Better Trades Turning Point
Recently in a Denver LEAPS class, I was teaching some tips on drawing support and resistance and how to read some basic candlesticks patterns to fine tune an entry into a trade. I was explaining how I get great entries by using the prior days' low (for a down trade) and the prior days' high (for an up trade) to confirm the stock direction.
EXAMPLE OF PLAYING THE DOWNSIDE
If I want to play the downside, I would first look for the stock to be at resistance giving me a sign it is weak with a doji or a closed in candlestick. The next day if it breaks the low of the prior day I have confirmation the stock is truly falling so I can enter a trade to play the downside.
EXAMPLE OF PLAYING THE UPSIDE
If I want to play the upside, I would first look for the stock to be at support, giving me a sign it is strong with a doji or an open candlestick. The next day if it breaks the high of the prior day I have confirmation the stock is strong and really going up. I can now enter that trade today as soon as it breaks the high of yesterday.
The top three arrows point to a place near resistance where we see a doji or a closed candlestick telling us we may have found a turning point to play the downside off resistance. They are confirmed the next day with a sign to enter the trade to the downside when it broke through the low of the day before. Notice how these points are almost always the first bounce down from resistance. This is important.
The lower three points tell us the stock has hit a support (one is a lower support to the far right), and to look to play the upside. We got confirmation the next day, as it broke the high of the day before, that we could enter the trade to play the upside.
What I was explaining to my students was, to play down plays at resistance,
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until the stock breaks below the low of last nights market close price the next day, then the confirmation is very strong that we have a stock starting to fall from resistance.
The first candlestick in the chart looks like a doji at resistance, but the next day the stock did not fall below the low of the first candlestick day. However,
bose ear headphones, it gave us another doji (a second chance to try again) and the next day after that (3rd candlestick in the chart); it broke the low of the second doji and even the low of the first doji - a very strong indication of a follow through to fall to the downside. On the day of the third candlestick in the chart, you could have entered a play to the downside when it broke the low of day two.
The fifth candlestick gives us a sign the stock is done falling, and the next day it confirms it when it breaks the high of the fifth candlestick. At this point you can enter intra-day. If you are not watching intra-day charts, just set an alert for the high of the 5th candlestick day, to alert you that it is time to place the trade and have notes on that so the trade can go quickly. If you are trading with a full service broker you could let them know in the morning what trade you want to do so all you have to do next is call them to drop the order. If the alert does not go off you have no trade. I set alerts in Real Time Markets and I can also set an alert in Options Express which is my trading account but those alerts in optionsxpress are delayed a few minutes.
On the 13th candlestick we get another sign that the stock is done going up, and the next day when it breaks the low of the 13th day you could have entered to play the downside again. You could have set an alert the night before if it broke the low of the 13th candlestick to play the downside. If you had been playing the upside it is time to close that trade or write a covered call.
On the 21st candlestick we get a sign the stock is done falling again. It confirms it the next day as it breaks the high of the 21st day. Again, alerts help you set the perfect entry point to avoid missing a great trade.
On the 25th day we get a sign it is done going up, and it confirms it the next day when it breaks the low of the 25th day.
The second to the last candlestick on the chart gives us a sign the stock is done falling. It confirmed it the next day when it broke the high of the day before, telling you it is time to play the upside.
Looking for stocks hitting that first bounce down off resistance, or the first bounce up at support, then confirming it by using the high and low of the day before can give you some very sweet entries into a play! It gets you in at the beginning of a movement, which is the best way to trade. Confirmation of stock direction is very important and to me the only way to trade. It allows people who are not watching intra-day charts to enter great trades even at work!
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I wish you huge success trading, and I hope to meet you at one of my live classes soon!
Happy Trading!
Darlene with BetterTradesContent Source: Better Trades Seminars" and classes information from Better Trades WorkshopsTopics related articles：
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