CHARTING
About Those Ups And Downs
Cueing Off Support And Resistance Levels
by Thom Hartle
Tracking previous highs and lows and analyzing price action can provide
clear indications of trend direction.
Early in your trading career, you probably
learned that you should buy at support and sell at resistance. Support
is usually described as a previous point at which the market stopped going
down, and resistance as the most recent high point at which the market
stopped going up. A more definitive approach states that resistance is
the previous week's high and support is the previous week's low. If you
use trading signals for entry and exit points based on a shorter time scale,
such as signals off the daily or intraday indicators in conjunction with
weekly highs and lows, then you would be using a multiple time frame
approach,as popularized by trader Robert Krausz.
And if you are trading intraday strategies, then view the daily highs
and lows as the key support and resistance points. Drawing conclusions
about the state of the market and price action based on support and resistance
levels is a classic charting technique. In this article I'll look at weekly
levels applied to a daily chart of the Standard & Poor's 500 futures
contract to illustrate the value of this concept.
APPLYING IT
By looking to the previous week's high or low as support or resistance,
you can determine the coming week's key levels, which gives you an idea
of where to look to enter and exit the markets. If these levels are violated
by a daily close past the weekly high or low, it can be considered the
beginning of a trend. But how do you identify these key levels?
Figure 1: Weekly support and resistance levels. You can identify
these by drawing trendlines across the previous week's high and low. The
MACD histogram is helpful as confirmation.
....Continued in the September 2002 issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the September 2002
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2002, Technical Analysis, Inc.
