DaytradeTeam Profitzzz

In stock trading, your enemies and your friends tend to switch roles quickly and often. No, I'm not referring to the analyst that finally upgraded your favorite stock or the market maker that can't make up his mind. I'm referring to price levels, specifically support and resistance levels, and one of my favorite rules of technical analysis:

Broken Levels of Resistance are Automatically New Levels of Support

For a current example, let's take a look at a 6 month chart of AMAT:

Notice how late this summer, AMAT was unable to make a significant move above 18.50, even making a double top and confirming it as a solid resistance level as the stock moved lower over the next few months.

Well, fortunately for AMAT shareholders, things have recently taken a turn for the better. If you look closely, you will notice how once the stock broke 18.50, not only did it breakout to new highs, but it also confirmed 18.50 as a new support level, bouncing upwards off of it twice. This is a great example of an old resistance level becoming support immediately after being broken.

Now AMAT is pulling back a little bit and starting to test the uptrend line that has held successfully for the past six weeks. At just under 19.00, this could be a good opportunity to start picking up some shares of AMAT on a pullback from their recent high. You will have an uptrend line as initial support, and a former double-top resistance line at 18.50 as primary support.

From a risk/reward standpoint, you can't ask for a much better setup than that.

This technical analysis rule can also be applied when day trading and options trading, so have fun!

Learn from me as you watch me trade and get my alerts in real time each and every day in the DaytradeTeam Live Trading Room.....