Earlier this week I posted up a simple chart of Vonage Holdings (VG) to illustrate a basic example of resistance and support on a stock chart. This second example I found Apple’s (AAPL) chart to illustrate pretty clearly a few good examples of support and resistance.
Whenever you are looking at a stock chart the way we are doing here, defining specific points or areas, we are using technical analysis. We are using the price history of the stock to determine where our next best potential buy or sell price may be!
In this particular chart, I used the 50 day moving average as a clear example of support. Moving averages are excellent technical indicators to read and utilize while performing technical analysis. Why? Because they are great representation of history. A moving average is simply a line that relays the average price of the stock over the last x, xx, or even xxx days.
Now for the chart:
You can see the line drawn across the top of the chart. The first time the stock found resistance at at the $97 area was in the beginning of January 2007. The stock didn’t reach that point again until towards the end of March where you can see the stock barely tested the resistance area.
The third time Apple ran into this resistance was also the last seen here. Three is sometimes also the charm for stocks, and you can see that the stock gapped above the resistance and opened above it at the end of April, good deal!
What is important to take from the resistance is how once the resistance was broken, the stock continued to move upwards. Since that gap up day the stock has moved up close to 10%!
The support area on this chart most clearly defined has to do with the 50 day moving average which is the blue line. Look at the middle of April where the box is and you can see how the stock would not fall below the blue line. This is a great example of support.
If we were watching Apple looking for a good price to get in, than with our technical analysis we would have found this one to be the best. Buying around this $90 – $91 price area would have yielded us nearly 20% since!
The great thing about buying into support is that you can play your cards tight if you so choose. By placing a simple stop loss order below the moving average you ca automatically have your shares sold if the support falls, cool!