The market, as of late, has continued to try to move higher and we’ve seen no significant pullback. As I like to tell traders: Don’t fight the trend. Go with the flow and look for opportunities to put on bullish positions, like a break through a resistance level. Let’s look at a couple of trade ideas we explored in group coaching class recently and how we patiently waited for bullish confirmation.
Watching for Resistance
Resistance is a level an underlying has trouble moving through and above. Potential resistance levels can be horizontal, at an angle, a recent high or low, or a moving average, just to name a few. There’s typically a 70% to 80% chance that the underlying will not move though the level initially. As I tell my students, you can see this for yourself by looking at charts on various time frames and noticing how many times it happens. That’s where patience comes in.
PLTR and ITA Examples
In class someone asked me to look at Palantir Technologies Inc. (PLTR) for a potential move higher. I brought up the hourly chart as seen below.
I pointed out that at the time with PLTR trading around $156.75, it might run into some potential resistance right around the $161.25 level. It had turned away several times already at that level. If you were thinking about a bullish trade, I reasoned, be sure to wait until a move through that level, which for me is a 2-bar bullish close (2 consecutive bullish candles in a row over that level).
Another one we talked about was the U.S. Aerospace and Defense ETF. (ITA). The ETF had some major potential resistance right around the $200 level, as you can see in the daily chart below. I set up a price alert just above the $200 level so I’ll know if it happens again, and I’ll wait until there is a 2-bar close above that level before considering investing in the ETF.
Take the Odds
Counting on resistance to work every time is not perfect by any means, but the odds are certainly in your favor. Knowing that resistance will initially hold, as in these examples, should give a technical trader an advantage.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
