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.
Let’s look at Sun Microsystems (NASDAQ: SUNW).
Print out this chat and let’s draw these trendlines on Sun Microsystems, SUNW.
By looking at the chart below, a trader would draw a Support trendline
across the recent support at 73 1/2 and across short-term resistance at 78.
SUNW has been in a congestion range over the past couple of weeks.
The stock has been holding support, but also not able to take out new highs.
Today’s range again brought SUNW to the top of the range.
When a stock gets range bound the breakout can be good trading opportunity.
A trader entering a trade on a break should follow the trade with a close
stop. The stock should continue in the direction of the break.
As we saw today, with the range in SUNW, a clear break has not occurred to
either support or resistance.
Let the market tell you the direction of the break.
This can be done by placing Buy and Sell stops above and below the support
and resistance areas.
I would Buy SUNW on a break of the 78 in the morning or wait and Short SUNW
on a break below 73 �.
A stop to the mid-point of the range at 75 3/4 might be a good stop for a
trade in either direction.
