Using Support and Resistance to Your Advantage

Are the odds on your side for the trade? This is something I go over every day in group coaching class and during one-on-one sessions with students. I like to say, by my own rough estimates, that support and resistance have a 70% to 80% chance of holding. If you just consider that thought, you are a better technical analysist in my eyes. Let’s look at a couple of examples.

Recently in class, we were discussing putting the odds on your side for trades and the subject of day trading came up. I told the students that the same rules apply to smaller time frames as well as larger time frames like daily and weekly charts. Look for areas where the stock may hold and times may reverse like support and resistance areas. We looked at the market and found a potential trade idea on Boeing Co. (BA) on a 15-minute chart.

The stock was heading down to support on the 15-minute chart as seen in the chart below. Knowing support has a better chance to keep the stock from moving lower, the sentiment was a potential bullish trade. To confirm a bullish reversal, a trader can look for a bullish trigger like a bullish candle closing above the previous candle’s high on this time frame.

Let’s look at a larger time frame that most option traders use in conjunction with other time frames. The Microsoft Corp. (MSFT) chart below is an example of a stock running into some potential resistance. The stock has rallied higher again and is testing highs set back in February. This is potential resistance. What has a better chance of happening? The answer is simple: The stock has a better chance of not breaking the resistance level at least in the short term.

John Kmiecik, Market Taker Mentoring

Trader Education