Hello and welcome today to Getting Started with Technical Analysis, another great webcast from Schwab Coaching. My name is Ben Watson. I'm an education coach and senior manager here at Charles Schwab. I'm joined out there in the chat by my good friend Cameron May, a 20-plus year veteran in the financial markets. He's there to help answer your questions. Whether you're here in the live version or the recorded version, be a part of the conversation, chat in a question, have a conversation with Cameron or with myself. And if you're watching in the recorded version, leave some comments in the comment section. To those as soon as we can. Today is session three of nine in the Getting Started with Technical Analysis series.
That means we're talking about support and resistance, those levels that create those highs and lows that help us to determine what a trend is. So we're going to get into that discussion here really quickly as we get started today. First of all, however, a couple of quick housekeeping items. Remember that everything we talk about simply for illustrative and educational purposes only. It is not any kind of recommendation or particular advice. Now, of course, this is going to discuss technical analysis. There are other approaches to analyzing the market, including fundamental analysis that may assert different views. All of those are theoretical in nature. None of them are guaranteed. But because of that, Schwab doesn't recommend the use of technical analysis or any other method as a sole means of investment research.
We're going to be using the Thinkorswim desktop software platform today, specifically the paper money version of that platform. Remember that there are some differences between the way the paper money platform works and a live trading account works. So be aware of those as you move your practice from paper money to live trading, that there are some differences. Of course, remember that investing involves risk, including the loss principle. There's no guarantee that, say for instance, a stop order or a stop limit order will get filled at or near the expected stop price. So that's something to pay attention to. We'll talk about that as we get into the discussion today. Remember, of course, past performance of any security or strategy does not guarantee future results or success.
So we're likely not going to talk about options in this class today. However, if you do happen to see options content or hear about it, good reminder always: options carry a high level of risk. They're not suitable for all investors. Make sure that you're aware of the characteristics and risks of standardized options before considering any option strategy. Strategy and welcome to all of you who are usual suspects. Like I said, this is Session Three, Support and Resistance. Last week, we talked a little bit about trends and moving averages. The week before that, we talked about an introduction generally to technical analysis, and we previewed some of these ideas around support and resistance. But really, you combine trend and trend direction and time frame.
You combine that with levels of support and resistance, and then you add in some other indicators like candlesticks and momentum indicators. And now a technician or a technical trader has some ammunition and some framework around which to make educated trading or informed trading decisions. Now, that doesn't mean that those trading decisions are going to be correct. It doesn't mean that they're going to be successful. But if you take the approach that having a more informed decision is better than just trading on a whim happens, then that's the reason for having some of these systematic approaches, including levels of support and resistance. So we're going to talk about the basics of support and resistance. We're going to discuss ways that we can identify those levels.
On a chart, we'll include in this discussion trend lines and their purpose, some of the drawing tools that are available on the Thinkorswim software platform, and we're going to put them on some specific price charts. Again, not recommendations, simply illustrative and educational examples. So let's talk a little bit about support first, because I think this is the one that, you know, can we spend our life standing on the floor, whether that floor is outside or inside, doesn't matter. Our lives kind of standing upright and feeling that support underneath us, assuming that we are subject to gravity. Some perhaps are not, but I guess that's depending on where you live. But remember, the support, when we talk about price movement in an individual stock, is an area where investors feel comfortable stepping in and buying.
And that buying pressure at that level tends to prevent the price of the stock from falling further if it is coming down. So support is not a guarantee. I mean, there's no impermeable barrier or floor that keeps the price of a stock from going lower. But it is an area that resists, or helps to support that price is perhaps the better way to put it to avoid confusion, to keep the price from going down where there is buying pressure that exists that would help to bring the price of the stock up. Now just because price is at a level of support does not guarantee that that price is going to turn around and go higher. It could stay at a support level for some time.
But one of our expectations as technically informed traders might be that when price gets to a support level, there is the potential for it to bounce. And so we're going to kind of talk through some of these characteristics when we look at some individual symbols out on the chart. One thing to remember is that support and resistance are general areas, not specific bright lines on the chart. So sometimes I think traders, especially new traders, especially those that are coming from highly technical fields, to be fair, that's an area that attracts a lot of traders. Especially a lot of technically focused or technical analysis-prone, or friendly traders. They come from industries or backgrounds or lifestyles that benefit from specific and precise analysis. Engineering, mathematics, computer science, those types of things.
But it's important to remember to avoid frustration that levels of support and resistance don't work with six significant digits of precision. That's just not the way that the system works. There's too much human intervention. There's too much human interaction and human motivation and psychology and barriers and biases created to be that specific. So support is a general area, not a specific price, and it's generally drawn that way. Although sometimes we draw it with very fine lines on the chart, it doesn't behave that way necessarily. Now, there are a couple of other tenets of support and likewise resistance. One of those tenets or one of those kind of thought processes or heuristics is the more times that a support holds, Thank you. From above.
