Support and Resistance Trading

By Alfred Fernandes | March 3, 2009


What is Support and Resistance Trading?

The Stock Trading taking into consideration the historic Price Support and Resistance Levels observed on technical charts is called Support and Resistance Trading. So let us find out what are the Support and Resistance Levels.

What Are Support and Resistance Levels?

A Support Level is a price level where the price tends to find support as it goes down in a correction move. This means the price is more likely to rebound off this level rather than breaking down below it. However, if the price has breaches this level, by an amount exceeding some percentage, it is likely to continue going further down until it finds another support level.

PaychexSupportResistanceChart

A Resistance Level is the opposite of a support level. It is where the price tends to find resistance as it is goes up. This means the price is more likely to rebound back off this level rather than breaking out above it. However, once the price has surpasses this level, by an amount exceeding some percentage, it is likely that it will continue rising further until it finds another resistance level.

Support Levels indicate the price level where the majority of investors expect that prices will move higher. The Resistance Levels indicate the price at which a majority of investors feel that prices will move lower. In fact these Support and Resistance Levels are governed by the supply and demand of stocks in the stock market.

How To Identify Support and Resistance Levels?

732px-OracleSupportResistanceTrendLineChartSupport and resistance levels can be observed by drawing trend lines on a technical chart.  To draw a technical chart you’ll require a Technical Analysis Software.  There are several softwares, but selecting a Good Technical Analysis Software is crucial to better Stock Trading success.  The more times a support/resistance level is “tested” (touched and rebound off by price), the more significance given to that specific level.

If a price breaks down a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks out a resistance level, that resistance level will become the support level in the future.

Effective Support and Resistance Levels Trading

Often the price moves in a narrow range in between Support and Resistance levels. This is also Support and Resistance Levels Tradingcalled Range Trading which occurs when there is no good trend move. Here the trend following indicators don’t work and we have to use fast oscillators like RSI and Stochastics to initiate successful trades.

When the trend is good the prices move in wider ranges. If the trend is up the up moves will be larger and the corrective moves shorter rebounding back from the first support level or a supportive retracement levels which are also technically termed as Fibonacci Levels which could be 38 to 50% of the previous up move. When the trend is good we can follow indicators like Moving Averages and MACD to initiate effective winning trades. When the trend is up always buy on corrective moves which come down and select the support level to enter long trade or buy position. If the support level determined by the trend lines coincides with the Fibonacci 38 or 50% Retracement Level then it becomes multiple support levels where shrewd and expert traders initiate their buy positions.

Easily Be A Support and Resistance Trading Master

Topics: Market Trend, Stock Trend, Stocks Investment, Technical Stock Analysis, Trend | No Comments »

Market Day Trading Success Tips

By Alfred Fernandes | February 18, 2009

What is Day Trading?

Refers to opening and closing the stock position, or positions, on the same day or within a single trading day.


Who Is A Day Trader?

A Day Trader is a trader who buys and sells financial instruments (eg stocks, options, futures, derivatives, currencies) on the same trading day or within a single trading day. A very active stock trader who buys and sells the same security very quickly, executes a large number of trades each day, and generally closes all positions at the end of each trading day.

How To Day Trade?

To get started as a day trader, it is advisable that you be familiar with the stock market in general, preferably by working closely with a broker or stocks expert. Begin by making “on paper only” trades, and tracking these proxy trades for performance. Know the ins and outs of the market in general before striking out on your own. Also know which financial instrument (stocks, commodities, futures, currency, etc.) that you plan to trade, some of which are best dealt with by the day trader.

The Day Trader due to the involved risk has to be quick in executing his trades at proper market levels. He has to plan a wise strategy to beat the market and has to be alert to grab the right opportunities at the right time. He must be thorough in money management especially in calculating his risk-to-reward ratio. Must analyze the markets he is day trading and be with the market trend. Using a Reliable Day Trading Software is a must for consistent profitability. So, have you researched which program best suits your needs and trading level?

