Currently, we are vetting the candidates running for the office of the President of the United States. And, oh, what a process!
Some media folks are scrutinizing the earlier lives of candidates with a fervor (vehemence?) that rivals a cat sniffing down a gopher hole.
As investors and traders, we would be smart (and earn fatter profits) to exhibit the same zeal in inspecting our target stock’s earlier price action.
As you know, a price chart is an analysis tool that plots a stock’s (or other asset’s) price history. The most commonly studied chart is a daily chart, in which each bar or candlestick represents one trading day’s price actions.
When I bring up a daily chart on my screen, I typically look at price history that stretches back for six months to a year. And, that’s good information. Still, if I like the current price pattern, and if I am targeting the stock to buy, I am going to act more like the media. I am going to dive further into that stock’s past price moves by checking its weekly or monthly chart.
Why? I want to confirm that my target stock has price support that I couldn’t see on the daily chart. I want to know if there is additional, longer-term support just below the current price (where I intend to purchase shares). If that support is in place, it adds confirmation to purchase shares: long-term price support tells me market participants have purchased the stock at that level before, and may do so again, should the stock slip to that level. That dynamic helps to lower my risk. I may even want to place my protective stop for my new position just beneath that support zone.
In Figure 1 below, we see a daily chart of General Electric Co. (GE) that shows price history from January 2015 to the present. The multinational opened the year at $25.34, dipped lower into mid-January, and then flew up to its April highs to ~ 29. It subsequently rolled over and fell with the broad market into August lows. Then it recovered nicely from those lows, rallying into September and October.
That’s when I got interested. GE became a target stock after it gapped up on October 5th and kept climbing (green arrow) to the $26 to $27 range.
Figure 1 — General Electric Co. (GE) Daily Chart
Chart Courtesy RealTick ®
After studying GE’s daily chart for a possible long entry. Then I flipped to the monthly chart, which definitely sweetened the decision.
On the monthly chart of GE, below, that dates back to the year 2007, we can see that GE touched a high of ~$42 in October of that year. The industrial behemoth then fell with the subsequent bear market, tumbling to a March, 2009 low, of $5.73. (Yes, yes, I wish I’d bought it back then.) GE has climbed steadily, if quietly, since those lows. Exciting? Not so much. Until now.
Figure 2 — General Electric Co. (GE) Monthly Chart
Chart Courtesy RealTick ®
Currently, on GE’s monthly chart, the most satisfying technical point is the potentially stable price support at $24—$25, a level GE has held for much of 2014 and 2015 (blue line). I can use that potentially powerful level as my initial protective stop, and lower my risk. Unless our market experiences a big belly punch we don’t expect, GE should stay above this line.
Bottom line: When you locate a potential target stock to buy, take a few minutes to check out its weekly or monthly chart for nearby price support. The time you spend can make you—and save you—money!
Keep green on your screen,
Toni Turner is the President of TrendStar Group, LLC, is an accomplished technical analyst as well as a popular educator and sought-after speaker in the financial arena.
She is also the author of best-selling books: A Beginner’s Guide to Short-Term Trading, Short-Term Trading in the New Stock Market and Invest to Win: Earn and Keep Profits Bull and Bear Markets With the GainsMaster Approach, co-authored with Gordon Scott, CMT.averaging over 1%.
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