Today’s the day…
Millions of Americans are going to the polls to participate in Election Day.
I’m definitely interested in the outcome.
But I’m MOST interested in the market volatility that will surely follow.
Make no mistake: There will be profit opportunities this week as a result of the election.
There’s no way of knowing who will win. And there’s no way of knowing exactly how the market will react.
But we can expect volatility. And as traders, we can use that volatility to profit.
How To Trade These Runners
We’re always looking for the same patterns on every stock spike.
The patterns never change because they’re based on human emotion/psychology.
People behave predictably when they’re stressed. Like when they have cash in a stock that’s spiking +100%.
One of the major results of this predictability: Support and resistance lines.
People like whole numbers. If a stock hits $5 per share, that’s much more significant than a price of $4.87 or $5.13.
Someone who’s stressed while trading will likely react to a $5 price level rather than some other random price.
These whole numbers, A.K.A. significant price levels, act as support and resistance for the price action.
We see this happen a lot on volatile stocks. It’s how my students and I build smart positions.
For both shorts and longs, support and resistance are day trading basics. Knowing how to determine them is fundamental to the trading patterns I use.
What’s so special about these levels?
Traders can learn to use support and resistance levels to evaluate stocks based on past performance.
If you can’t identify an area of support, how do you decide on a risk level?
And if you don’t pay attention to resistance, how do you know when to sell a stock that’s going up?
It’s important to learn these things.
I say this all the time … Education should be a TOP priority for any trader.
Studying hard and taking it one day at a time is the way to become self-sufficient in these crazy markets.
How to Determine Support
Being able to spot support levels can be helpful. But it’s not exactly easy.
You can’t buy just any bounce and hope the stock will find support there.
The most reliable support levels are the unique ones. Be on the lookout for increased volume. More buyers can indicate more strength.
It’s important to track support levels in multiple time frames. A stock’s history can show you some truly valuable information.
You can also look for an area where a price has defended multiple times. That’s what traders call a double or triple bottom.
When a stock fails to break below a price several times, that can indicate it’s hit a strong support level.
Traders use support levels whether they’re going long or short.
When going long, they try to buy in near a support level.
Remember — always cut losses quickly if a stock loses support.
Traders buy in at support levels because they expect to see enough strength for the stock to bounce. It’s part of trading psychology.
Even after it’s clear a stock has found support, less-experienced traders might chase it even higher. This action can lead to big price bounces.
One of my favorite trading patterns is the panic dip buy — it involves buying into a support level as it’s forming.
(See why this pattern had me jumping for joy here.)
I try to get in as close to the bottom as possible … I don’t chase the stock if it’s already bounced a lot.
Source: Millionaire Media
With every trading pattern, you MUST keep a tight risk level.
Never go into a trade unprepared. Plan out every part of the trade ahead of time, and stick to it no matter what.
How to Identify Resistance
In a way, resistance is the opposite of support. But you need to know the ins and outs.
Here’s an example…
Say a stock that’s running for several days finally reaches a parabolic stage with massive volume.
Traders chase it at these high prices, hoping for an easy trade. But a parabolic move isn’t a good long opportunity — it’s bound to become overextended.
The stock pulls back, and the traders who chased it are stuck holding at high prices. Often, these traders will hold until they can break even or take a smaller loss.
The price range where the chasers are stuck could act as a future resistance level.
This is a theme in the markets. Take notes and learn to be on the right side of the action.
In these wild times, it’s easy to forget what a regular market feels like. We’re seeing multi-day runners tear through resistance levels.
But when the market isn’t completely on fire, selling near resistance is the goal for many day traders.
Because of the chasers, these levels can stop a stock from going higher.
Remember this strategy. We might stop seeing such crazy volatility, and resistance levels might again become a big hurdle for stocks. That’s something every trader has to consider.
It takes discipline to navigate a changing market.
Trading Support and Resistance During the Election Week
Successful traders know how to recognize support and resistance levels.
Those who fail to respect the fundamentals aren’t just using an incomplete trading plan … they’re also showing their arrogance.
Some of these concepts have been around longer than we have.
They’re time-tested … so learn to ride the wave instead of going against it.
And remember, the markets constantly change.
Right now, the abundance of runners is awesome! It can almost make support and resistance seem irrelevant. But that couldn’t be further from the truth.
If the market starts to slow, don’t get stuck chasing. Study the trading basics, like support and resistance, as much as possible.
Learn aggressively and trade wisely. You’ve got what it takes to become a self-sufficient trader.
No one knows who will win the election.
And more importantly, no one knows how the stock market will react.
If you want to trade, trade scared, like I talked about here.
If you don’t want to trade, do NOT miss the opportunity to learn and study the patterns.
Are you trading, studying or, better yet, BOTH this election day? Let me know at SykesDaily@BanyanHill.com.
Cheers,
Tim Sykes
Editor, Tim Sykes Daily
