Support and Resistance

The Trader’s U E-Letter: Issue #188
Wednesday, May 17, 2006

The Two Key Indicators in Support and Resistance
by D.R. Barton, Jr., Chairman, Trader’s U

I don’t care what you trade. I don’t care how you trade it. But if you’re any good at it, then I can be 99.44% certain that you use the most common and most useful technical tools in the universe.

Before you read on, promise yourself that you’ll finish the article. Because we’re going to talk about the oldest technical tools on the planet – that also happen to be the most powerful. And familiarity, as they say, breeds contempt. But don’t underestimate these incredible tools.

Every great trader that I know uses some form of support and resistance. Let’s see how they do it and why you should be looking at these numbers for every trade.

Support And Resistance: 2 Key Indicators

At it simplest, support is a price level where a stock can trade but cannot go lower for a certain period of time. Resistance is the opposite – a price level where a stock can trade but not exceed for a certain period of time. This chart of Qualcomm (Nasdaq: QCOM) from earlier this year shows these concepts in visual form.

But top traders see support and resistance levels as something different: They see these support and resistance levels as decision points. More than that, they see them as opportunities to profit.

In addition to chart areas where multiple tests have occurred, traders and investors use different types of prices and price tools to determine support and resistance areas – especially to predict where these areas might show up in the future. Here are a few examples:

• Significant highs and lows. All-time highs and lows are watched by both futures and stock traders. Stock traders pay special attention to 52-week highs and lows. Intraday traders watch yesterday’s high and low, and weekly highs and lows, for clues as to where support and resistance will show up in the future.
• Fibonacci, Gann and other retracement calculations. Support and resistance levels are so important that traders use many tools to calculate where these zones are likely to show up in the future. Tools like Fibonnaci retracements, Gann lines, Gann fans, etc., are all used to project future levels.
• Moving averages. Moving averages are another common tool used by traders to find where support and resistance may exert themselves. 50-day and 200-day moving averages are watched by so many institutions that they have become levels of “self-fulfilling” prophesy, if nothing else. Keeping an eye on these lines is prudent, if only because so many others are watching them, as well.

In a short article like this, we can only cover the basics. But if you would like to become an expert on using support and resistance in your trading, you have to see the special offer being made in the “Tips and Tricks” section. My friend Mike Reed is a great trader and teacher, and he has written what I think is the definitive book on the practical use of support and resistance levels. The book is really exceptional.

Great trading,

D.R.

Today’s Trader’s U Tips & Tricks

The best source I have ever read on understanding and using support and resistance levels has just been released as an e-book by my friend Mike Reed. I have talked with and traded with Mike many times and he’s the real thing. His e-book covers support and resistance like no other training source that I know. From the basics to the sophisticated nuances, Mike tells you how he profitably trades using these tactics. The section on the convergence of indicators alone is worth the modest price of the book. If you’d like to dig into the mind of a trader and come away with tools and tactics that will help you profit in all time frames, you have to go to this link and pick up a copy of Mike’s e-book: http://tradestalker.com/x.php?adminid=1763&id=10938&pid=11464

The Chart of the Week

Just when you think the U.S. markets have it bad… Here is a chart of Saudi Arabia’s Tadawul All Share Index, which shows a STUNNING drop of 50% in less than three months. And this, as oil makes all-time new highs! Keep an eye on the global picture; the U.S. markets will feel the drag of the world markets..

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