Today we're going to take a look at another trading question.
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Today's question - It's all about the momentum of looking at resistance as stock prices go into higher levels.
Question About the Resistance Point - Submitted by Abdul Rahman
The question: "When a stock reaches an all-time high, as there is no historical point of resistance, how do I know when the stock is possibly approaching a new resistance point. And where do I stop and start taking out some or all of my positions?"
Quick Look At Charts and Angles
The main thing is to recognize how greedy do you feel or how happy do you feel when a stock is reaching highs.
The simple approach is looking at angles. The way I like to phrase it: The angle of elevation at 30 degrees it's an ordinary healthy dividend playing stock.
A stock that starts to accelerate very quickly is, in my opinion, a rocket stock.
If you're somewhere in between you might be okay, but the faster (the steep) the incline and the longer, the more stretch things get.
Here we're taking a look at examples that really can clear up this matter for you.
Example #1 Nvidia
If you take a look at Nvidia you can see here on the yellow - it starts accelerating very quickly. It starts to get a little scary, and it accelerates very fast for a long time.
And that's why eventually these things pullback. The smartest thing you can do is look at it as an angle.
Example #2 Microsoft
If we look at Microsoft that angle is a lot slower. And the situation seems more stable. Maybe you want to start drilling things down into a daily chart if you're trading more actively.
Then, you can do the same thing. Pay attention to those angles. You can take a look at the weekly chart or on a daily chart. It doesn't matter. What you want to see is how fast angle is.
Sometimes things as pullbacks, resistance, and retracements happen even if the stock is moving at a normal angle: the main reason - market conditions.
Example #3 Boeing
If you have something like this, you have to pay close attention to the variation. First, we had an angle that was healthy; then you had a more accelerated angle. After some time there is again normal angle. Actually, It was more of a sideways.
But now if you look at the shorter term - boom! That thing's accelerated, so I wouldn't be surprised if this thing pulls back.
When Do You Want to Take Profits?
The faster this thing goes, the more profits you want to take. Some people will say: I look at the RSI, I look at the MACD, I studied moving averages. All those things can give you some clues, but the reality is that you have to notice this:
- Is that stock is moving too fast?
- Or is it moving normally?
If it's moving too fast, it's probably too stretched which means you should take some money off. Keep things simple, because the more complicated you get into, the more it'll play tricks on you.
Example #4 CMG
Now, let's take a look at CMG. You don't have to hit every point when you're drawing the angle and the range of the movement.
Look at that part on the picture. Pick points where the stock changed direction to where it is now, and there it is.
I found that making things more complicated is a bad idea. That just drove me insane, so keep it simple and analyze those angles throughout the desired period.
That's the way I would look at it when a stock is making some all-time highs where you can't even see where the resistance point is.
The steeper that angle is, the higher the chance that pullback is going to happen. And if it doesn't happen for a while, then it is going to be nastier on the longer term.
Be careful and understand that if your stock accelerates and you see your account positive, when everybody's happy and when they're all buying - that's when you're taking some profits.