Know where the price support and resistance areas are on a chart. These are areas that have halted the movement of the stock in the past. The more times a particular price has stalled the stock's movement, the stronger that support or resistance area becomes. Price support lines can be drawn horizontally through lows on a bar chart where price tended to bounce up. Thus this price level is „supporting“ the stock. Price resistance lines can be drawn horizontally through highs on a chart which the stock: resists moving up through. Very often you will find that a support area which the stock penetrates to the downside will become a resistance area in the future. And likewise, a resistance area that a stock finally penetrates to the upside becomes a support area in the future.

The daily chart's support and resistance areas will help you better decide whether a trade setup is worth entering. If there is a lot of resistance just above where you would buy the stock, then you may want to pass up the trade. On the other hand, if a price resistance area is being broken or has recently been broken through to the upside, a buy trade setup has a better chance of success with the stock moving up further. Look for these areas on the daily and intraday charts to find the nearest upside resistance level up if you are buying or the next support level down if you are selling. If there is enough room for a 1 + point move, you have enhanced the odds for a successful day trade. Also, if the daily chart shows good support at a price level, and you have a „wide range bar w/extreme close“ or a „reversal bar“ setup long that held at a pnee support area, then this might present a strong buying opportunity. Remember not to impose your ideas on the market, but instead reacE to what it tells you with tiie daily and mtraday setup patterns. The S/R. levels will kelp you find the best trades to enter.

„Trading congestion“ is something to stay away from. If a stock is not trending, has narrow range daily bars (from high to low), or is just chopping sideways, then avoid it. Wait until it breaks out of congestion and begins some good daily price swing activity. This is when you look for the trade setups to act upon. Also, look at the recent average range of a daily price bar (from high to low). If that stock doesn't trade over a point or more on a regular basis then you probably won't want to trade it. Look for the bigger profit opportunities with stocks that are currently in a „trader-friendly“ mode.

You'll also notice that many times the 50 and 200 day moving averages act as price support and resistance. This is because many fund managers monitor these averages and use them in their buying and selling decisions. Being aware of where these lines are can aid your analysis. This is especially true if a stock has traded up or down to one of these averages at a point which also coincides with a price support or resistance level.

Support and resistance levels aid your decision making for day trades. They show how far a stock can be expected to move up or down on both an intraday and daily time frame. This is the final step (or filter) to confirm a potential trade, or to rule it out.

March, 2004

Industrialized economies progress through cycles of expansion, peaking, trough, and expansion again. It follows then that the major industries propelling those economies pass through four phases during their existence: introduction, growth, maturity, and decline. Those industries consist of separate companies, and of course, the securities issued by those companies tend to anticipate business cycles and move in the same direction.

When you look at a stock chart below, you can observe its price history and the cycles – or series of peaks and troughs – that it's completed so far.