WITHOUT MASTERING STOCK CHARTS AND SUPPORT/RESISTANCE, YOU ARE GAMBLING – NOT INVESTING!

Disclaimer: Good Day, Readers.  WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.  

As Buyers, you want to know which stock out of the 8,000+ you should buy and when.  The answer requires you to accurately read and interpret the stock charts, identify support and resistance stock prices and UNDERSTAND the company’s FUNDAMENTALS (MORE ON THAT IN COMING WEEKS).   

In 2020, my stock portfolio increased significantly more than in previous years. My portfolio successful returns were NOT due to my brilliance (although that is what I told my wife!. Following the Pandemic, March 2020 decline in the stock market, it was relatively easy to make money in stocks. Many companies that could thrive in a pandemic did exactly that—companies like Costco, Netflix, Apple, Zoom, etc. I was already heavily invested in some of those companies!

It is IMPOSSIBLE to forecast the market correctly every time.  When the buyers outnumber sellers, the stock MUST go up; when the sellers outnumber the buyers – DOWN THE SHARE PRICE TUMBLES! 

To improve your probability of forecasting, you must improve your stock charting competencies.

TO GUESS WHERE THE STOCK IS GOING, We LOOK AT PAST PERFORMANCE 

A stock only has three paths: UP, DOWN, SIDEWAYS. You can look at stock charts from the inception date of the company (decades) down to a one-day chart. When trying to decide future direction, I start with the three- and one-year charts and move to the six-month chart.  Sometimes I will expand to the ten and five years or the three and one months.  I am trying to determine the stock’s past performance {up, down, or sideways.}  Then comes the hard part of guessing the future pattern.   Hopefully, an educated guess is right more often than wrong. 

Look at below three charts for Amazon and decide the overall PAST trend. {UP; DOWN SIDEWAYS?} 

THREE YEARS TREND – AMAZON CHART {UP; DOWN OR SIDEWAYS?}

ONE YEAR TREND – AMAZON CHART {UP; DOWN OR SIDEWAYS?}

SIX MONTH TREND AMAZON CHART {UP; DOWN OR SIDEWAYS?}

MY OPINION

Feel free to disagree.  Write and tell me if you strongly disagree and justify why I am wrong. {I am married and have a daughter. I am used to being told I am wrong!}

THREE YEAR AMAZON CHART – A GIMMIE – UPWARD TREND

You are looking at the trend for the entire three years.  As you see from the green trend line, this stock is still in an upward direction. Three years ago, Amazon was selling for about $1,500.00, and today is selling for approximately $3,333.00.  Great returns! 

ONE YEAR AMAZON CHART – A WEE BIT MORE DIFFICULT- UPWARD TREND 

For the one-year chart, the stock moves up for a few weeks and then moves sideways. I see two patterns, a short uptrend followed by a longer sideways trend.  For the 12 months, an uptrend.  You still made a GREAT profit.  Amazon started at ~ $2,200 one year ago and is now at $3,333.00. 

SIX MONTH AMAZON CHART – A WEE BIT DIFFICULT – SIDEWAYS TREND

The stock is moving sideways, ending the six months at about the same price.  

NEXT, WE HAVE TO IDENTIFY SUPPORT AND RESISTANCE 

Identifying Support and Resistance is crucial to decide: Buy; Place on a Watch List; RUN.

“A stock support level is a value that the share price has declined to several times but not continued to lower values. On a chart of the stock share price, the support level is indicated by a horizontal line with the share value coming down to the line several times before returning to higher price levels.” Investopedia

Resistance is a price level that a rising stock struggles to pass. Once a stock reaches its resistance level, it often stalls and reverses.” Investopedia

A level of support is a price that a stock is unlikely to drop below, while a level of resistance is one that it’s unlikely to go above.  Ideally, you buy a stock when above the stock’s support price and approaching the previous resistance price. 

In the above diagram, each horizontal line initially represents resistance.  When a stock finally breaks above resistance and stays above, resistance turns into support.

IDENTIFY SUPPORT AND RESISTANCE PRICE POINTS 

Knowing the lines of resistance can help you decide when to buy or sell a stock. Remember, though, it’s subjective and will not give a clear-cut road map on exactly what to do. You have to use some of your analysis and judgment.

DISNEY’S STOCK SUPPORT AND RESISTANCE POINTS 

I like Disney but do NOT own the stock. 

For this exercise, I am focusing on the three-year chart. 

