I think this helped. I was looking for a resistance on a wider timeframe. It makes perfect sense now. But in essence, it seems like a base has to be near a recent high for it to be considered at a local high, no?

Happy Holidays! Your blog and help are awesome

The way I determine support and resistance is as follows:

When Price is unable to break above/below a certain price that’s support or resistance. The more times price touches this “area”. The more powerful the support/resistance is thought to be. Also, Support/resistance on larger time frames are thought to be more powerful than smaller time frames.

You can also use tools like pivots points and whole numbers, but in general if price can’t get above/below a certain area than there must be support/resistance there.

In the case of the IBM example, there was definitely resistance at the 108 area. On 5/21 IBM stopped at the 108 level and then on 5/31 it tried again, but couldn’t even make it back to 108 area.

IBM broke through resistance on 7/6 and for the following six trading days, printed a tight, horizontal price pattern(base). The resistance at 108 had now become support. Note that price never broke the 108 area. I saw the base as a low risk opportunity should it break out.

Remember that support and resistance are zones and they are also somewhat subjective. After looking at enough charts you start to see where prices stall. What constitutes are break of support/resistance? Again very subjective and should be the subject of another post.

Hope this helps. Let me know if it didn’t I can talk more about support and resistance in the future.

For example, you used the IBM example and in a good setup, the resistance should be far above but when I look at the IBM chart for the year, it seems like, back in July, we were right there underneath the resistance, no?

Evidently, I’m not seeing something obvious

@JasonR I look at declining volume and no price movement as lack of conviction. If you look at the context of a base, declining volume is indicative of a continuation of the previous move. For an up move, declining volume in a base means that despite the pause in stock price, sellers were unable or unwilling to knock the price down. Buyers didn’t need to exert any activity to keep the stock price flat.

Whether the preceding move was up or down, when looking at a base, you want to keep in mind that volume must explode when price finally breaks out.

If volume is heavy inside of a base, that is indicative of churn (lots of buying and selling with no price movement either way). I would rather buyers exhaust their buying power when the stock is rocketing up, not before it even breaks out. Could price break out and continue higher? Sure, but keep in mind you want to trade stocks with the best chance for success. Volume is another filter I put on when evaluating potential trades.

Hope this helps.

Thanks for sharing.

@Bubs Thanks again!

@Will Oh crap. There goes my thunder. Actually I haven’t been by HCPG, but I’ll check them out. Thanks for the add!

I’ll def add you to my feed. Looking forward to more posts.