Greg Secker – Global Market Update

• Over time a stock may find that it is unable to penetrate a particular price level.
• If this price level occurs at the top end of a stock\’s trading range it is known as resistance. If it occurs at the bottom end of a stock\’s trading range it is known as support.
• If we are able to identify these support and resistance levels we can use them to our advantage
• These levels of S&R can take as little as 3 days , or as long as several years to form. The longer the period over which they form the stronger that level will be.
• The most common form of S&R occurs at horizontal price levels, however it can also form along a trend line or at a moving average.

Horizontal Support and Resistance

1. Generally we want to see a stock test and fail to penetrate a price level at least 3 times before we would consider it a true support or resistance level.

2.Only once a valid support or resistance is established can we draw a line on our chart.

3. Often horizontal S&R will occur at round number price levels i.e. £4.00 or £4.50.

Trendline Support and Resistance

1. As the MA\’s are already calculated and drawn onto the charts we always presume they will act as valid support or resistance levels.

2. Therefore there is no requirement for at least 3 tests of the MA\’s before we would consider them true support or resistance levels.

Breaks of Support and Resistance

• If a resistance level is broken and a stock moves to higher prices, the penetrated resistance level should now provide a level of support if tested.
• Conversely if a support level is broken, and the stock moves to lower prices the penetrated support level should now provide a level of resistance if tested.

Chart Patterns

• Price action often forms on the charts in particular patterns and formations which we know consistently provide high probability trading opportunities
• But have you really ever assessed what it is about chart patterns that makes them work
• Essentially chart patterns form when support and resistance levels align themselves in a particular manner which then create these patterns.
• A trading opportunity does not present itself until one of these support or resistance levels is broken. So essentially we are simply trading breaks of support or resistance.

• Level 1 shows only the best bid/offer and volume.
• Level one does not show any market depth.

What is Level 2?

• Can see the price level and volume of all bids/offers that are currently placed in the market.
• View market maker quotes
• Level 2 can be of major benefit to your trading especially if you tend to place ‘Market’ orders as compared to those who trade with Limit and Stop Orders.

Advantages of Level 2

Basic Rules for Level 2

1. At the most basic level use Level 2 to check that there are other people making the same trade as you – creating the momentum necessary for an outstanding trade!

2. Do not trade purely because the Level 2 screen looks strong – use fundamental and technical analysis to find your trades and then use Level 2 to back up your idea.

3. Check for buyers outweighing sellers if you are going long and check for sellers outweighing buyers if you are going short.

4. Check for large buyers in high volumes of shares for going long. Conversely, check for large sellers in high volumes of shares for going short.

5. Check for gaps in the depth of orders against the direction you are trading in.

6. Avoid gaps in the depth of orders against the direction you are trading in.

7. Gaps can mean that stop losses are tiggered at levels further away than would be expected in normal trading circumstances.

8. Gaps can provide highly profitable trading opportunities if used correctly.

Support and Resistance

• Large buy orders on the bid can provide support for stocks that would not be visible on a chart.
• Large sell orders on the offer can provide resistance for stocks that would not be visible on a chart.

• You are looking for a pivot in a share’s movement.
• Ideally you want to catch the point at which a retracement turns and the main trend continues.
• You need to apply the Power Play Basic Rules.
• You also need to use some filtering rules on other indicators and signs to confirm the validity of the Power Play.
• You also need to use your common sense and judgement.

Power Play Terminology

Day 1. The day used to define the Activator Day

Day 2. ‘Activator Day’ – The day used to define the entry and stop levels

Day 3. ‘Trigger Day’ – The day you potentially enter the trade.

Day 4+. Days during which the trade is potentially open.

Checklist

1. Two down days in a row is a must.

2. On the activator day the volume must be above the 25 day average line

3. Stock must be in an uptrend and above both it’s moving averages

4. Ideally the activator will be bouncing off MA, tend line or a support line.

5. Active sector that is also performing well.

6. Small ranging activator bar.

7. Risk/Reward mist be at least 3:1.

8. Check that indicators aren’t at their extremes.

9. Ideally the fundamentals will be good.

And finally…..

• For reverse Power Plays all the rules are the same as before but they are flipped upside down.
• A useful exercise is to write down these rules and incorporate them into your Trading Plan, both for the long and short Power Plays .
• Do your own research and see if there are any other factors that you think will help you sort out the very best opportunities.
• Keep a logical, clear haed when trading this strategy – it is simple,, but do not rely on the simplicity too much.