Support and Resistance Stock Analysis
How to Analyze a Stock Chart
During a Downtrend traders need to be able to determine if a big white candlestick is a true reversal back to an Uptrending Pattern, or if it is just a momentary rebound action caused by Buy on the Dip Investors and Buy to Cover Traders.
Buy on the Dip Investors can and do move price often in big one day gains, that then reverse and whipsaw the following trading day. Buy to Cover price moves for Sell Short Traders are usually smaller and more controlled exit Candlestick Patterns, that clearly do not reverse the Downtrend back to an Uptrend.
Below is a chart example that requires more than just a candlestick or an indicator crossover to analyze properly.
Learning to properly interpret Charts, Price, and Volume for Support and Resistance Stock Analysis is a skill all Retail and Technical Traders need to spend time developing. If a trader only relies upon Indicator Crossovers, a handful of Candlestick Patterns, or a combination of both they will encounter continual whipsaws and losing trades.
Sure there will be that occasional stock that moves up for a nice gain. It makes the trader feel happy and confident, until the next loss occurs. It is easy to make stock trading profits, and harder to keep them.
Developing Spatial Pattern Recognition Skills™ is crucial to consistently successful trading and a high Return on Investment by the end of the year.
Making an income from trading demands more than a meager 2% gain on a trade. Keep in mind that many trading costs far exceed a 2% gain. Oftentimes traders are losing money with such low returns and don’t even realize it until the end of the year.
Questions for analyzing a chart for Support and Resistance Stock Analysis, requires studying the following:
1. Does Volume lead price or does it lag price?
2. Are the giant Buy Side Institutions who use Dark Pools, quietly accumulating the stock?
3. Is the candlestick a normal size or extraordinarily long? What does the Candlestick Pattern represent?
4. What type of Resistance is above the current price? For example is it weak, moderate, strong, or very strong Resistance?
5. How many Point Gains are still possible, prior to the Resistance level?
6. Is the Risk versus Point Gain Potential reasonable?
7. Why did the stock stop moving up, and what type of Topping Action formed?
8. Which Market Participant Group moved price on the last long white candlestick?
9. If you were to trade this stock, what Trading Style should you use?
10. Where would a Stop Loss be placed?
You should study the stock chart on both a weekly and monthly chart view.
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
Copyright ©2015-2019 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.