HCW Biologics Inc. (NASDAQ: HCWB) was pretty much a near perfect play yesterday.
First off, it was the lowest floater with the highest volume on the Oracle scan…
Then, it was straightforward….
Wait until it hits the Oracle green entry signal, which it did, and then watch it break through its first resistance level and keep climbing from there.
In the end, HCWB returned 149.5%* within a few hours.
HCWB 2-Day, 5-Minute Candles Chart; SteadyTrade
I mentioned how it broke through its first resistance level and moved on from there, but it’s a little more involved than that – still simple – but I’ll explain what I mean…
Basically, HCWB was a textbook trade using support and resistance levels.
When a stock breaks through its resistance level, that resistance then becomes support. And then you hold the stock and wait to see if it rips up through the next level. If it can’t break through the next level, or hits the stop loss of course, then it’s time to sell.
In the case of HCWB, the stock broke four resistance levels, which then became new support levels. After that it hit $2.52, which it just couldn’t break through.
That’s the beauty of support and resistance. They’re easy to understand, which is why they’re the technical indicators I use the most.
Table of Contents
Why Support and Resistance Matter
So why do traders like me choose support and resistance before anything else?
First I’ll define what each level means…
Support is where a stock tends to stop falling and bounce back, while resistance is where it struggles to break higher.
Traders focus on these levels because they help identify breakout areas (where a stock can spike higher) and breakdown areas (where it could fall back).
When Resistance Becomes Support
Here’s where things get interesting…
Once resistance breaks, it often becomes new support.
Suppose Stock XYZ clears $5 per share. Then it runs to $8, pulls back, and then holds at $5 on the dip.
This happens because buyers who missed the initial breakout now see $6 as a good entry point.
This same pattern can then end up repeating itself at $10, $14, and beyond. It’s a classic cycle:
- Resistance forms as sellers pile in.
- The stock breaks out on high volume.
- That old resistance becomes new support.
Why Volume Matters
Volume is your confirmation indicator.
A breakout on low volume? That’s a fake-out waiting to happen.
When Stock XYZ broke $6, it did so on a massive spike in volume—proof that real buyers were stepping in.
How to Trade Support and Resistance
Let’s fast forward to later levels…
Imagine you’re looking at XYZ when it breaks $14. You’d set your stop loss just below the breakout level (say, at $12) and aim for upside targets based on previous resistance levels.
This gives you a solid risk-to-reward ratio.
For example:
If you’re risking $2 per share (entry at $14, stop at $12), you’d aim for at least $6 in upside (a 3-to-1 reward-to-risk ratio). This is the ratio I recommend using.
When XYZ breaks out and hits new highs, you’re in a good position to ride the momentum and effectively manage your risk by setting your stop at a 3-to-1 reward-to-risk ratio.
Learning to Read Charts
Here’s the truth: Becoming proficient at technical analysis takes time and won’t happen overnight.
But with consistent practice and the right tools, these patterns and levels start to make sense.
A robust trading platform is your first step toward mastering chart reading and using resistance levels.
My top pick is StocksToTrade and I use it every day.
It has everything traders like me look for in a platform, including charting, stock screening, technical indicators, and more. It also has a selection of add-on alert services so you can stay ahead of the curve.
Grab your 14-day StocksToTrade trial today — it’s only $7!
My Final Thoughts…
Support and resistance are the foundation of technical analysis. Whether you’re trading breakouts, breakdowns, or dip buys, these levels are your roadmap.
If you’re serious about trading, start by mastering the basics:
- Identify key levels.
- Use volume as confirmation.
- Stick to a plan with a clear risk and reward ratio.
To learn more about resistance levels and how to use other technical indicators, join our StocksToTrade community.
We have tons of free live webinars that run all day and offer trading tips and tricks, info on our Oracle system, and other valuable training.
And if you’re looking for more stock ideas and trading mentorship, subscribe to my StocksToTrade Advisory service.
Every STT Advisory member gets a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
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