Support And Resistance and How To Trade Them | Podcast Episode #45

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Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory. And on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market. You will learn to trade better trait, smarter and profit figure.

0:26
Now let’s go trade everybody. This is Ryan Mallory ready to do a podcast episode today on support and resistance. Now on Twitter, and my Twitter Handle, by the way, is at SharePlanner. I had a person asked me.

0:42
Hey, can you do a podcast on support and resistance? At first, I was kind of hesitant about doing that because I felt like man, how do you do that without showing charts and graphs but I think I can do it. So I’m going to do a podcast on support and resistance just showing you how I use them.

1:00
How they benefit me in my trading in terms of entry prices. In terms of stop losses for those who don’t know, support and resistance is a vital part of technical analysis. Support is typically a place underneath the current price of a stock that shows a willingness for that stock to bounce at a particular price level.

1:18
Now, resistance is a place on the chart above the current price, where the stock tends to sell off when it, when it tests that level now does that mean that every time, a Stock price test to support level that it’s going to balance or every time it tests a resistance level, that it’s going to sell off.

1:35
No. Because what makes it even more interesting is when it doesn’t do that, when it breaks through resistance, you have yourself a break out when you have a push through support, you have a breakdown. So that is a broad level view of what support resistance is. So it can take a lot of different forms to, but the two most common forms of support and resistance is price level and then trend line.

1:58
So the price level is typically like A flat dollar amount. So if you draw a horizontal line across the chart that connects multiple price points, where a stock has bounced in the past, that is a price level support. So let’s say, a stock trading, at $40, goes down to $35, and bounces every time that’s going to be a support level there.

2:20
So it’s price level support. So it keeps bouncing off of that $35. Now we’re a lot of Traders, get hung up on is like, well, it’s it’s not price level support unless it bounces exactly. Thirty-five dollars every time. No, that’s not true. I mean, if it bounces at 3490 or 3510, still it’s in that brought that general area that’s still considered support.

2:39
So you have to have a little bit of leeway. If you try to be exact about everything and technical analysis, you’re going to drive yourself mad and rarely, will you anything ever line up for you in the way that you’re wanting it too? Now, you also have trend line support. So what does that? That’s where you have a series of higher highs and higher lows.

2:58
So stock starts trading at 35, it goes up to 40, pulls back to 3750, goes up to 40 to 50, then it comes back down to $40. Then it goes up to say, $45 comes back down to 40 to 50 or something like that.

3:16
Okay, that’s not exactly the increment. I’m trying to give you like an idea of like, a 45 degree angle. Trend line support is when you can connect those higher lows. So so you’ll have a line that touches the 35 to 37, 50, the 40 and then every increment there on after, and that’s your trend line support.

3:31
So it’s kind of goes up and down, or if in it and it down downward trend line, you may have a trend line that has resistance at 40 to 50 then 40, then 3750 then 35. So it can go downward as well. So trend lines, they go up and down, okay?

3:49
And a bullish Market, you’re likely to see more more Rising trend lines. And in a bearish market, you’re more likely to see more declining trend lines. So why are these price levels and trendline? So important to our trading? This is because when there’s a breach in them, they represent a change in the character of what the stock had up to that point been doing.

4:09
So if there’s a lot of support at $40 and it breaks down below all of a sudden, hey, we got something new going on here. This thing’s breaking down. It’s not just holding its own at $40 a share and The exact opposite is true. When something breaks above resistance, all of a sudden that resistance then becomes support underneath because now the price is trading above that level, you have something significant you have a breakout in place.

4:32
So these are like critical parts of technical analysis and where they really come into play is in the manner, in which we stage, our entries and are exits from a trade. So, for instance, if you have a stock that’s trading at $39, and you can see a clear level of support or Resistance above at $40 and then all of a sudden that stock breaks out and it’s like, now above the 40 dollar market, say 40 25.

5:01
Then you have a good reason to get long on that stock. And then you can get long at 40 25 and then you find a support level underneath, maybe not. It’s not that exact resistance level that it just broke. That was converted to support, but actually something far down below it.

5:17
Maybe like two or three sent three percent below that. Got level where you can tell that, okay. If this particular support level is broken, then I know for sure that there is a change in the character and the nature of the market. So that’s how it works with breakouts.

