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:
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.
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:
The (potential) lines themselves are documented in detail on the security properties page, but just quickly:
So ... lots of options here ... let's go into some concrete examples.
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.
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:
We can create a similar screen based on ChartMill Channels. This screen shows weak technical stocks nearing their lower ChartMill Channel.
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!
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:
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:
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'