Identifying the Resistance Level

DoctorT

Hi!

Some time ago, I posted a similar query in “Scanning.” But, my query is really about charting, no scanning.

Support and resistance levels are very dynamic and, to newbies like me, oftentimes, they are not easily recognizable.

To identify the resistance level, picking the 3 highest closing prices within a timeframe is easy. Deciding the timeframe is not. To buy long calls that will be closed sometime between a week and a month, what timeframe do you suggest?

Thank you!

Doctor T

markd

I think the thing to look at is high volume bars above the current price, the closer the more important. If there was previous resistance within those bars (e.g. a long down bar followed by a reaction back into the range of that bar), that will be the test.

Previously crossed high volume bars can be resistance again, although it is less likely.

The reason this works (when it does) is that many players have put on positions in the range of the high volume bar. When price returns to that level they will be prompted to act again, either to protect a failing position, or if they are optimistic, double up on an existing position.

DoctorT

Dear MarkD,

Thank you for your reply!

I know that volume is a key factor. But, going back to my question, to buy long calls that will be closed sometime between a week and a month, what timeframe for identifying the resistance level a priori do you suggest? That is, what timeframe do I look at before the breakout day?

Going back to far will probably yield multiple resistance levels.

Doctor T

markd

If you looking for resistance after a down leg in an up trend, the most import bars for resistance will be in that most recent down leg and the up leg preceding it. There CAN be multiple potential resistance levels.

Sometimes, if price has gone into a range, if you look back far enough, you will see a wide, high volume bar, sometimes two consecutive or very close together bars, that contain most of the range - that is, when price moves above the high of the high volume bar, that up leg is over, and when price moves below the low, that down leg is over.

If the up leg breaks out above the prior peak , the next resistance will be the high volume bars in the most recent prior down leg that passed through that price level. You can't really put a time frame on it, other than "most recent", because stocks vary in how they trade.

I'll repeat what I said earlier though, timing calls for individual stocks is VERY hit and miss. Individual stocks can be VERY dependent on news. You probably have a better chance with some large cap stocks in major indexes, but overall, individual stock can take a while to move and in the meantime, premium deteriorates - so you can be right about direction and STILL lose money. Indexes are better, they can't really be manipulated and they are less likely to stall because something will be moving while something else takes a breather. Some ETFs may be OK, but there the volatility is lower. Just thoughts (based on experience).