The great thing about science is that it full of fun facts and formulas. The fascinating thing about trading is that it is not.
I pointed out a support level on Apple (AAPL) at 168.67 in another post. In that post, I also mentioned that I was long Apple (AAPL) above 168.67, and short below that level. Then, this morning, I tweeted a short trade even though the price was above 168.67 on my day trading charts.
“You’re a liar!” you might have shouted; “You tricked me! I went long because you said to go long!” I also qualified that statement with “It depends on where it opens on Monday, and where the market takes it from there.”
Why I Went Short
I saw Apple (AAPL) gapping up from a big support level. Then I noticed that the market was making new highs, but Apple refused to go up, so I got short. I covered half at the whole dollar (169.00) and left the rest open with a 2nd target of that support level at 168.67. As I was watching other stocks, Apple (APPL) came right down within a hair of that price (168.70) & reversed. I ended up closing out at break even.
If you take anything away from this blog, I’d prefer that it’s the ability to learn these strategies & implement them rather than trying to copy my trades.
Support & Resistance is Not Exact Either
I should have been keeping an eye on this one. That inverted hammer (a bullish reversal candle) so close to such a major support level would have been a great place to reverse that position and get long. Just because the price didn’t exactly touch this level, doesn’t mean it missed the support.
First off, people like “round” numbers (5s, 10s, etc), so it’s possible there were many buy orders waiting at 168.70 which was the closest “round” number to the support. Second, support and resistance is often more of a price zone, rather than an exact price point.
I often exit positions a few cents above or below support/resistance because I’d rather ensure a fill and miss those few pennies, than have a position reverse on me. Don’t give it too much space, though. Generally 3-4 cents is good enough. It’s important that you realize that support/resistance is frequently a “close enough” situation. It’s not an exact science.
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