Today's Quote: “Unless you're willing to have a go, fail miserably, and have another go, success won't happen." Phillip Adams.

Many times newer traders look at support and resistance numbers on the chart and assume that at that exact number, magical things will happen. This is not always the case. There are two flaws with that thinking.

First of all, support and resistance cannot be thought of as exact numbers. Rather, they are areas. They are not glass plates that shatter when broken, they are rubber bands that often bend and give a little when hit without breaking. Think of support and resistance as ‘areas’ that have a ‘range’. How far is enough to consider the support or resistance broken? Naturally, a number cannot be used, as this would vary with the time frame. Many times a drop may go ‘significantly’ under a support area. Far enough that most would consider this a ‘break’ of support based on a visual observation. But if the stock were to then rally way past the prior high, you would likely look back and say the support area ‘held’. You have to look at how it handles the support area. If we were talking about a weekly time frame, and a tail was established on a certain day that ‘broke’ support, this break would not be significant. If the next day were to violate the low of the tail, then perhaps support is broken.

Second, as just mentioned, these are areas to see how they are handled. Perhaps a larger time frame is suggesting that a stock should be heading down. Maybe a stock has just broken down a base intra day, late in the day, after being up the last 3 days. When the stock trades down to find support at the low of the day, does that make it a buy? Or is this support more useful to gauge the bounce and use this bounce to short before the stock goes under the low of the day? Support and resistance have many uses when used in conjunction with other strategies, but support does not always mean that you go long without a bigger plan or strategy.