Support and Resistance Stock Screener

Support and Resistance Trading Strategies.

Read the linked article for a detailed understanding of Support and Resistance in Technical Analysis. This article will be focused on support and resistance trading strategies and how the Stock Screener can be used to find suited trading candidates matching these strategies.

As Support and Resistance are levels where we expect price reversals, we can identify the following strategies:

Reversal at support: we expect a bounce from the support level, expect limited downside and use the support level to enter a stock.
Breakdown at support: we wait for the stock to break the support level and we enter a short trade once it is broken.
Reversal at resistance: we expect a bounce from the resistance level and enter a short trade around the resistance price level.
Breakout through resistance: we wait for the stock to break the resistance level and enter a long trade once the resistance has been broken.

As each side (Support or Resistance) gives you 2 trading options (reversal or break) other properties will determine which is the best approach. For instance in the case of support, you would be able to pick up strongly trending stocks at their support level, while you could opt to short declining or consolidating stocks on a support breakdown.

We will give some example screens for each of these strategies, but first we'll have a look at the general screener options for Support And Resistance.

Support and Resistance Stock Screener.

The ChartMill Stock Screener has a complete tab dedicated to Support and Resistance, so the possibilities for screening are quite extensive:

As you can see there are 16 fields, which are really 16 possible lines on the chart. Each of these lines can be filtered based upon:

Level value: the level value is where the line is at on the price chart, or in other words at what level the support or resistance can be found. In the screener we can filter on the distance from the current price to the support or resistance level.
Strength: the strength of a line is an indicator for its significance. The higher the value, the stronger the line. The strength is determined by measuring how many times the line has been tested in the past.
Length: the length of a line specifies how long the line is, expressed in the same unit as the time frame. So for daily lines the length is measured in days, for weekly lines in weeks.

The (potential) lines themselves are documented in detail on the security properties page, but just quickly:

R1 is the nearest resistance line, S1 the nearest support line on the daily chart. (WR1 and WS1 are the weekly counterparts). See also the support and resistance technical indicator article
HR1 is the nearest horizontal resistance line, HS1 the nearest horizontal support line on the daily chart. (WHR1 and WHS1 are the weekly counterparts)
HSR1 is a horizontal support/resistance lines on the daily chart, WHSR1 is the weekly counterpart. See also the support and resistance technical indicator article
The ChartMill Channels identify support and resistance of the current trading range, their weekly counterparts are also available.
The Consolidated Support and Resistance are computed from several support and resistance indicators in different timeframes.

So ... lots of options here ... let's go into some concrete examples.

Reversal at Support Trading Strategy.

In this case we see the support as a good area to enter a stock. As a basis we may take the stocks nearing support screen. However, this screen does not take into account whether the stock is in an uptrend. By adding 1 additional filter (The ChartMill Technical Rating should be at least 7), we keep only the trending stocks. So now the screen shows trending stocks near a strong support line

2 example results from this screen are:

In both cases low risk entries are possible with a stop below the support zone. For the entry itself it can always be a good idea to wait for the confirmation of the bounce, for instance by using a Buy Stop order. (= Only buy when the price exceeds a certain level).

Variants in the weekly time frame can easily be made.

Breakdown at support Trading Strategy.

By starting with the same screen as above, but filtering for stocks with a technical rating below or at 5, we get a list of stocks which are not as trending and nearing their support line. They may present an opportunity for shorting when the support line does not hold.

2 example results from this screen are:

Note that screen results always need to be interpreted manually. The screener gives you a list of stocks which meet the criteria, but it is still up to the user to pick the best candidates for actual trading. Sometimes there will be no good fits. Also when you do find good candidates, it is always a good idea to check whether there are no earning events planned nearby as they can have a significant impact on price. For the charts above:

TD could be a good short when it breaks 55.5. We see it has done 2 attempts to move away from the support levels, but both failed. A smaller position could already be taken around 57 with a tight stop.
AFIN has a similar story. It is attempting a bounce from the support level, but it is not clear yet whether this will succeed.

