with you now for the last four months. As I explained in an early episode my levels are a combination of several different methods that I have combined together in order to simplify my own methods.  There are so many examples on my timeline of my method working on a daily basis but I thought I would share a few key concepts before I explain how they work. Let’s go:

What Is Support?

When price is falling, it falls because there is an excess of supply over demand. The lower prices go, the more attractive prices become to those waiting on the side lines to buy the shares. At some level, demand that would have been slowly increasing will rise to the level where it matches supply. At this point, prices will stop falling. This is support.

Support can be a price level on the chart or a price zone. In any event, support is an area on a price chart that shows buyers’ willingness to buy. It is at this level that demand will usually overwhelm supply, causing the price decline to halt and reverse.

What Is Resistance?

Resistance is the opposite of support. Prices move up because there is more demand than supply. As prices move higher, there will come a point when selling will overwhelm the desire to buy. This happens for a variety of reasons. It could be that traders have determined that prices are too high or have met their target. It could be the reluctance of buyers to initiate new positions at such high valuations. It could be for any other number of reasons. But a technician will clearly see on a price chart a level at which supply begins to overwhelm demand. This is resistance. Like support, it can be a level or a zone.

Examples of Walnut Levels Acting as Support/Resistance

Let’s go through these images one by one, in the first image, you can see that price bounced off 4161 as support – a chance to go long. And then made a great move upwards. In the second example, you can see that price was rejected from 4151 so this was resistance – a chance to go short. Lastly, I have an example of where my lines were support at the bottom of the trend and resistance at the top of the trend – a perfect play!

So your single most important job during the trading day is to WAIT for a Walnut Level to show it is acting as resistance or support. Once you see this, you know to go long or short.

Buying the Retest – Selling the Continuation.

My favourite strategy to play is the first picture in the three examples above. Let’s break down what happens in those moves:

This example above is what I look for every day. Let’s break it down:

1)     Resistance is where sellers create supply. Stopping the price going higher.

2)     Eventually buyers are stronger than sellers and price breaks over our resistance

3)     As some buyers begin to take their profits price goes back down for a “retest” on the line of resistance. We want to know the answer to the important question – Has resistance turned into support? If it has then price will stay here and eventually go higher.

4)     Continuation – This is where we sell and take our profits.

Using the above method we BUY at (3) and we sell at (4). Until then, we sit and wait. We get moves like this EVERYDAY using the Walnut Levels. Scroll through my Twitter feed and see for yourself. Let’s take a look Thursday this week where we got a move just like this:

The above image shows you the breakout from 4161 to 4170. The two blue lines are our Walnut Levels. The bottom one is the line at 4161 and the top one is at 4170. In this example, you can see that we should be buying at (3) and selling at (4).

It is important to note here that we are NOT buying the breakout itself. Why? Because breakouts fail all the time, often they are perfect traps by sellers – taking the price higher only to trap buyers and then go into to a heavy sell. For this reason: We buy the Retest. And sell the continuation.

The beauty of this setup is that it can be used both long and short. Here is an example from Wednesday of a retest on the way down:

1)     4151 acts as support

2)     We see a breakdown of price below our key walnut level

3)     Price retests our level and fails – retest has been confirmed! Lets go short.

4)     Continuation! Time to cover and take our profits.

How deep does this rabbit hole go?

This is a very basic introduction to one of the methods I use. I have shown you the 1 minute chart but in reality, to further my conviction in the trade I also use:

·        The 5 minute chart

·        The 15 minute chart

·        The Walnut Footprint Chart

As well as this there are also some basic rules to follow to ensure you are on the right side of the trade, these are things like:

·        Never go long on a lower high

·        Never go short on a higher low

·        Never go short on big positive delta

·        Never go long on big negative delta

·        Never be a in position 30 mins before and after big data readouts

There is a lot to digest here. Especially if you are new to resistance and support. My homework for you would be this:

In the coming week, draw out the walnut levels onto your charts. In doing so, watch each day where price shows that a level is in play as resistance or support. Take screen shots of these moments and make notes against the screen shot – perhaps in Word or PowerPoint. What did price do here? What bias did it give you for your trade? Was there an opportunity to take a position? Where would you have sold?

I hope you have enjoyed Chapter 1 of my User Guide. I look forward to hearing how your homework has gone.

Sincerely.

PW

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Walnut Footprints

I explain how to read my footprints here. You can download and use it for free.

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