Support and Resistance are import concepts to understand when it comes to trading. This tells you where a stock, bond, commodity or ETF has come from and where it might be going.
If what your trading breaks through a zone of resistance that zone now becomes a zone of support. The same applies for price falls below support, that support now becomes resistance.
In the Chart below of GDXJ you can clearly see the $32 zone was support for about a month of trading until December 14th when price crashed through support. That zone now becomes an overhead zone of resistance that price must break through to build a trade able uptrend.
Often these zones will be the place moving averages cross. The GDXJ chart below we see the 5 ema crossed the 20 sma in this zone of resistance. Price broke though…I was long in the $33 on break out day and added to the position around $32.50 zone…
where is the next zone of resistance? The $40 zone….I will look to take profits in that zone as I am sure the RSI will go overbought.
Notice these concepts flow together…RSI tops out or bottoms out near zones of support and resistance….moving averages cross over in areas where price as consolidated in the past.
Trade like a pro…..