What Has a Better Chance of Happening?

Posted on Friday, August 23, 2019 at 12:14 PM

When it comes to technical analysis, there are certain indicators traders rely on. For me, monitoring simple support and resistance is the main way I feel I am putting the odds on my side.

Support and Resistance

Support is a level that keeps the underlying from moving lower. Resistance is a level that keeps the underlying from moving higher. It can come in several different forms, including pivot levels, moving averages and prior areas the underlying has traded to. The more the underlying has visited the area, the potentially stronger the support or resistance may be.

The Simple Fact

Just knowing that support and resistance have a better chance of keeping the underling from moving any further gives the trader an advantage. So, when I say “what has a better chance of happening,” this is what I mean. For example, if a stock has been in a decline and now has come down to its 200-day moving average, a trader should think that despite the drop in price, the stock has a better chance percentage-wise to not move lower because of the potential support from the moving average.

Remember…

Trading is difficult. If there is a way to make it a tad easier, traders should consider doing it. So next time you look at a chart, look at potential support and resistance areas. If the underlying is close to one, you have to give the odds to support or resistance to hold. I promise you will improve your odds for success.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.

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