On lesson 4 I have talked about basic of support/resistance
levels. You can also use a tool on your trading platform, Trend Line, to help
you identify those levels. Even if you are a pro trader, trend lines are still
going to help you remember those little details on the chart that you might
forget when trading many stocks at once.
I think the easiest strategy for beginners is “buy the dips,
sell the rips”. Or buy right at around support level (expecting for a bounce),
and sell anywhere on the way up or near resistance level.
So first of all, you need to find some stocks to put on your watch
list. Go to
Finviz screener HERE
and start putting some info in the filter. Here are some examples:
Exchange: Any
Market cap: Micro (Micro cap stocks
can move quicker)
Average Volume: Over 500k
Current Volume: Over 1M
Price: Under $20 (Higher
price stocks usually move slower)
Beta: Over 1 (This will
ensure that those stocks will move when the market moves)
The filters above gave me 19 results.
If you would like to have more results, try to change Market cap and Volume.
Also there are many more that you can put in the scanner such as sector,
earnings date, float short, and etc. With more filters you will get less
results.
After that, you will have to do a quick
check on every one of them and select a few to put on your watch list. By putting your mouse over the ticker symbol, Finviz will give you a preview of the chart like
in the picture below. Also don’t forget to use trend line to help you define
support/resistance levels.
And below are some examples of
what will be on my watch list for this strategy. Blue line will represents area
of support (where I am looking to buy) and black line is the resistance level
(where I am looking to sell). The arrows are pointing at the line, not a
certain point in the chart.
$CLDX, there are 2 blue lines and 2 black lines. My first target that I'm looking to buy is around $4 (first blue line) and if it's trading at that level and looks weak, I will wait to enter at the second line $3.50. Also if I do buy $CLDX at $4 my first target is around $4.75(first black line) and if it looks really strong and going to breakout, my next target is $5.50. As we learned from lesson 4 that when a stock breakdown then that support becomes resistance. So if it breakdown $4, then $4 area becomes resistance (hint:sell level, if I do buy at $3.50 support)
So from above scanner, these 7 stocks will be on my watch list and I will constantly check them throughout the trading day, everyday. Then I would buy the one I like when it's trading right around support level(blue line). Normally I scan for new stocks everyday and keep adding them on my watch list. In general you should have about 20-30 stocks on your watch list(for each strategy) because out of those 30 stocks, maybe only 1 or 2 will be in play (sometimes none).
So that's the basic of trading base on support/resistance level. This should be very easy and practical. Be disciplined and don't be scare of taking losses(1 or 2 bad trades can take you out of the game). The ultimate goal of trading is minimize losses and maximize profits. Have a great day and happy trading!
