Tuesday, July 27, 2010

Support and Resistance Zones. A New Concept in Technical Analysis.

Swing trading is my favorite trading style; the planning ahead and the follow through. Win or lose you know you did a good job following your plan. When you win you are confident in knowing that you can do it again with a similar plan. When you lose with a disciplined stop your solace is in knowing that you followed your plan, then you learn from your loss and move on.

One of my most common swing trading styles is buying support on signs of strength.  I apply the concept of Support and Resistance Zones to stocks that do not have a clear support or resistance line to contain 100% of the move. You will find in most cases that a double line can be drawn to contain an area that encompasses the unruly moves and creates a narrow range instead of a simple line.  These zones contain candles, or wicks and tails of candles of such unruly stock, especially when charting on different time frames.

Typically the inside line of the zone contains the majority of the stock move and has the most tags, while the outer line contains the straggling candle(s) action.

The TA support/buy zone is a tight price range where it is acceptable for me, from a Risk/Reward point of view, to buy/accumulate a stock when near or in that zone.  Similar to line support, when zone support is violated on a close it indicates that the current pattern is no longer valid and we need to step aside until the
new pattern emerges.  If a stock breaks out above the top of the resistance zone then the stock has broken out depending on volume and other factors, and vice versa for a breakdown from the support zone.

An example of this idea as well as trading a range bound stock can be seen in the chart of DAKT which can look too messy to swing trade. Take a look yourself before you see the marked up chart below and see if you can identify these zones or you decide it's just too messy for you to trade. Such a chart is a swing traders dream, at least this swing trader.

You buy/scale in anywhere under ~7.5 while in the support zone and sell/scale out while in the 9-9.5 resistance zone. rinse and repeat. just set your buys, stops and sells and forget-aboud-it.

Here are some posted examples of my charts with the zones that are usually drawn with single lines by chartists.








If you find such patterns, keep them on your pattern trade list.  You can set alerts or you can leave a limit buy order in place while you go on with your busy days.

Hope that helps.  I enjoy teaching the "trade", so go ahead and ask questions.

Peace and profits to all.


  1. Great post! Original and makes sense. Thank you for sharing.

  2. Iam thinking I can scan for these by looking for stocks with continuing ma crossovers

  3. Thank you and I'm glad you find this useful. You are right on with the MA crossovers.