In this video we're taking a look at using support resistance with candlesticks.
And as you can see I have the Wal-Mart chart opened again and I'm going to show you a couple different
examples here of support and resistance.
Obviously there is support here.
The market just simply wouldn't break down below this area.
So
obviously you want to be a buyer in this general vicinity until shown otherwise.
Now how do you use candlesticks in conjunction with this.
Well there's a lot of different ways you can simply just play this important resistance and not wait
for the candlestick.
But another thing that you can do instead is perhaps look for signs that the market is trying to turn
around.
So we're falling into support and you can see that we bounced rather hard the sellers couldn't keep
up the downward pressure and that was your first sign that you would bounce.
This is actually candlestick called a hammer.
You can see this very neutral candlestick.
They tried to break it down and at the same spot found that they couldn't we broke above that range
and everybody in that candlestick is now losing money and they have to buy their position back in order
to cover their shorts.
So a lot of it will come down to simply paying attention to where price can or cannot go and looking
for failure to break through that level or long weeks or something like that.
Now here's a trend line that you can make out on this chart.
And clearly that's a very negative turn of events on a heavy volume.
So what does that tell you that tells you that support has been sliced through pretty straight forward
there.
However along the way here was another one of those hammers that I just talked about where we broke
through but couldn't stay below there.
And that of course is a good sign.
Look at these long weeks right there on this line.
That's a good sign as well.
You want to see one of two things really when you're talking about a support a resistance level you
either want to see a candlestick that just goes right through it and closes on the other side of it.
Higher timeframes of course are more important or you want to see a situation where the candlestick
tried to break through it but failed.
Those are your two tells anything in between like a candlestick closing right and support or resistance
typically is a less reliable signal because you're still talking about a 50 50 proposition.
Yes typically support and resistance holds but it doesn't always.
So with that in mind let's take a look at some charts here a couple random charts.
Take a look at G here.
Let's see if we can find an example of the support and resistance.
Well here's one that we had some support here and we tried to we cap lower and then tried to break above.
There you can see that the weak broke above the support line just briefly and then turn around it fell
back down well is it a surprise that we fell from there.
Well of course not because we couldn't break through there to begin with.
So a continuation of that weakness would be the default expectation
take a look at Hyatt and here is a scenario where we had some resistance here and there's a couple different
tells here.
This candlestick here shows that they tried to rally and break through it but they failed and they broke
down through it.
It's actually a candlestick called a Hanging Man which you'll learn about later there's another one
here.
And beyond that there's an extraordinarily bearish candlestick that close at the bottom of the session
showing just how difficult it is to get above this area.
And we have since broken down.
So again this is a matter of you know you have to pay attention to the psychology does it work.
One hundred or so the time of course not.
But it does give you a leg up a leg up on the other traders out there who are simply looking at their
you know you have to keep in mind that there are a lot of traders out there looking at charts like this
and their brokerage platforms they don't really understand the nuances of price.
You know they just see that it fell a couple times.
They didn't get the warning you know to them.
This chart looks like it could be rebounding.
So that's part of what makes candlestick trading so important and so useful when it comes to support
resistance it's something that those of us who've been training for a while take for granted.
But every once in a while if you look at the line charts of the area charts you really see the major
problems that a lot of the public faces quite frankly there is an area there though showed resistance
it looks like a zone it's not necessarily just one line but you can see that we couldn't break above
there and then we formed the very negative candle and then broke down and then we formed what is known
as a shooting star the next time we tested it and it's not a huge surprise they couldn't break above
there and then they fell you know support and resistance is going to be the basis of everything you
trade.
So you need to notice where price won't get above or below and then start placing your trades based
upon that.
You know there's a simple way to look at it.
You know we have an area here for example that we support and it works several times but eventually
it gives way and then you realize that below here you want to be short of this stock.
This is an area where there was a lot of buying interest and it's been absorbed all those orders have
been filled and overwhelmed.
So pay attention to this you're looking for several hits at the same line price or same area.
This was hit six seven eight nine times.
We'll be more than that before.
So that tells you just how important this support was.
And once seventy five dollars gave way we fell pretty significantly and you'll do see this time and
time again quite often.
Markets are just going from point A to Point B.
So you know here we had support.
Now it looks like we may come back down and to try to find it.
There is resistance there.
We'll probably go back up there to try to find that eventually.
It's just again and again and again it's there there's really no big secret to it.
It's just where buyers and sellers are.
So JP Morgan you know we've had some support here.
I suspect there'll be some sellers right up here
there's resistance here but there was also support there.
There's people who once that broke and it came back they're willing to get out of their positions or
break even to kind of save their accounts a bit.
You know they've been spooked bank out of the market so support resistance is crucial make sure you
use it in all of your analysis.
Pay attention to where the market will or will not go.
You know once you break through it that's a sign as well it's a sign that you know one side get overwhelmed
in this case the buyers got overwhelmed.