We can create a similar screen based on ChartMill Channels. This screen shows weak technical stocks nearing their lower ChartMill Channel.

Reversal at resistance Trading Strategy.

We use the stocks nearing resistance line, which looks for breakouts. Instead of strong stocks we just look for stocks with a weak TA rating. This screen looks for stocks nearing their resistance line while in a downtrend. Example results are:

Both charts seem to be at a point where they could be shorted with a stop at reasonable distance. Note the importance of a stop! There is never a way to predict what will happen, no matter how good the chart or general market conditions look. A stop makes sure you can exit the position with a small loss should it go against you. Keeping your losses small is your most important task as a trader!

Breakout at resistance Trading Strategy.

The stocks nearing resistance line from the trading ideas page is a good example of such a screen. The screen uses the strong stocks filter, so it is already configured to contain strong stocks and we are looking for stocks breaking their resistance.

At the time of writing one example springs out:

This shows again the importance of the manual last step. While there were 7 candidates at the time of writing, only FE seems to be a good fit. We see a classic base formation after a move from 42 to the 47-49 level. A breakout above the resistance could be the start of a new move. ( Again could, so make sure to put your stops in! In this case below the support area looks like a good place for a stop.)

Breaking resistance after a base formation is a classic Technical Analysis pattern traders are looking for and other related articles are squeeze plays and Technical Breakout Setups. As always, the actual breakout is not a guarantee and several attempts may be needed before it happens (if it happens at all). But the psycholology behind this is: many traders have a nice profit from the earlier move. When the stocks starts basing, the may be tempted to sell to realize the profit. The fact that there is a base formation points out that many other parties still think this is an interesting idea, even at these new prices, so they provide support. When the base formation lasts some time, lots of new shareholders (with no profit yet) will have a position in the stock. On a breakout, all these new shareholders will not be tempted to sell quickly (as they don't have a profit yet) which fuels a new move. (And for the same reason there is the danger of a move to the downside, as new shareholders may want to keep their loss limited when the base level is endangered).

As there are many variantions on this theme and they are described in other places as well, we will give some more links here:

Weekly Chartmill Channel breakout: this screen finds stocks trading near their strong ChartMill Channel resistance.
Horizontal bases using chartmill channels and Finding narrow trading ranges using Chartmill Channels both use ChartMill Channels to find a resistance line which could be broken.
Technical Breakout Setups uses the ChartMill Setup Value to find a consolidation, but in the analyzer reports the Consolidated Support and Resistance is used to determine the entry and exit points.

Chart Patterns

Chart Patterns are in essence all combinations of support and resistance lines. They are discussed in other places as well, so we will just provide some links here:

The Ascending Triangle Pattern is formed when there is a uptrending support line and a horizontal resistance. (The FE chart example above is showing an ascending triangle.
The Descending Triangle Pattern is formed when there is a downtreding resistance line and a horizontal support line.
The Symmentrical Triangle Pattern is formed when there is an uptrending support line and a downtrending resistance line.
Channels are formed when there is both a horizontal support line and a horizontal resistance line.
A Channel Up are formed when there is an uptrending support line and a parallel resistance channel/trend line.
A Channel Down are formed when there is an downtrending resistance line and a parallel channel/trend line.
Wedges are formed in the same way as channels, except that the trendlines will not be parallel, but closing in on each other.
Double and Multiple Bottoms are formed when there is a horizontal support line. When the strength is exactly 2 we have a double bottom, when the line has been touched more often it will be a multiple bottom.
Double and Multiple Tops are formed when there is a horizontal resistance line. When the strength is exactly 2 we have a double top, when the line has been touched more often it will be a multiple top.

All these patterns are part of the stock screener. You can find them on the 'indicators' tab under 'chart patterns', but you could also find them by combining lines on the 'support and resistance tab'