Support and Resistance Stock Chart Analysis – Answers part 2 of 2

Answers for Analyzing a Stock Chart

The previous blog article titled Support and Resistance Stock Chart Analysis - Questions part 1 of 2 was written with the intention, of showing how to read a stock chart looking for crucial elements and patterns that help determine the following:

1. If the stock is an ideal pick

2. Potential profit from the trade

3. The Trading Style to use 

4. Indicators to use

5. How long to hold the stock

6. How to plan the exit

7. If the risk versus profit potential is reasonable


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 See the chart example below.

Chart example showing a new type of short term bottom that commonly occurs when dark pools are buying - technitrader


ANSWERS for the Questions part 1 of 2 article for analyzing a stock chart, require that you study the following:

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

Answer: In this instance Volume was slightly above the average for this stock. This was not a High Frequency Trading HFT surge volume and price action. The Time Segmented Volume TSV Indicator shows an in sync pattern.

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

Answer: Dark Pools do not move price. They are using Alternative Trading System platforms where they can buy into a stock with controlled bracketed orders. This run was dominated by Professional Traders and Smaller Lots chasing. It was a surge of price momentum out of a Basing Bottom candlestick pattern.

3. Is the candle a normal size or an extraordinarily long candle? What does that candle pattern represent?

Answer: This is an extraordinarily long candle for this chart. The preceding candles were all smaller which are indicative of Quiet Accumulation, set in a fairly tight sideways candlestick pattern called a Basing Bottom that is a very flat sideways bottom formation.

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

Answer: The Resistance was a monthly high which is in the same location as two other prior months. This out of a bottom is moderate Resistance, which with sufficient momentum and volume energy can be overcome with minor constraint. In other words as the stock moves into this moderate resistance out of a bottom some Technical Traders will take profits at that level. This will cause a mild retracement, or in this chart example a Resting Day Candlestick Pattern as the buyers and sellers were in equilibrium.

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

Answer: About 2 points to Resistance of the monthly highs.

6. Is the Risk versus Point Gain Potential reasonable?

Answer: Only if the intraday support could be used. In this instance a consolidation at 
26.86 formed, that could have been used as a tighter intraday stop. However then that makes this it a higher skill level trade. The requirement would be intermediate to advanced Spatial Pattern Recognition Skills™ SPRS and experience. It would not be for beginners.

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

Answer: The stock stalled at a new high due to prior highs resistance at that level, in a downtrending Market Condition. This shifted the stock into a sideways pattern after High Frequency Traders HFTs gapped price up, however support kicked in quickly as the stock fell back into a Dark Pool Buy Zone™ range.

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

Answer: Professional Traders instigated the run, and then Smaller Lot Investors and Traders moved price up.

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

Answer: Swing Trading Style is appropriate given the price action, risk factors, and speed at which it moves up.

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10. Where would a Stop Loss be placed?

Answer: For this entry the stop loss should have been placed Intraday, at a solid consolidation level. 

Summary 

The stock did move up in fact it gapped up, and then halted precisely at the highs of the previous Resistance level. This pattern indicates that the technically oriented Professional Traders were in control of price. Smaller Lots were simply buying speculatively with no controlled entry orders, and a limited understanding of what they were buying. The stock had a profit taking day, and then move up beyond the resistance to start another consolidation pattern. 

This stock is just starting to breakout of a long-term sideways Trading Range. It once was a $240 stock. The current run is too steep, so the stock needs to move sideways to pattern out that speculative run.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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