TAG Villanova Technical Analysis Group

SUPPORT AND RESISTANCE

What is Support?  A price level that acts as a barrier below a stock’s price – “supports” the price

What is Resistance?  Price level that acts as a barrier above a stock’s price – “resists” an increase in price

Why does this happen?  Supply and Demand  Investor psychology

Properties of Support and Resistance  Resistance becomes support when it is broken through and vice-versa  Levels of support and resistance become more significant the more times they’re tested  Usually represent a small range of values rather than an exact value

Properties of Support and Resistance  Resistance becomes support when it is broken through and vice-versa

 Levels of support and resistance become more significant the more they’re tested and the longer they last Properties of Support and Resistance

 Usually represent a small range of values rather than an exact value

Locate Support and Resistance Support Resistance

Where could you draw Support & Resistance?

Which line of Support is Stronger?

Which line of Resistance is Stronger? 1 2

Use and Application  Suggests where to  Enter and Exit  Example:  Own Stock at $45  Support Level - $42  If a stock breaks the line of support, it is likely to fall more  Therefore, place a stop loss order at $41 to reduce possible losses

 Suggests where to  Take profit  Example:  Stock Price - $45  Resistance Level - $50  Place a Buy Limit order around $51 to reap the benefits if a stock breaks its resistance level Use and Application

 Helps anticipate future price movements  E.g. stocks often rebound after hitting support  Should be used in tandem with other indicators and tools Use and Application

TRENDLINES

Trend Lines  Trend - The general direction of the market or price of an asset over a period of time  If one can identify the direction of a trend, either up or down, one can be highly profitable  Trend lines have been around since the beginning of the markets

What are Trend Lines?  Trend lines have 3 different features  Show the direction of the current price movement Can either be Upwards, Downwards, or Sideways  The speed (strength) of the current price movement Strong, Weak Trends Note that the angle of the trend line shows the strength of the price movement, not the strength of the trend line  And possible places of future support and resistance

Drawing Trend Lines  There is no perfect way to draw them and it seems that no one can agree on the best way  That's because everyone has their own unique way of drawing them

How to Draw Trend Lines  A straight lines that connects two or more price points, further extending into the future to show and act as lines of support or resistance.

Example of a Trend Line

Trend Lines Continued

Trading Using Trend Lines  There are many ways to trade with trend lines but the most original two are:  Trend Line Bounces The price moves towards the trend line, touches the trend line and reverses its direction away from the trend line The spots where the price action touches the trend line are points of strength and resistance  Trend Line Breaks The price action moves towards the trend line, touches the trend line, and continues through the line Counter trend trades

Upwards Trend Line Very bullish Strong determination on the part of buyers

Downwards Trend Line Very bearish Strong determination on the part of sellers

Sideways Trend Line

Trend Line Bounce In an uptrend, trend line bounces are long (buy) trades One would sell when the price is above the trend line

Trend Line Breaks For a downward trend, a trend line break would be a long trade, where the trader buys at a price near the trend line, and then sells at a price above the trend line.

Support Lines Note how the Price action bounces off the lower (support) trend line

Resistance Line Note how the upper trend line acts as a resistance to the price action

Weak Trend Angle of Trendline less than 30 degrees

Strong Trend Angle of Trend Line more than 30 degrees

Think or Swim

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Think or Swim

NEXT MEETING Moving Average, Volume, and Fibonacci BRING YOUR LAPTOP Wednesday February 16 th at 6:00PM Bartley 36