To all those new to day trading techniques and Level II software,
print this chart:
bigcharts.com
This is a 15 minute chart (Each tick equals 15 minutes of trading). Once you have printed the chart, get a ruler or a straight edge. Look at Wednesday on the chart. You'll notice the 1st and 2nd tick (9:30 & 9:45) have a double bottom (Testing support) and that the high of each tick is descending (Downward pressure). Also, notice the volume is decreasing. At this point, it could be consolidating for a rally or, if it re-tests the support once more and stays below the descending (Tick high) resistance it will break down (Get out when you see that).
To understand the nature of support and resistance, you must first learn about channels. There are three channel configurations in charting. Sideways, ascending (Up), and descending (Down) are the three channels. Channels are created by drawing a line from the bottom of at least two ticks (Support) and the top of at least two ticks (Resistance). That gives you an idea of the trading range (High/Low) the stock is in at that moment.
THE DESCENDING CHANNEL
Go back to the 9:30 and 9:45 ticks for Wednesday. They have a double bottom. Draw a line that connects both of those bottoms and extends to both edges of the page. Look to the previous day. Do you see where, on Tuesday, three other ticks have a bottom at the same point? That is a strong (Near term) support level for this stock.
Now, draw a line starting at the high of the 9:30 tick, connect the 9:45 tick high, and carry the line, in the same direction, down to the bottom of the page. The next tick at 10:00 falls within the two lines (No direction yet). The 10:15 tick breaks through the resistance and has a higher low but it does it on lower volume (It's still consolidating - no direction yet). The next tick at 10:30 ticks up slightly but immediately turns and breaks down through the support (Key is to watch the volume - a tick can trend slightly out of the channel on low volume and it will mean nothing but large volume is real buying or selling). Notice that the next tick at 10:45 fell and then ticked back up. When it comes back up sell if your long the stock but make sure it is within this tick (Look for the high of this tick to sell). The ticks, at 10:45 and 11:00 form another double bottom but the 11:00 is on greater volume. Let it drop till it bottoms and ticks up.
Look at your original support and resistance lines. Erase your old resistance line on this chart and draw a new resistance line from the tick high at 9:30 to the tick high at 10:30 and continue the line to the bottom of the page. This will be your new resistance. Now, draw a line from the tick bottom at 9:30 to the tick bottom at 10:45 and continue this line to the bottom of the page. This will be your new support. When the 11:15 tick broke down through the support level, the support became the new resistance (Meaning the stock has to break through the new resistance for it to go back up). Notice that the 11:45 tick tests the new resistance level. By merely trending sideways, the 12:00 tick breaks through the resistance, rendering that resistance meaningless since the 12:15 tick drops lower then rallies beyond that resistance level. Erase that resistance now.
The new resistance level is the old one from 9:30-10:30. The 12:15 tick breaks that resistance at 20 7/8. Put a buy in for 21 - 21 1/8. Let the next two ticks rally and sell anytime on the 12:30 tick or let it re-test the new high on the 12:45 tick.
This should help you get an idea of support and resistance and how they are used to make money. I highly recommend you get a book on technical analysis.
Welcome to SA and power trading,
JEB |