Whatever type of trading you do and your skill level, having the right day trading software is vital to your online stock trading knowledge and abilities. Some software will teach you the ins and outs of trading, or the various types of trading while others will teach you how to track a particular stock and how to watch for trends. Stock trading has become one of the Internet’s largest growing activities, not only at the professional level, but as an investment-based home business as well.

What is Market Day Trading?

Market Day Trading is day trading on a Market Index. Buying and Selling the Market Indices such as NASDAQ Composite, S&P 500, Russell 1000, NYSE Composite. In my opinion Market Day Trading can also be applied as the day trades in stocks or futures analyzing the Market Trend as a whole in the direction of the prevailing Market Trend.

How to Market Day Trade?

Analyze and determine the ongoing Market Trend and day trade the Market Index or the stocks or futures in the direction of the market trend. If the Market Trend is up execute only long trades and if down only short trades. Go long only on dips after correction in the uptrend and go short only on up moves in the downtrend. This will ensure better Market Day Trading success rate.

Do not speculate or act on tips in Market Day Trading which can be disastrous. Your mind or emotions can compel you to take wrong stock investment decisions. A Good Day Trading Mechanical System or Software will go a long way in enriching your Market Day Trading experience.

Topics: Day Trading, Day Trading Software, Stocks Investment | No Comments »

Technical Stock Analysis vs Fundamental Stock Analysis

By Alfred Fernandes | February 13, 2009

There are two approaches used in analyzing the stock prices,  viz. Fundamental Stock Analysis and Technical Stock Analysis. Both types have the same objective of selecting best shares from the stock market. However, the approach or study used in each type of stock analysis varies considerably.

Fundamental approach analyzes the profitability and the financial strength of a company to determine an entry or buying a stock, whereas Technical Stock Analysis analyzes the history of the price movements of a particular share or scrip and decides on an entry or exit in a particular stock.

Many say that both approaches are equally good, but in my opinion Technical Stock Analysis is the clear winner against Fundamental Analysis. The reason is obviously simple – all the factors of profitability, rate of growth, debt to capital ratio, EPS (earning per share), PE (price to earning ratio) etc. are all reflected in the share price movement.

So a Technical Stock Analyst doing his research can follow the trend of a share and buy it at a determined price which he considers as a good support level.  Of course the technical stock analyst without fail places a stop loss at the recent low because this is the basic rule of technical stock analysis.  Therefore,  a technical stock analyst knows the risk and can work out the risk to reward ratio. This is an important aspect of money management in stock investment.

The stock investment success mainly depends on following the trend and to be a friend of the prevailing trend. The Fundamental Stock Analyst is at loss because he has no proper knowledge of the trend. Whereas the Technical Stock Analyst using his computer software looks at his charts of the Stock Market Index and the stocks and determines the prevailing trend of the market as well as the shares.  So a Technical Stock Analyst follows the trend, becomes a friend of the trend thus floats comfortably with the ongoing trend of the stock market. Therefore the technical stock analyst enjoys his stock investment or stock trading profession.  Isn’t it fantastic?

Fundamental stock analysis requires considerable accounting and economic knowledge because it deals with all types of financial ratios and balance sheets of a particular company or institutions. After making all the financial research determining entry to buy or exit to sell is crucial for making profit. With the recent financial markets collapse every fundamental analysis has gone haywire.

Technical Stock Analysis on the other hand indicated weakness in the stock markets in January 2008 after which the trend was down or sideways. So a knowledgeable technical stock analyst booked profit and closed all his buy positions when the prices breached down a certain level where he knows the market trend had changed from up to down.

The markets have come down to such levels the time is right to do your research and select the blue-chips. The best thing is to use certain amount of Fundamental Stock Analysis to select the best industrial sector and 2 to 3 leading companies in that sector. Most of the financial TV channels give information about the fundamental aspects of an industrial sector and the

companies. So you need not do this research yourself. Then do your Technical Stock Analysis to build a strong portfolio in increments. If you start picking up good shares in installments your average buying price will be attractive and you’ll reap rich dividends when the stock markets start looking up. Of course your risk to reward ratio in stock investment right now is pretty good.

Topics: Stocks Investment, Technical Stock Analysis | No Comments »

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