MY OPINION – DISNEY THREE YEAR CHART SUPPORT AND RESISTANCE

I drew in the support and resistance lines I see.  You may see more or less.  {To get better at identifying support and resistance, I suggest you google stock support and resistance and review more examples.} 

Suppose I was dollar-cost averaging (buying the stock at periodic and planned timings). In that case, this is what my purchases and hold periods may resemble—purchasing about every quarter unless prices drop below support level(s).  

PURCHASE MONTH AND YEARAPPROXIMATE PURCHASE STOCK PRICEEstimated Number of shares @ $1,000 investment Support or Resistance Prices Impact
First purchase May 2018$10010 
August 2018$1109.09 
November 2018$1109.09 
February 2019$1109.09 
May 2019$1307.7 
August 2019 $1357.4 
November 2020$1407.14 
March 2020HOLDN/ABroke Support Levels 2 and formed new Support #3
June 20201109.09 
September 2020$1208.33
December 2020$1407.14 
March 2021$1855.40 
April 2021  PAUSE Price dropping.
Just above Support Level 7
June 2021  Dependent if dropping through Support 7, 6 5, etc. Resume buying when stops breaking support or forms new support.
AMAZON DOLLAR COST AVERAGING USING SUPPORT AND RESISTANCE

CONCLUSION – WITHOUT MASTERING STOCK CHARTS AND SUPPORT/RESISTANCE, YOU ARE GAMBLING – NOT INVESTING!

“An average of 10,000 hours of practice and talent is needed to become a world-class violinist or pianist.  In study after study, of composers, basketball players, fiction writers, {STOCK INVESTORS} concert pianists, chess players, master criminals, and what have you, this number {10,000 hours of practice} comes up again and again.” OUTLIER

Remember Warren Buffett’s top three trading rules:

  1. Never lose money
  2. Never lose money
  3. Never lose money

You are probably saying that is impossible. You are correct! Everyone, including Warren Buffett, makes poor investment decisions. Buffett’s rules apply to your medium- and long-term investment journey; NEVER LOSE YOUR HARD-EARNED MONEY!  When you buy a poor-performing investment, get out when it crosses your loss tolerance. I target no more than an eight percent loss on a stock.

Stock investing is complex; keep learning and building your competency. To get started, buy stock shares with Virtual Cash until you feel comfortable. Investopedia offers Risk-Free with $100,000 in Virtual Cash. Compete with thousands of Investopedia traders and trade/practice your way to the top!

https://www.investopedia.com/simulator/

Becoming an OK stock investor takes hundreds of hours of study and practice. To become a great stock investor requires that ten thousand hours of building your competency. There is NO shortcut!  

Many of you may not have the time between family and career responsibilities.  Consider investing in stock ETFs.   

Thanks to Robinhood, all major stock brokerages now offer zero-fee investments. Before Robinhood, the majority of investment houses charged $7.00 or more. If you purchased $100 of stock, you paid $7.00 in fees, equating to being seven percent down your first day, discouraging small and younger investors. Shout-Out to Robin Hood for opening the door for all! 

The advantages of using major investment houses: Charles Schwab, Ameritrade, Fidelity, and Vanguard- offer online workshops to help you build your competencies.  That is why I do NOT trade on Robinhood.  Major investment firms also provide real-time online classes. These courses are typically free.  If you want to be good and NOT lose your hard-earned money, put the hours in and learn!

Today’s blog is continued from April 5, 2021 Blog: HOW TRADERS AND LONG-TERM INVESTORS UTILIZE STOCK CHARTS TO ACHIEVE FINANCIAL FREEDOM! – Link can be found below: You May Also Like

Future blog topic on becoming a good stock investor – Fundamental Analysis 

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ABOUT ME

I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.

I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life.  It is my time to serve and give back.

DISCLAIMER

I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate, and happy to share my finance and investment lessons.  I am NOT a licensed financial advisor.  Please do not construe my suggestions on this blog as recommendations for your situation.As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss. 

 Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.  

I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.

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Powers Investments Management, LLC

This blog will provide, information and simple strategies, that will assist you to achieve YOUR financial objectives and long term targets. For over 30 years, I solved multi-million dollar problems, for Fortune 10-250, companies. My formal education includes: Business, Finance and Chemical Engineering {Problem Solving} at: Harvard, Rutgers and North Carolina State. And an additional 30+ years, managing my family’s investment decisions. I currently manage/advise people with net-worths ranging from the tens of thousands to several million dollars.

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