| Support and Resistance are an important part of | | | | and that the past five highs that establish the |
| both swing and day trading strategies. These two | | | | resistance line are at $6.00, $6.50, $7.00, $7.50, $8.00. |
| trend lines do two things; first, they help you to | | | | By drawing the support and resistance line at the |
| decide how much you could potentially make on a | | | | aforementioned price points you can see that the |
| trade and secondly, they help you establish an entry | | | | distance between support and resistance as the |
| and exit strategy. It's vital that you have an exit | | | | stock trends up is about $1.00. That tells you that if |
| strategy before you get in a trade and it is usually | | | | you get in at support and got out at resistance you |
| dependent on where the support and resistance lines | | | | have the chance to make $1.00 per share. |
| are located. | | | | How do we know when to get out? Well, the |
| A support line is established where the lowest lows | | | | stock's support and resistance tell you that historically |
| have historically been stopping before rallying back up | | | | between the last low and the next high you're most |
| over a certain period of time. And a resistance line is | | | | likely only going to get a $1.00 or so before the |
| the opposite: where the highs have historically hit | | | | stock has a pullback down to support. It wouldn't |
| before pulling back down to support. Support and | | | | make sense to set your exit strategy at $10.00 |
| resistance sort of pass the price point back and forth | | | | when resistance tells you that in the next few days |
| like a bouncy ball - they work in tandem if the stock | | | | it's only going to hit at about $9.00 before the next |
| is trending in a regular fashion. If you can't find a clear | | | | pullback. |
| support and resistance line then pass. Do not trade | | | | In sum, support and resistance outline how much |
| this stock. If you don't know what it's doing... then it | | | | room the stock has to move (in our example - $1.00). |
| doesn't know what it's doing! | | | | It also tells you what the next estimated high and |
| If you can trace a nice, neat support line that follows | | | | low are going to be which, in turn, should allow you |
| the lows that have been hitting at higher and higher | | | | to determine your exit strategy prior to purchasing. |
| points and a resistance line that has highs that have | | | | On an uptrending stock, support is generally your |
| also been hitting at higher and higher points then you | | | | entry point and resistance is your exit point. If you're |
| can be assured that the stock is in an uptrend. How | | | | shorting a stock, then it's the opposite: resistance is |
| do we know how much money we're possibly going | | | | your entry and support is your estimated exit point. |
| to make in this uptrending stock? | | | | Flat support and resistance lines mean that the stock |
| Let's say that the past five lows that mark the | | | | is either a channeling stock or currently consolidating. |
| support line are at $5.00, $5.50, $6.00, $6.50, $7.00 | | | | |