Use These To Find Your Stock’s Support and Resistance Levels


A share is a trading and investment instrument representative of an underlying business. This seems simple enough, but surprisingly it is too often misunderstood in a bear market. In other words, a share is not the company. A company is an organization that operates day-to-day to seek growth and profit for its shareholders. A stock is a three or four letter symbol that can represent the performance or expected performance of the underlying company. While this logic holds true over the long term, over shorter periods of time, a stock’s price can be completely decoupled from company performance. This explains why big name companies firing on all cylinders Pure Storage (NASDAQ: PSTG ) beating earnings estimates and lifting guidance are trading down (-11%) or Lululemon (NASDAQ: LULU ) down (-19%) or Abbott Labs (NYSE: ABT ). ) have dropped (-21%) compared to the year. These strong companies are making record sales and profits, but you wouldn’t know it from their stock prices.



MarketBeat.com – MarketBeat

Market climate is important

A rising tide lifts all boats describes what happens to stocks in a bull market. The opposite is also true, as a volatile ocean sinks all boats in a falling bear market. Essentially, the same company performance in a bull market can have its stock trading at $50, while its stock is trading at $25 in a bear market. This is where the disconnect between a company’s operations and its stock price often occurs. Therefore, it is important to consider the background of the market climate when analyzing your stocks.

News is to businesses what charts are to stocks

There are two forms of research for performance analysis. Earnings, operating performance and underlying company news are analyzed as fundamental research. Company share price is analyzed using charts as technical analysis. While we will cover fundamental research in a future article, technical analysis focuses solely on stock price. This is tracked on a grid called a graph.

Candlestick charts

Candlestick charts are one of the most commonly used chart types to properly analyze stock prices. A candlestick represents a single time period. For example, a single candle would represent a trading day on a daily chart. Each candlestick is formed with four pieces of information; open, closed, high and low. The open is the price of the first trade at the 9:30 am EST open of the day. The close is the price of the last trade recorded at the close of 4:00 PM EST. The high is the highest price the stock traded during the day and the low is the lowest price the stock traded at during the day. These four pieces of information are represented by the candlestick by plotting the open price and the close price and connecting them and painting the “body” green if the close is higher than the open and red if the close is lower than the opening The high and low are lines above and below the body called “wicks”.

Use them to find support and resistance levels for your stocks

Simple moving averages

Every charting and online brokerage platform has these basic indicators called simple moving averages. A moving average is the running average of the number of specific periods on the time frame chart. For example, a 5-period daily simple moving average is the average price of 5 candles, each of which represents a trading day. Each of these charts is connected to form a moving average line on the chart. A 5-period simple moving average (MA) and a 15-period simple moving average are used together to form two moving average lines. The shortest time frame that is the 5 period line is the lead moving average and the longest time frame is the 15 period moving average. Both represent support levels when a stock is in an uptrend, making higher highs and higher lows. Both represent resistance when a value is in a downtrend making lower highs and lows. The reason we use two moving average lines is not only to provide two levels of support and resistance, but also to determine a trend reversal when the 5-period MA crosses the 15-period MA. When the 5-period MA crosses the 15-period MA, a breakout is triggered forming an uptrend. When the 5-period MA crosses the 15-period MA, then a breakout triggers a downtrend. A charting program will give the real-time values ​​of each moving average, which can be used to determine support and resistance and trade accordingly. Moving averages are dynamic in that they are always updated with each candle close, while pivot points are static in that values ​​remain the same represented by horizontal lines. A trader or investor can choose to use the leading 5-period MA or the trailing 15-period MA for trailing stops, or the crossover of the 5-period MA through the 15-period MA trend reversals for trailing stops -se of a position.



Source link

Leave a Reply