Establishing key price lines in the sand for action

Quick tip post…

line in the sandWe have discussed at length and several times at the trading room sessions the importance of “critical action points”. As well as changes in trend color and whether the volume level and if it has a buyer or seller to guide decisions we often use support/resistance lines (and of course previous support may then become resistance and visa versa – so lets call them key price lines) in some situations.

Along with the Volume and trend you are looking at, these can be used for:

  • Entry (or to delay entry if close)
  • Exit (profit targets or setting initial stops
  • Roll down/up points for strategies like JAWS/Covered calls when a trend and buying/selling pressure has already been established in one direction.
  • Identifying a range (For strategies that profit from a price staying within a range)

to name the most common uses.

Sometimes in the noise of candles/bar charts it may be difficult to see these easily for those of you who are “traders in training”so here is the tip…

Change the Bar to a “line on close chart” (which as the name suggests plots the last price on the day) and things may become clearer.

Here is a current AAPL chart to illustrate this where it becomes not only clearer that the stock is trading in a range but also shows the longer term key price points also.

AAPL lines

 

It is easy to become increasingly fixated on the short price sometimes..why not take that step back at least once a week and put on your key lines which help along with the other indicators you are looking at to put things in context. (As we know $483 is completely meaningless without the context of where that sits in overall market sentiment.

 

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