As a level of support, the stronger that level of support might be until it's not, until it breaks. So that's the kind of moral hazard to that. Assuming that the price of the stock, it bounces and bounces and bounces and bounces across a level of support for some time, that it's getting stronger and stronger each time. That doesn't mean that it can't go to the downside. It can't break down through that level. So that's kind of the approach in terms of looking at support. Now let's kind of take the other side of that coin, and that's the ceiling overhead, or in other words, what we refer to as resistance. Is an area where investors who are long the stock or long the financial instrument end up selling.
And that selling pressure, or maybe we even call it available supply at that level, prevents the stock or maybe restricts the stock or resists the stock moving higher is perhaps the better way to put it, right? So next line, it resists price movement higher. It doesn't guarantee that price can't go higher, but at the current information known the stock is running into that resistance. And turning around or stopping, not going higher, then that is objectively a level of resistance. Now, like support, resistance is a general area, not a specific price. Think about it this way: If you're building bridges or rockets or computers or airplanes or whatever it might be that you are engineering, Six significant digits or more is the kind of precision that is expected.
But when we're talking about stock price movement at a level of support or at a level of resistance, It's a little bit more like Jimmy Buffett and his song Cheeseburger in Paradise than it is six significant digits of bright line precision on the chart. Jimmy Buffett said that the best cheeseburger is one that is not too particular and not too precise. So that's kind of the approach that I take to levels of support and resistance. And how I draw those levels is looking for what makes sense, looking for those levels, but remembering that they are areas and they are not precise, bright lines on the chart. So one of the heuristics that goes along with that is that the more times a resistance level gets hit, and holds and resists price moving higher, perhaps the stronger it is, until it's not.
So that's kind of the perspective, right? The more time resistance gets tested, likely there is available supply there. But then at some point, just like that, the price can break through that level of resistance just like it can break through a level of support. So those are some things to keep in mind as we kind of go through this process. Now, there is kind of this dichotomy. One of the dichotomies is the support and resistance can sometimes behave like a floor and sometimes like a ceiling in a multi-story building. The ceiling overhead or the resistance overhead on one level may be the same as a support. If the price is above or if you were above that from this metaphorical level, right? So old resistance may become new support.
If price goes up through the resistance, that now becomes potentially new support if price comes back down and retests it. So when support or resistance is broken, It can reverse its role. So old resistance can become new support, and old support can become new resistance overhead. So you might just repeat that mantra to yourself. Old resistance can become new support, I mean, just to remember whatever it takes for you to help remember that construct, that old resistance can potentially become new support, potentially can become new resistance. And by all means. There is no guarantee. That those levels will, in fact, reverse their roles. But that is oftentimes the tendency because news can change everything, as it often does. And news can create breaks in support. It can create breaks in resistance.
Regardless of how many times that price has been touched, regardless of how strong or how fragile it feels as if that level of support or resistance might be. But here's the cool thing about support and resistance. They can act as decision-making points. So start thinking about it in that context. If price breaks through resistance level, then enter the trade is an example of that. Or if price breaks down through a level of support, then exit the trade. Start thinking about it in that context. If this, then that, and those levels of support and resistance become the trigger for action. They become the level that galvanizes the trader into action because something has happened. And it gives us an objective way to take some of the bias or some of the guesswork or some of the emotion or subjectivity out of the market.
Levels of horizontal support or resistance. They can be diagonal levels of support and resistance, such as trend lines if we draw trend lines on the chart, diagonal. Generally, the idea of a trend line suggests that the price is moving in a trend and it is moving in a particular direction. So if it's angling from left-hand side of the chart to the right-hand side of the chart and it's angling up, we would consider that to be a bullish trend line. If it is angling from left-hand side of the chart to the right-hand side of the chart, angling down, We would consider that to be a bearish trend line. Both of those levels can act as levels of support and resistance. And you remember last week when we talked about trend identification and moving averages?
Well, oftentimes moving averages as well can act, can and do act as levels of support and resistance. They don't have to, but that's getting into more of that kind of self-fulfilling prophecy to a certain extent. Because that may very well be investors acting upon price moving to an objective level, meaning when price moves to a level of support, then buy the stock. Or if price bounces up from that level of support, meaning the moving average in this case, then buy the stock, right? So that's kind of the approach that we take to not only horizontal levels of support and resistance, but also diagonal levels of support or resistance. So let's do this. Let's jump out to the Thinkorswim desktop software platform and let's take a look.
Now, while I do this, this is a good opportunity for me to remind you: to click on that subscribe button down at the bottom right-hand corner of the page so that you can stay connected and you can follow us on the Trader Talks channel on YouTube at Trader Talks Webcast is the name of the channel. We would love to have you follow us. It's a great follow, no cost to you, obviously, and it gives you the opportunity to not only pop that content up at the top of your feed, but also share it with other people as well. So that's a nice benefit to that. So I'm taking a look at this particular stock right here. This is AMD. And I've drawn a bunch of lines on this particular chart.