5:41
Now, on breakdowns, you’re looking at a trade where it’s trading at $40 and there’s a clear level of support that’s at $38. Now, all of a sudden it starts selling off, it hits that $38 mark. It bounces a little bit, comes back down, tests that $38 mark again, bounces, comes back down again and finally breaks it.

5:57
So now, all of a sudden, it’s trading at $37.50 and then all of a sudden, you’re saying to yourself, let’s get short, because there is a technical change in the nature of the stock and it’s worth getting short on because it’s now starting to break down. What used to be support before did not hold up, it’s now resistance overhead because price action is now trading below that previous support level.

6:16
So it’s become resistance. Now, on pullbacks or trendlines, how do we use the support and resistance for that? So remember, a trendline isn’t like the price level the trendline support level is changing because there’s a trend that’s moving higher in the case of a bullish stock or lower in the case of a bearish stock. That makes it to where the support level is taking place over time rather than at a fixed price.

6:46
So what you want to do there with the trendline is to wait for pullbacks to the trendline. So like I said before, there’s a trendline that connects the price points at $37.50, $40, $42.50 and like $45. Then you want to draw a line connecting all those low points on that particular stock or that particular chart.

7:08
And then when it comes down to test those rising support levels or the trendlines, then you want to get long on it and then you find another level underneath it through where you can say to yourself, okay, if the stock drops below this particular price point, it’ll validate the fact that the trend has been broken and it’s reversing course to the downside.

7:28
So that’s why using support levels and resistance levels and in this case, I’m just going to talk about stocks that we’re getting long on because all you have to do is just flip the logic around to the opposite for stocks that you’re getting short on is important. So we’ll just focus on the long side of the trade for the purposes of this podcast.

7:46
People like to pick out random places to put a stop loss and that’s not always the best thing. Because where I like to put my stop loss is at a point on the chart where I know that, if it breaches this price level, something has definitely changed in the nature of the stock.

8:02
It’s become more bearish, it invalidates my trade something that says there’s something that’s not right about this trade, I need to get out of it. Now, if you just randomly put it somewhere, it can just hit it erroneously, not invalidate the trade, and then keep going back higher. So you don’t want that either.

8:21
You want to be able to stay in your trade as long as you can and keep piling on the profits. So you place your stop loss at a point on the chart that says if it crosses below this level, something’s wrong, I need to get out.

8:40
So we’ve talked a lot now about support and resistance. We talked about what it is in terms of there being support, there being resistance. We’ve talked about the different forms that it takes the price levels, the trendlines and that’s just a few of them. There are also pivot points, and plenty of support and resistance levels that people map out on indicators and oscillators.

9:07
And we also talked about the significance of why staging the entries using support and resistance is so important, how they create breakouts, breakdowns, and pullbacks to trendlines, and then of course how we use them in placing stops.

9:25
So this is probably one of the hardest podcasts I’ve done because it’s not easy talking about such a technical subject without using the charts. But if you’re listening to this thing driving home, what other choice do you have, right? If it’s an audio file, if it’s a podcast, you don’t have the privilege of being able to throw up charts anyway.

9:41
So this is about as in-depth as I can get on support and resistance on a podcast platform. If you’re looking for videos that show me using the charts, go over to my YouTube channel, which is www.youtube.com/shareplanner.

9:53
That’s going to do it for today. I enjoyed the talk. Remember support and resistance are vital parts of your trading. Explore them more, do some of your own research and due diligence, and figure out how they can be incorporated into your own trading.

10:08
As always, feel free to reach out to me if you have any questions. Thank you, God bless. Thanks for listening to this week’s podcast of Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block, where I navigate the financial markets every day with traders from around the world.

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With your membership, you’ll get a 7-day trial access to my trading room and text and email alerts. So go ahead and sign up by going to www.shareplanner.com/trading-block. That’s www.shareplanner.com/trading-block.

10:43
And follow me at SharePlanner on Twitter and on SharePlanner’s Facebook page, where I provide unique market and trading ideas every day. If you have any questions, please feel free to email me at ryan@shareplanner.com or call the office at 321-522-6733. All the best to you, and God bless.