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Support and Resistance Zones

As a stock price moves up and down over time it will tend to stay within a range. As the stock price moves up traders will sell and take a profit. When the price of a stock moves down traders will buy stock again. The apparent barriers to up and down movement of the stock price are called support and resistance zones. The ability to understand current support and resistance zones and to predict when they will change is integral to successful day trading. Understanding and using Candlestick patterns helps the trader make profits by predicting support and resistance zones successfully.

Over time stock prices move higher and lower so the support and resistance zones of a given stock will move up and down. The line running through a series of support prices on a stock chart and one running through resistance prices are called trend lines. Trend analysis is basic to predicting the future of a stock’s resistance and support zones. Trend stock trading has to do with continuing stock analysis, closely following stock price history, and accurately predicting future support and resistance levels. A company making good profits may see its stock trend lines gradually go up over time. A company that has a sudden increase in sales may find that its stock breaks out of its resistance zone only to establish new support and resistance zones as trading progresses. Candlestick pattern formations will let the market tell the trader what the market is about to do.

Trading support and resistance zones works because traders will sell stock at or before the resistance zone of a stock in order to insure a profit and day traders will buy stock at or before the support zone in order to insure a stock purchase before the stock price goes up again. There are two factors at work here. One is that support and resistance levels stay put so long as there is no breaking news about the stock, the market sectors in which it operates, or the economy. When there is no new information the stock market, market sectors, and stocks fall into a trading range. Stocks break out of their trading range, their support and resistance zones, when new stock market information is available.

Sometimes new stock information is not immediately available to every investor and day trader. This is part of where technical analysis tools such as Candlestick chart analysis are particularly valuable. When a few investors or traders have information or insight that others lack they will start buying or selling stock. The market reacts and technical analysis will pick up on the new “investor sentiment.” It doesn't matter in technical analysis what reason others have for buying or selling. It just matters that they are. The old Candlestick adage is to let the market tell you what the market will do. Candlestick analysis picks up on what the market is doing and predicts what it will do next based on similar scenarios from the past. Using Candlestick basics will allow the trader to pick up on a change in support and resistance before the rest of the crowd.


Market Direction:  When is it time to buy after a hard holdback in the markets. The Japanese race traders say the weight of the market will continue to push the market down. This is why a ‘severe’ buy signal is required after a sharp pullback. Keep in mind, trends move based upon investor sentiment. What occurs after a severe pullback? Investor sentiment takes some convincing to get back into a bullish mode. Most investors do not take advantage of the beginning of an uptrend because of their emotions. They are still affected by recent losses created by a hard selloff.

 

Obviously, the candlestick investor has a great advantage. The graphic depiction produced by signals and patterns immediately illustrate what is occurring in investor sentiment. This allows an investor to interpret what is occurring in market price trends on a rational basis versus an emotional basis. The visual aspects of candlestick analysis provide a trading format that can completely eliminate investors emotional reactions. In talking with the most experienced traders, one basic learning technique is addressed. Profitable trading did not occur in their accounts until they were able to control their emotions. The visual characteristics found in candlestick signals creates a completely dynamic mental attitude for an investor. They are now concentrating on what the market is telling them is occurring versus what their emotions are hoping will occur.

 

The Dow showed when investor indecision was about to demonstrate a strong change in the market trends. The Stick Sandwich pattern two weeks ago indicated a potential change was about to occur. This should have immediately prepared the candlestick investor to ready for a trend change. The past three trading days, when training became very indecisive, with stochastics in the oversold condition, now produces another potential change in investor sentiment. Knowing the characteristics of candlestick reversal patterns creates a forewarning. A flat indecisive trading days of the past few  days produces the probabilities of a cradle pattern. Exiting short position strategies can be established, as well as setting up new long positions. However, action does not need to be implemented until one basic rule is fulfilled. Witnessing a candlestick buy signal followed by a close above the T-line. Until that occurs, it has to be assumed the downtrend is still in progress. That was evident in todays trading.

 

DOW

 

The inherent benefit of understanding how to correctly use candlestick signals is twofold. First, it allows for the identification of strong price moves. Secondly, due to the statistical characteristics of candlestick signals and patterns, an investor has much better control of their analytical prowess and greatly reduces the emotional aspects of investing. This is not an unimportant point! Many investors learn how to use a trading technique, but they do not learn how to manage their own emotions. When returns do not produce expected results, usually based upon decisions that did not correlate with the trading technique principles, most investors blame the trading technique. The most important element of investing successfully is combining the benefits of a training program and applying the correct mental perspectives. Candlestick analysis creates a natural mental discipline.

 

Knowing that a price pattern has specific results dramatically reduces the ‘hoping’ concept. You, as an investor, have a trading plan for when to enter and when to exit a trade. This is based upon the probabilities associated with the recognition of the price pattern in the first place. The analysis of PVTB is clear evidence that a pattern can produce expected results based upon the investor sentiment that built the pattern. As can be seen in the PVTB chart, the breakout of a fry pan bottom pattern has produced excellent profits during a time when the market in general has been solidly negative. This chart pattern was pointed out during the day in the Candlestick Forum chat room. It then became a recommendation. Although the markets have been very bearish over the past couple of weeks, the stock price has been more affected by the Fry Pan Bottom result.

 

PVTB

 

Whether the market trends is up or down, candlestick analysis allows investors to make a profit. Going along during a downtrend is not necessarily putting the probabilities in your favor. But it does demonstrate the effectiveness of candlestick scanning. There will always be stocks moving up in a down market. The visual aspects of candlestick signals allows investors to pinpoint those stocks. Candlestick signals continually provide the information to make consistent profits in the markets.

 

Online candlestick training -February 20 and 21st- The Candlestick Forum has been providing a very effective two-day online training program for the past few years. Once you learn how to analyze and utilize candlestick analysis correctly, you gain a very powerful control over the markets. The reason candlestick signals are available today is due to their statistical performance. They work a high percentage of the time. Knowing how to use them correctly makes them a viable trading program on their own. Adding candlestick analysis to your existing trading program greatly enhances the effectiveness of that program. The signals and patterns provide an immense amount of information.

 

If you are just now becoming familiar with candlestick analysis, there should be one aspect that stands out the most. The concept of candlestick analysis is based upon common sense investment principles. Do not miss the opportunity to gain an extreme amount of knowledge from this training program. This program has been developed in a manner that allows an investor to methodically build and understand the correct methods for trading profitably. You will gain much more knowledge than you anticipate. The information conveyed through the visual training of how to recognize and interpret the signals puts you in control of your investment future forever.

 

Take advantage of the knowledge built into candlestick signals. Stay in your pajamas, with your cup of coffee or cocoa. The training sessions are limited in size. This is to allow each participant to actively ask questions. Unlike many other training programs, Mr. Bigalow provides a training format that continually reinforces the profitable aspects of candlestick investing. Do you have trouble entering a trade? Do you have trouble placing a stop loss? Do you have trouble taking profits when you are supposed to? The advantage of candlestick analysis is utilizing the information that has been proven for the past few hundred years. Sign up today! Change your investment perspectives forever. Click here for more information

Chat session tonight at 8 PM ET. 

Good investing,

The Candlestick Forum Team


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