In this post we (1) link chart support and resistance lines to the concept of “vectors” from introductory physics, (2) describe the associated zone of influence for the identified vectors, (3) describe how vectors can aid explain-ability of forward prices, (4) introduce the concept of Vector Strength.
A ticker’s price reflects the net balance of forces acting upon it.
The ship in the diagram will move according to the net pull of tugboat X and Y. VecViz can’t identify the “tugboats”, or forces, acting upon a ticker, but it can identify the where and when of their onset and the “net pull” trajectories that occurred.
Tops and Bottoms mark the onset of new forces.
As suggested by the arrows in the stock chart above, VecViz presumes that tops result, at least in part, from the onset of new bearish forces and bottoms result, at least in part, from the onset of new bullish forces.
The line connecting two Tops or Bottoms is itself a Vector.
The slope of such a line represents the average impact on price per day from the net vector balance for the period spanned. This price per day impact is a magnitude of sorts (though it is not Vector Strength, to be defined later), and it has a clear direction, up or down.
Physics has a term for forces and netted forces: “vectors”. Vectors describe forces in terms of their direction and magnitude. VecViz is not physics, but net vector balance trajectory meets the definition of a vector as used in physics.
Vector Sets define a range of support and resistance.
Does the upward vector that resides at the bottom in the diagram below have influence only at the bottom price? What about the downward vector at the top? Does it have influence only at the top price? Hard to argue about that but also posit net vector balances persisting across long time periods spanned by two tops or two bottoms as we just did earlier. If there are Vectors then there also must be defined ranges in which they apply.
A channel, or Vector Set, created by adding a parallel vector line that is tangent to a nearby top or bottom (bottom if the initial vector touches a top(s) and vice versa) defines an estimated range of vector influence. Comprised of lines marking both upward and downward primary vectors, Vector Sets can serve both as support to prices falling from above and resistance to prices rising from below. This holds true for both flat Vector Sets (such as the diagram above) and sloped Vector Sets (such as the diagram below). To reflect the difficulty of traversing a Vector Set. we place 3 lines at its center. The 5 lines that result form the core of a Vector Set.
Vector Set “leveled up” and “leveled down” zones allow for shocks.
Brief but powerful shocks, can shift a long term powerful vector. As the chart of US Employment below depicts, this is what happened to US Employment during the Global Financial Crisis (GFC) and Covid. The leveled up and leveled down sections below are bordered by an area as thick as the center 3 lines of the core channel, reflecting similar uncertainty about where the leveled up and down area ends as there is regarding where the center of the core is.
Identifying all Vector Sets creates a distribution of explainable prices.
VecViz systematically and exhaustively identifies the Vector Sets resulting from all combinations of Tops and Bottom. With up to 13 Tops and 13 Bottoms and 15 vectors per Vector Sets, several thousand price outcomes can be obtained by extrapolating each Vector Set to the model date.
Each vector price can be linked to the top(s) and bottom(s) that anchor the Vector Set it is a part of. Each Vector Set can be tagged with brief narrative descriptions of important events and themes, or “VecEvents”, whose period of influence is at least in part defined by the anchoring top and bottom dates. VecEvents can help users identify the forces netting to the trajectory of the Vector Set, thereby providing some explanation of how the prices that the Vector Set terminates at could come to occur.
Vector confluence is only one aspect of support and resistance.
Each of these prices, is born of a vector set comprising upward and downward vectors and thus can exert both support and resistance. The amount of support and resistance at a given price level is a function not only of the number of vectors that reside there or in very close proximity, it is also very much a function of the “Vector Strength” of each vector.