Make Support & Resistance Prove Their Strength

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  • on November 30th, 2010

It’s easy for traders to pigeonhole themselves into trend follower or reversal trader.  That’s fine, but a common theme of successful traders is the ability to use both styles to their advantage.  As Brian Shannon put it in his modern classic, “Anyone can recognize an existing trend, but finding the low-risk areas to enter the trend and knowing when to exit is what separates the sheep from the wolves.”  Dr. Brett Steenbarger said the moment he broke through as a profitable trader was when he learned the art of entering shorter-term retracements within longer-term trends.

This week, I spotted two great posts talking about how to use support and/or resistance.  First, Adam at SMB Capital talked about buying after a support had been confirmed and shown the ability to move away from that support. The strongest stocks will spend little time at support, and its what happens after touching support that matters.

Also contributing a worthy idea is @1nvestor, who discussed letting someone else catch the knives but taking note of the post-bottom buying.  He shows the example of $SKX moving away from support rather than being magnetized to it…isn’t that what we seek?

It took me forever to use “levels” to my advantage…if everyone can see them, how can we gain an advantage in identifying them?  Where I’ve made the leap forward is in the following ways:

1) Recognizing when support and resistance has held rather than anticipating it will hold

2) Requiring distance in price from the initial touch

A price region acting as a magnet does nothing for us…we need our stock to move from one region to another in order to profit, right?  The best stocks show an ability to quickly make a higher low, while laggards bounce along the bottom.  It’s not the touching of a support level, but the ability to push away from that level, that reveals the presence of committed buyers.  Reframing our perception of these levels allows us to focus on the new move “From” support/resistance rather than the no longer relevant “To” on which our brains often anchor.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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