Page 1185 - How to Make Money in Stocks Trilogy

168 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

Chart-Reading 101: Is the Stock Finding
Support or Hitting Resistance?

Now that you have a basic sense of the important relationship between
share price and trading volume, let’s take a look at another key chart-
reading concept: Support and resistance.
Think of it like a floor (support) and ceiling (resistance).
The chart patterns and “buy points” we’ll discuss are all based on this sim-
ple idea: To make sure the stock is more likely to go up than down when you
buy it, first make sure it has already established a solid floor (support) from
which it can move higher. Then wait for the stock to show real power by
smashing through the ceiling (resistance), clearing the way for a new
upward move.
Here again, let’s go through some common scenarios so you understand
the basic concepts.

Turn Up the Volume

Be sure to pay attention to changes in volume in these scenarios. For exam-
ple, when a stock is punching through an area of resistance, you want to see
unusually heavy volume kick in. That shows institutional investors are buy-
ing enthusiastically and aggressively. Light volume would show more hesita-
tion and a lack of conviction—which could mean the stock will fail to climb
higher and soon fall back below that same area of resistance.