Support and Resistance During a Downtrend
Market Correction Chart Example
The strength in the levels of support and resistance during a Downtrend or market correction alters as the stock moves down. Often moderate support levels can be broken through with ease and speed, as selling accelerates and momentum drives price down. This is especially true of stocks that are frequently traded by High Frequency Trading firms, Pro Traders, and larger lot Retail Traders.
Normally the low of an upside gap would provide moderate to strong support for a stock in a Downtrend or market correction, especially if the gap was a breakaway gap. See chart example below.
This is a good example of how quickly a stock can fall through a moderately strong support level in support and resistance during a Downtrend. The gap shown with green arrows was a breakaway gap, and is one of the strongest gaps that form in the stock market. It was a High Frequency Trading gap and the stock began to Downtrend without making a higher high from that gap. The support was broken through on a huge run down day, breaking through the gap support area easily. The day after that was another gap down day, which then reversed for a single day.
The velocity at which stock prices can fall is predicated on the Market Participant Groups who sell in panic mode. High Frequency Trading firms often trigger huge runs and gaps down, which in turn trigger Volume Weighted Average Price VWAP sell orders that drive price right through support levels.
For Beginner Traders trying to learn how to navigate through a highly volatile selling pressured market, it is imperative to learn which support levels will hold and which will cave easily to the selling pressure.
For Traders who are learning to Sell Short, it is just as important to be able to determine which technical support level will halt the Downtrend, even if it is only a one day reversal.
Understanding support and resistance during a Downtrend will help all Retail and Technical Traders earn higher profits and avoid trading losses making it more enjoyable, easier, and far less frustrating. Here is a list of what and where is needed in education regarding the Downtrend:
- How and why Price moves in a Downtrend
- Where Support will cause Professionals who are Technical Traders to Buy-to-Cover their Sell Short positions
- Where bargain hunter Dark Pools will start buying
- Where “Buy-on-the-Dip” Investors accidentally make the mistake of buying too soon in a Downtrend
Volatility can be a Retail Trader’s best friend. In addition every Trader needs to learn more than just a few Candlestick Patterns, Indicator Crossover Signals, and basic Strategies.
Trade Wisely,
Martha Stokes CMT
www.TechniTrader.com
Instructor & Developer of TechniTrader Stock and Option Courses
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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.
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