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highs on a chart. Very often, you will find that a support area will become a resistance area in the future. And likewise, a resistance area that a stock finally penetrates to the upside becomes a support area in the future. |
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The daily chart's support and resistance areas will help you better decide whether a trade setup is worth entering. If there is a lot of resistance just above where you buy, then you may want to pass up the trade. On the other hand, if a price resistance area is being broken or has recently broken through to the upside, a buy trade setup has a better chance of success. Look for these areas on the daily and intraday charts to find the nearest upside resistance level above the current price if you are buying or the next support level down if you are selling. Remember to not impose your ideas on the market. Instead, react to what it tells you with the daily and intraday setup patterns. The S/R levels will help you find the best trades to enter. |
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"Trading congestion" is something to stay away from. If a commodity or a stock is not trending, has narrow range daily bars (from high to low), or is just chopping sideways, then avoid it. Wait until it breaks out of congestion and begins some good daily price swing activity. This is when you look for the trade setups to act upon. Also, look at the recent average range of a daily price bar (from high to low). If that stock doesn't trade over a point or more on a regular basis, then you probably won't want to day-trade it. Look for the bigger profit opportunities with stocks that are currently in a "trader friendly" price swinging mode. For commodities, use 16 ticks for bonds and 10 cents for beans as a good average daily range. |
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You'll also notice that many times, the 50- and 200-day simple moving averages act as price support or resistance when trading equities. This is because many fund managers monitor these averages and use them in their buying and selling decisions. Being aware of where these lines are can aid your analysis. Support and resistance levels aid your decision-making for day-trades. They show how far a commodity can be expected to move up or down on both an intraday and daily time frame. This is the final step (or filter) to confirm a potential trade, or to rule it out. |
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Note: Barry's fax number is (214) 827-9530. |
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