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Support and Resistance - How To Trade Penny Stocks

 

Trading Support And Resistance

 

Knowing your support and resistance in a stock is one of your most basic and useful understandings of stock technicals. A support level is defined by a price of a current stock where buyer confidence is high enough to hold the stock up. Typically a stock will hold a key support level multiple times over a longer period of time telling you that at that particular price point demand for the stock is high and the possibility of it going below that key price point may be less than the previous downtrend. Resistance is the point in time in which there tends to be more excessive supply of the stock then buyers. Which in return typically results in the price hitting that point and in some cases will reflect in a reduction in the PPS (price per share). Now that you understand the support and resistance you can trade in profit zones that are in the money.

Support and resistance is a crucial step in timing a profitable entry and exit. It is better to enter a stock with an idea of your exit strategy. This ensures that you will not be trading with emotion. If the stock goes above or below the support or resistance this is referred to as a Breakout or Breakdown. Support and resistance can be bullish or bearish in nature depending on the direction of the stock and the confidence or lack of in the stocks investors.

As you can see in the stock above the direction of the chart was easily established by viewing the support and resistance points. If you read support and resistance correctly you may be able to profit by a nicely timed entry near a support and an exit near the resistance. Always remember when trading stocks, the real profits are made consistently and over a longer period of time. Now that you know how to read and understand support and resistance use these newly learned skills when trading your stocks. Support and resistance is a basic and easy way to understand where the potential profits in a stock chart may lie.

The best way to control you trading for a quick reference since 90% of your trades will be done in an instant decision is to draw the lines onto your live stock software previous to the morning bell. There are some exceptions depending on your style of trading and strategy. I have personally heard of some traders that wake up every morning without a plan and watch the news feeds to get an idea of what to trade. Myself personally, when I trade I have a plan from top to bottom of my potential trades. My support and resistance lines are drawn, as well as any other lines I plan on relying on over the course of the day like my trend lines.

Once I am in the position to trade for the day I will keep a very close eye on the support and resistance lines, especially if the stock is trending close to one or the other. More times than not a stock will get locked into a channel that will be set between the support and resistance. I will actually set a buy on the bud just above the support, get my shares filled, and they immediately put them for sale just under the resistance. After I have made on successful buy and sell, I will reset and take advantage of these easy 10-15% profits multiple times. This point brinds me back to the fact that using indicators like support and resistance can make you easy profits, you will go broke waiting for the next 100% gainer to fall on your lap.. (unless you are playing Stock Legends alerts!)

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Support and Resistance


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