My Secret to Buying Low and Selling High: Using Support and Resistance
- Justin Maxwell
- Jul 3, 2024
- 4 min read
Updated: Aug 25, 2024
Have you felt overwhelmed by the complexities of the stock market? You aren’t sure where to buy or sell, maybe you can’t decide which strike you choose when you want to sell a put?
What if I told you there's a simple yet powerful tool that can help you make more informed decisions?
Welcome to support and resistance levels! Support and resistance are like "invisible" zones in the future that often influence stock prices using past price action.
Understanding these levels helps you buy low, sell high, and reduce the emotions and stress often associated with investing. Today I’ll break down this concept into simple terms and show you how I use support and resistance to create high probability trades.
What Are Support and Resistance Levels?
Imagine a tug-of-war between buyers and sellers. When the price of a stock falls to a certain level (support), buyers often step in to purchase, preventing the price from falling further. Conversely, when the price rises to a certain level (resistance), sellers may be more inclined to sell, preventing the price from rising further. These levels are known as support and resistance.
Why Are They Important?
Support and resistance levels act as potential turning points for stock prices. When a stock's price approaches a support level, it may bounce back up.
Similarly, when it reaches a resistance level, it might pull back.
By identifying these levels, you can anticipate potential price movements and make more informed investment decisions.
Notice I used the word may bounce, or may pull back, nothing works ALL of the time.
How to Identify Support and Resistance
To identify support and resistance, I use TradingView (that's an affiliate link, no cost to you, but a benefit for me if you sign up).
Here's a step-by-step guide:
Choose a stock: Select a company you're interested in investing in.
Select a timeframe: Start with the weekly timeframe to identify long-term trends.
Identify levels: Look for price areas where the stock has bounced off multiple times (support) or failed to break through (resistance).
Draw lines: Use the horizontal line tool to draw support and resistance lines on your chart.
Confirm on lower timeframes: Switch to weekly and daily timeframes to verify the identified levels.
Remember, support and resistance are zones, not exact points. It's okay if the price briefly breaks through these levels before reversing.
Using Support and Resistance in Your Strategies
Once you've identified support and resistance levels, you use them to make informed investment decisions. Here's a basic strategy:
Buy near support: When the price approaches a support level, it might be a good opportunity to buy.
Sell near resistance: When the price reaches a resistance level, consider selling to lock in profits.
Sell puts at Support: When a stock is dropping, use support lines to determine which strike to select for your put. You are agreeing to buy low!
Sell Covered Calls at Resistance: If the stock stopped at resistance before, it should slow down at least when it hits that price again, sell calls at your horizontal line. Eventually it will break through, so if it's hit resistance multiple times, wait. NOTHING wrong with getting called away at highs!
Building Pyramids at support: Use support levels to create your buy levels. Checkout the blog post on the power of not buying all at once!
It's important to remember that no strategy is foolproof. Market conditions change, and sometimes prices can break through support or resistance levels like they aren't even there. Fear and panic makes many strategies and tools worthless. Always do your own research and consider where we are in the market in terms of sentiment, fear and greed.
Combining Support and Resistance with Other Indicators
Imagine having your TradingView charts look exactly like mine!
I've put together a FREE, step-by-step guide that shows you how.
Don’t miss out—grab your copy now!
By understanding and using support and resistance levels, you can build even higher probability trades to improve your chances of making profitable decisions. Nothing works all the time, but support and resistance is key to my trading success!
Happy Trading Good Kids!
-Justin
I understand the stock market can feel intimidating and complicated, if you want some extra support and guidance, I help people skip levels, schedule a free discovery call with me. Lets talk stocks and see if I can help you! Click on the image below and setup a time that works for you!
This is not trading advice, it's for your education. I'm a dude on the internet who’s been trading for 2 decades, and I use the stock market as my primary source of income. None of this is financial advice. Any trades or decisions you choose to make are at your own risk, this is purely educational!
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