Trading method using price action! (About support and resistance)

Session 4: About Soporaji

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What is Soporaji...

A Soporaji zone (the line) arises for clear reasons.

Please recall the Dow Theory explained from the first to the third sessions.

Using Dow Theory, we analyzed what trades market participants are currently planning to make.

Dow Theory states that “the trend continues until a clear turning signal appears.”

To briefly define the trend:

① Uptrend is defined as higher highs and higher lows

② Downtrend is defined as lower highs and lower lows

③ Otherwise, it is a range market

That is the case.

(Figure 1)

During an uptrend, breaking the recent low downward may indicate a shift from an up Dow to a range market.

It may become a down Dow.

(Figure 2)

No one knows what the next move will be.

From here, we will consider future market directions based on hypotheses such as “this is likely to happen, there is a high probability of it” for the next moves.

The green up-arrow line is a line that must not be crossed for the up Dow to continue. This is the first Soporaji line (support line).

Market participants who believe the trend will continue until a clear turning signal appear will buy to support when an up Dow looks about to break.

Because, if there is no basis for buying, they would have to admit losses and realize them.

(Figure 3)

That manifests as movements like in Figure 3. This is evidence of buying support.

Later, the blue wave breaks the support line.

(Figure 4)

Then market participants think: since it is no longer an up Dow, will it become a range or a down Dow next? That is the consideration.

As in Figure 3, while an up Dow remained, a red downward wave occurred.

When the red downward wave reaches the up Dow’s support line, buying support is triggered by those who want to keep the up Dow ongoing (green wave).

Then, it becomes a contest whether the red wave wins or the green wave wins, and that becomes the critical point!

Ultimately a gray range market forms, and if, with the blue wave, the green-arrowed support line is broken downward, a down Dow is completed.

This isa clear turning signal in Dow Theory.

Therefore, the green-arrow support and the gray wave highs become the yellow-boxed resistance zone.

(Figure 5)

Next, when the market reaches this zone, the down Dow continues, and there will be movements to push down and defend this area.

Because once the down Dow is formed, market participants who entered short must admit losses and realize them if the basis for selling collapses.

If the basis for selling breaks above the yellow zone, it occurs.

This is why Soporaji arises.

Afterward, the following movements are more likely to occur.

(Figure 6)

1) Will it reverse at point ①? 2) Will it reverse at point ②? 3) Will it reverse at point ③?

We cannot know, but considering market participant psychology, selling within the blue wave is statistically more advantageous than buying.

The market continually moves within the Soporaji ranges generated by Dow Theory, with corrections.

If you understand that at Figure 3 there was an advantage to buying and at Figure 4 there is an advantage to selling, you will not misread the direction!