RESISTANCE LEVELS Before you start trading in any stock, get a chart on it for several years back, if you can. Study it closely. Note the levels at which bottoms and tops have been made. Find out where its previous resistance points have been made. Then you will be able to determine whether you are entering the market at a safe or dangerous level. Suppose in 1921 you wished to buy a railroad stock which paid a good dividend and had prospects of advancement. We will presume that you made up a chart on New York Central from 1896 to date. (See Chart No. 5.) Now read about New York Central under chapter "How to Tell the Stocks that are in the Strongest Position." Thus you will see that by having a record of stocks, you get acquainted with their movements and are able to know whether you are buying near the top or bottom of a move. Suppose you make up a chart of a stock and find that it has advanced from $10 a share to $50 and is selling at $40. This would not be a safe place to buy, because it is too close to the high price and too far away from the low price. Of course, this does not mean that many stocks which have reacted from $50 to $40 are not good purchases. I am merely giving you an example of a place of safety in buying or selling. No matter whether it is a small move or a large move, before you buy or sell you should wait until the stock shows that it is meeting with resistance one way or the other. Always remember that you should have a reason for making a trade. Do not buy or sell on hope; that is pure gambling and gamblers always lose sooner or later. WHEN TO BUY OR SELL AFTER EXTREME TOPS OR BOTTOMS The way to tell when to buy or sell after stocks are away from extreme tops or bottoms is to watch reactions and rallies. The average stock reacts 5 to 7 points, sometimes 10; low priced stocks 2 to 3 points. Watch the time required to complete major or minor moves. In very active markets stocks will seldom react more than two days or the third day they will sell higher. Buy on the second day's reaction and stop three points. If stocks get dull or narrow near bottom or top, wait for activity, then buy or sell. After a stock has held below a top or bottom for two weeks or more, gets active and makes a new high or low, then buy or sell as soon as it gets active in new territory. stock trading advice ~ unclaimed money |