Support and Resistance Stock Chart Analysis - Questions article 1 of 2

Questions for Analyzing a Stock Chart

During a Downtrend traders need to be able to determine if a big white candle is a true reversal back to an Uptrending pattern, or if it is just a momentary rebound action caused by Buy-on-the-Dip Investors and Buy-to-Cover Traders.

Buy-on-the-Dip Investors can and do move price often in big one day gains, that then reverse and whipsaw the following trading day. Buy-to-Cover for Sell Short Traders are usually smaller more controlled exit candle patterns, that clearly do not reverse the Downtrend back to an Uptrend.

Learning to properly interpret charts, price, and volume for Support and Resistance Stock Technical Analysis is a skill all Retail and Technical Traders need to spend time developing. 

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If a trader only relies upon indicator crossovers or a handful of candlestick patterns or a combination of both, they will encounter continual whipsaws and losing trades. Sure there will be an occasional stock that moves up for a nice gain that makes the trade feel happy and confident, until the next loss occurs. It is easy to make profits, and harder to keep them.

Developing Spatial Pattern Recognition Skills™ is crucial to consistently successful trading and a high Return On Investment ROI by the end of the year. Making an income from trading demands more than a meager 2% gain on a trade. Keep in mind that many trading costs far exceed a 2% gain. Often times traders are losing money with such low returns and do not even realize it until the end of the year.

Below is a chart example that requires more than just a candlestick or an indicator crossover to analyze properly.

chart example that requires more than just a candlestick or an indicator crossover to analyze properly - technitrader

Questions for analyzing a chart for Support and Resistance Stock Technical Analysis, requires studying the following:

1. Does Volume lead price, or does it lag price?

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2. Are the giant Buy Side Institutions who use Dark Pools in Alternative Trading Systems, Quietly Accumulating this stock?

3. Is the Candlestick a normal size or extraordinarily long? What does the Candle Pattern represent?

4. What type of Resistance is above the current price for example is it weak, moderate, strong, or very strong? 

5. How many points gain is still possible, prior to the Resistance level?

6. Is the Risk versus Point Gain Potential reasonable?

7. Why did the stock stop moving up, and what type of Topping action formed?

8. Which Market Participant Group moved price on the last long white Candlestick?

9. If you were to trade this stock, what Trading Style should you use?

10. Where would a Stop Loss be placed?

See if you can answer these questions by yourself. I will provide the answers in Support and Resistance Stock Analysis - Answers article 2 of 2 which is the next 

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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.