|
***** Disclaimer: This is NOT investment advice, just general help and
Dan Chapman's opinion, please check with a registered investment
advisor before making any trades or investment decisions. This
document may contain errors.
|
|
Topics: also see  Resistance & Support Movie
Resistance and Support price levels
| • | Resistance is a price level(or area) at or above the current stock
price which provides resistance against any upward movement of the stock. ie. The stock may rally to resistance.
(labeled as red lines on the 6 month chart) |
| • | Support is a price level(or area) at or below the current stock
price which provides support against any downward movement of the stock. ie. The stock may pullback to support.
(labeled as blue lines on the 6 month chart) |
| • | A "support or resistance" price level(or area) provides resistance from upward movement
and support from downward movement. ie. The stock is stuck at this price level(or area).
(labeled as a grey line on the 6 month chart) |
| • | Resistance and support levels are shown as price areas (an estimation) each having a width in stock points (+ and -). |
|
Resistance and Support types and strength
| • | Support and resistance types vary from Single (S), Double (D), Triple (T) and more than Triple (T+).
(S,D,T,and T+ are the labels used on the 6 month chart) |
| • | The type refers to the number times a stock has visited that resistance or support
area over the past 6 months (Single=1 time, Double=2 times, Triple=3 times, Triple+= more than 3 times). The more times a stock has visited
a particular price area in the past the stronger the resistance or support. |
| • | Also provided is a strength number which varies from 1-10. This number represents the amount of
accumulation or distribution used to create that support or resistance. |
| • | Weaker resistance and support levels created with light distribution or accumulation have
strength values from 1-3. |
|
Resistance and Support Tips
| • | Strong tops with high volume can create a strong resistance(type single) with a strength of 8-10 (high distribution).
This will provide strong resistance level if a stock revisits that top on a future rally.
Same is true for the creation of a bottom (type single support, strength 8-10, high accumulation) which is revisited on a future pullback. |
| • | If a stock has a good rally to a resistance area then that resistance will have a larger
impact than if the stock hit resistance early in it's rally.
Early in the rally the stock will have more strength to overcome the resistance area. The same effect occurs when a stock hits
support after a good pullback, the support's impact/strength will be greater. |
| • | Very congested resistance/support areas, with one resistance or support after another may need
to be treated as one wide resistance/support band. The stock may exhibit very choppy (up and down) trading in this band. |
| • | Resistance and support levels adjust and are dynamic. You have to be flexible and set up rules to deal
with the formation of new resistance and support levels. |
|
Back to Main Help Page
|