As a trader, support and resistance are the determinants to take buy or sell positions. However, how do you determine resistance when the stock price has reached an all-time high or an all-time high to determine the profit-taking point?
As a trader, of course we must know when is the right time to buy or sell stocks. By using technical analysis, we can determine the timing to buy by knowing the support area or psychological level of a stock that holds the price from falling deeper.
The bounce moment in the support area is usually used to buy on weakness. Likewise, when we want to sell shares, we must know what is the resistance area or psychological level of a stock with a supply level that is strong enough to hold the stock price from going higher. When it reaches the resistance area, the stock will tend to down. Therefore, this moment is used by traders for profit taking.
One way to find out the support area is to draw a line from the low that was formed in the previous period which makes the price tend to strengthen after reaching that area. Likewise, the resistance area can be obtained from the previous period’s high which makes prices tend to weaken after reaching that area.
Problems arise when the stock price reaches an all-time high. Beginner traders who want to take profit are often confused about how to determine resistance. Well, there are two ways to determine the resistance area if the price of a stock reaches the All Time High, namely by using the target pattern (pattern) and the round numbers area.
Target Pattern (Pattern)
The stock chart pattern is a chart pattern of stock price fluctuations in the stock market which consists of several candlesticks and shows stock price movements within a certain period. Candlestick is a visualization of the stock price which consists of the price closing price, high price, and low price.
Chart patterns are formed due to price variations and fluctuations in the form of dots connected by lines. Its usefulness is to predict what the next stock movement will technically look like so that traders can make the right decisions.
Chart patterns are divided into 2 categories, namely reversal patterns and continuation patterns. The reversal pattern indicates that there is a trend reversal and the continuation pattern indicates the continuation of the trend direction, either in a down trend (bearish) or an up trend (bullish).
As in the example of AGII stock which broke out of the Symmetrical Triangle pattern and reached its all time high level. We can assume that AGII can reach the next resistance area that we can with the pattern target.
The pattern that is formed can be used to determine the area or price that the stock may reach in the next movement. We can use this target as a resistance area when the stock reaches an all-time high or a price area that has never been reached in the previous period.
Usually, to determine the target resistance with this method, the chart pattern that is formed is a bullish continuation pattern which is in an uptrend. This, of course, will make it easier for us to identify areas of resistance that the stock might test, so that we can identify areas that are prone to profit taking.
In addition to the pattern target, we can also determine the resistance area when the stock reaches ATH by using round numbers. Round numbers are numbers that end in one or more zeros, such as 150; 800; 3000; etc.
In essence, at the end of the number or area the share price must be the number “0”. Round numbers are used as the last option when the stock’s resistance area cannot be determined using the high and target chart pattern. By knowing the areas that the stock might test, we find out more precise moments to realize the benefits that have been obtained.
The assessment of the area of round numbers that may be tested is subjective and rational, so depending on the estimates of each analyst, it is clear that the number behind must be an integer or “0”. Usually, the estimated area of round numbers that may be achieved is not too far from the last price of the stock.
Example of FILM stock on July 19, 2022, broke out of the resistance area at 2430 and reached ATH. We assume the round numbers area at 2800 as the next resistance area that might be tested. On July 22, 2022, after reaching the 2800 area, FILM shares tended to be corrected, indicating profit-taking, so that the area has been confirmed as a resistance area.
Even though we already know the resistance area which is likely to be tested in both ways, we must still manage expectations if the stock price fails to reach that area and the movement is more volatile. Then from keep limiting risk and have to stoploss discipline, Emtraders!