Constructing defended price lines from volume spikes

Why the lines are drawn

This archive article reconstructs a chart-construction workflow. Support and resistance are treated as the visible result of supply and demand pools that must be absorbed before price can continue through a pause, pullback, or reversal.

A defended price line is a horizontal price level inferred from volume and movement evidence. It marks where a supply or demand pool has already been encountered and may be encountered again.

Price formulas as proxies

Price-only formulas such as floor pivots and Fibonacci levels are presented as proxies because they ignore volume. They only approximate where the pools sit. The workflow places lines from the bars that show the pool, not from a calculated grid.

Marking the bars that expose a pool

Relative volume is constructed as how many standard deviations current volume sits from a lookback average. Two standard deviations is given as a working threshold for a significant spike on end-of-day data. That spike flags unusually large participation defending a price.

Freedom of Movement is a histogram of relative price change divided by relative volume, expressed in standard deviations. Spikes beyond a threshold mark bars where large effort produced little price progress, which implies that a hidden pool has been hit.

Isolated Freedom of Movement spikes are used mainly to confirm and refine lines. A same-bar pairing of a relative-volume spike and a Freedom of Movement spike is treated as stronger evidence that a defensive reaction stopped price.

Heuristic placement inside a zone of uncertainty

Initial line placement is heuristic and follows bar geometry. Overlapping bars and small gaps are drawn from the prior close. Very large bars and large gaps are drawn from the spike-bar close. A two-to-four-bar volume-climax cluster is treated as one climax rather than several separate lines, and it is drawn at the open or close extreme of the last or next-to-last spike.

The first line sits in a zone of uncertainty, the price range between a spike bar and the prior bar. A newly drawn line is treated as only one piece of evidence.

Refining lines with later evidence

The line is later shifted inside that initial zone to fit later nearby spikes or a doji. A doji is described as tending to print exactly at these prices, so doji confirmation can snap a nearby line more precisely when later evidence appears.

Strength is judged by how many later spikes attach to the same line and how often price holds or consolidates there. Later bars that merely touch or pass through an existing line are counted as that line being honored, not as a new line.

Overshoot and unfinished extremes

Price is described as normally passing a short way through a defended line before the reaction appears. Those lines are not used to forecast the exact extreme of that momentum overshoot.

At historic highs and lows the method can place only initial heuristic lines, because there is not yet later spike evidence with which to judge or adjust them.