Charts that get my attention show stocks whose price is near a critical area. This means they are close to an area that has the potential to act as support or resistance. When I make a trade and buy a stock, I want the price to be very close to these areas. Why? Because I figure there is a chance, a good chance, my decision will be the wrong one. I know when it’s the wrong one when price moves the opposite way than I anticipated and goes through the key area I identified before making the trade. The beauty of this is I know when to let go before entering. If I’m wrong, I will lose very little and I’m OK with that. It’s the big losses that will kill you.
I explain how I approach the markets in more detail in the “About Me” section of this site. When I post charts I highlight key support and resistance areas. I often use trendlines and some moving averages as well, but the highlighted areas are where I really focus. See the below example of Microsoft’s chart:
The arrows pointing up are price zones that act as support since they support the prices from falling any further. The arrows pointing down are called resistance for obvious reasons. But look what happens once price breaks through these key areas. What was once resistance becomes support. Amazing, right? This to me is the most basic yet most poweful concept in technical analysis. These are the types of areas I search for in every chart I examine. Of course, it’s not always as simple as the chart above but I try my best to make it that way.