Support and resistance can take many shapes. Sometimes it is a horizontal
line across support and many times it takes the shapes an angled channel.
The drawing of the trendlines is basically the same. You draw them across
the bottom support. Many times you will find the resistance trendline as a
parallel line.
It is a good idea for a trader to be drawing trendlines on their charts to
help them visualize these support and resistance areas. The chart below
does not have trendlines drawn on them. You should print them out and draw
your own.
Print out this chart and let’s draw these trendlines on Applied Materials.
By looking at he chart below, a trader would draw a Support trendline across
the recent support at 51 � which occurred last Tuesday after AMAT broke
below the low of the year. Resistance can be drawn across short-term
resistance at 55.
Despite both the NASDAQ and the SOX index both being down on Friday, AMAT
continued to form support.
Stocks that are moving down tend to keep moving down. For the past month,
each congestion formation like this has been resolved generally in a break
down, rather than a break up.
Can AMAT finally break this down pattern of support breaks?
The way to trade from a technical standpoint is to recognize patterns with
good probability of profit and use stops for those times that the pattern or
indicator does not work as expected.
Trading is trading on expectations.
When this pattern is present, I want to jump on the trend. There is no
reason to be in AMAT until this congestion resolves, but we need to know
what to do.
If AMAT breaks above 55, I would take a long trade. If AMAT breaks below 51
�, I want to be out or Short AMAT.
To play this place a Buy stop at 55 1/8 and a Sell Stop Short at 51 �.
This will get you into the trade in the direction of the trend.
I would place a stop, 2 points from entry.
Do NOT trade this until the formation is resolved. You will just be stopped
out in a congestion range.
