Support can become
resistance and resistance
can become support if prices
break through these areas.
Here is an example:
In the picture above you
can see that once prices
fell through support (1) it
became resistance (2) and
once prices broke through
resistance (3) it became
support (4).
Ok, you probably already
knew all that but here is
something that most traders
do not know. There are
varying degrees of support
and resistance.
On the long side,
when a stock falls down to a
prior low it is more
significant than when a
stock falls down to a prior
high.
On the short
side, when a stock rises up
to a prior high it is more
significant that when a
stocks rises up to a prior
low.
In other words, the more
times a support or
resistance area is "hit",
the more significant it is.
In the first picture above,
the support and resistance
areas are very significant,
whereas in the second
picture these areas are only
somewhat significant.
Enough rambling, let’s
look at some charts...
The chart above shows how
stocks run into resistance.
But look at the areas that I
highlighted in yellow. What
are these traders doing
buying stocks that are
running up into an area of
supply (resistance)?
Now, look at the chart
below:
The chart above shows how
stocks find support. But
look at the areas that I
highlighted in yellow. What
are these traders doing
selling stocks that are
going down into an area of
demand (support)?
They do that because they
are novice traders. They
always buy after significant
buying has already taken
place into areas of
resistance, and they always
sell after significant
selling has already taken
place into areas of support.
YOUR JOB AS A SWING
TRADER IS TO IDENTIFY THE
NOVICE TRADERS BECAUSE THOSE
TRADERS ARE THE ONES YOU
WILL PROFIT FROM.
But wait! There are other
forms of support and
resistance that are not so
common. For example, look
for stocks that pull back
and find support halfway
into a prior wide range
candle. Like this:
Or, look for stocks to
pull back and find support
halfway into a gap...
The bottom line is that
you want to be buying stocks
where buyers will likely
come into the stock. You
want to be selling stocks
where sellers will likely
come into the stock. Don't
follow the novice traders!
