As a technical trader, support and resistance levels are key indicators when I’m considering a trade.
Now, with that in mind, the following question came up during my Sunday Market Brief:
When doing our technical analysis, how far back should we be looking for support and resistance levels?
That’s a great question, so I wanted to address it here.
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The Big Picture
Just so we’re on the same page, let’s start with the assumption that this question comes from a day trading perspective.
Now, you should be looking at all time frames, including what I call the Big Chart. That’s the long-term chart.
What I Consider the Big Chart Has Changed
When I started trading, there weren’t as many active penny stocks and volatile stocks as there are today.
So, when we saw something moving we’d go back five or maybe even 10 years. That would tell us everything we needed to know about big picture support and resistance levels. It was very routine to look at a 5-year chart.
These days, I don’t look past a year.
The reason why is because there are just so many more active stocks these days. And because there are so many more active stocks, the average person doesn’t remember which stocks moved in the past year, let alone longer.
Now, I constantly encourage you to journal your trades, make watchlists, and come up with reasons why the stock deserves your attention.
The people who journal and track data, they remember. But for the most part, no one really remembers anything longer than a year.
So, for day trading, the Big Chart is the 1-year chart with 1-day candles.
What About Other Timeframes?
My go-to short-term chart is the 2-day chart with 5-minute candles. That doesn’t mean I never look at other time frames.
For example, when using the rolling watchlist methodology, I often look at a 10-day chart with 5-minute candles.
For an in-depth look at technical analysis, I always recommend:
- “Technical Analysis Using Multiple Timeframes” by Brian Shannon
- We also interviewed Brian about his book here.
My Take
Remember, the technical levels on a chart are representations of human psychology. The chart is built on the behavior of human traders. These days almost nobody looks past a year because there are just so many stocks moving and so much more volatility.
Now, I don’t think there’s any downside to going back further. I just don’t know if there’s any upside. Again, this is specific to day trading.
Watchlist
Apple Inc. (NASDAQ: AAPL) and NVIDIA (NASDAQ: NVDA) are locked in a tight race for the title of world’s most valuable company.
As of yesterday, AAPL was in the lead. It was also one of my picks on last week’s The Big 3 (July 17).
AAPL 1-year, 1-day candle, thesis unchanged
My thesis on AAPL hasn’t changed. Nine months ago, Apple was getting mocked for its low AI-related CapEx.
Fast forward six months to March of this year, and everyone was talking about big tech companies overspending on AI.
Apple didn’t have to spend money like the hyperscalers and it’s not burning cash on AI. Instead, it nailed the technology and is benefitting from it. Apple releases earnings next week (July 30).
On My Radar
- On again, off again: oil prices continue to circle war and peace
- Google is taking a new turn in the AI compute race with its Frozen v2 chip
- Advanced Micro Devices Inc (NASDAQ: AMD) launched its Helios rack-scale AI system touting Microsoft Corporation (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and OpenAI as customers