And so, again, not a recommendation. This is just simply an illustrative and educational example. I've got a couple of different examples of levels of support and resistance drawn on this particular chart. So really quickly, before we even get into that mix of what is the level of support and what is the level of resistance and why did I draw the lines where I drew those lines? That's the tool that I am using to draw these lines. And there are multiple tools that we could use to draw levels of support and resistance. The other thing I'm going to say, and I'm going to repeat this probably three or four times into this mix, into this discussion, so that it is heard. And seen in the transcript, in the chat.
These levels of support and resistance that I am drawing on my charts, I am drawing. In a discretionary manner, meaning I'm selecting me personally, and then it would be up to you then in your position to do your own drawing of levels of support and resistance. But I'm drawing these levels in a subjective manner. I'm drawing them in based on what I see, discretionarily drawing them in where I see those levels of support and resistance existing, not some kind of AI system or some sort of technical indicator. Now, there are technical indicators out there that can approximate levels of support and resistance. But there's not one that I know of that will objectively and repeatedly draw levels of support and resistance on a consistent basis. Now, Cameron May teaches a webcast on Fridays called Advanced Charting Techniques. I had the opportunity to sit in for him last week. And I'll let him put the link to the webcast series there in the chat. But I know Cameron has taught a lot of different technical indicators. I know he's taught several that have some implication of pointing out where levels of support and resistance are.
That I've drawn them discretionarily in here on its own. That just does not exist, nor does it happen. And even AI may hallucinate levels of support and resistance. But it is probably, I think, as it advances technologically, getting closer to being able to identify those levels. But we as human beings, we are uniquely able to recognize patterns. And one of those patterns is, hey, price got back to this level again. Where it was before. So that's one of those things that we can see in terms of identifying levels of support and resistance. So, let's jump into this particular chart here for just a moment. And we'll get in here and look at this. And so Saul asked a great question. Saul and Victor asked a question with something like book map, which is a third-party provider of information.
Would that be a good indicator of where support and resistance exists? Okay. As long as it lines up with what's happening with price, then it would be a good coincident indicator. It is not the best. There is no one best way of determining where levels of support and resistance are. It can be a corroborating factor. That can help us to perhaps confirm where a level of support or resistance is. But at the end of the day, the primary, the prima facie information that we have about support and resistance comes from price movement. Let me say that one more time, just so everybody in the back of the room can hear it. The primary information that we have that helps us to determine levels of support and resistance is not VWAP, it's not volume, it's not bookmap, it's not AI, it's not some other kind of technical indicator.
It is where price is changing direction on the chart. That's it. Establishing and showing us that there is a direction change and that becomes then potentially a level of support or resistance. So, okay, good. So, what I happen to notice here on AMD, and I'm just going to take this from the top, we're going to kind of work our way down and back. Down and back on this particular chart. And I happen to notice that something is occurring on this chart today. So, I'm looking at a one-year daily chart. That's 52 weeks of time. The stock has made a 52-week high today. And it did that uniquely. outside of the past 52-week high, which was way back here on October 10th. So as we get into this area here, notice what's happened.
We had a previous high. Price stopped at that previous high yesterday. Didn't break through that level or didn't close higher than that level. It tried to break through that level. And then today, buyers stepped in. They pushed that price up. And they broke it up through that resistance level. And I'm gonna zoom in so that you can see the relationship here. I'll even zoom in a little bit further. You can see the price went up and back a little bit and then broke through and is continuing to move higher in this particular case. Now. If I were to draw this line, because there are a couple of great questions out there, I can adjust the size of this line. This happens to be three points wide.
And if I were to make it five points wide, that might suggest, okay, cool. That's a little bit bolder line. What you could even do is you could draw in using, say, for instance, a shape. I can say, hey, this area right here was probably a level of resistance, and it's broken out through that resistance. Think about when you draw levels of support and resistance, when you draw those lines. On the chart. Draw those or imagine drawing those with big fat magic markers as opposed to fine point pens. Big wide paint brushes as opposed to a narrow striping brush. Because that's how support and resistance works. If we were to zoom in on this timeframe, and here's what I'm gonna do. Remember we talked a little bit about trend and timeframe?
I'm gonna come back to this chart and I'm gonna go down to a five-day, five-minute chart so that we can see what happens here. And I can see that over the course of the last few days, notice what has been going on. Price was getting up near that level and then coming back down and then up near that level again and then coming back down. There just wasn't one precise, exquisite point where price broke through that level. It broke through and tested a little bit, came back down, broke through, tested a little bit, came back down, and then it bounced and then it rallied. And we can see that happening today. So that's kind of the nature.
Because not all of those trades happen at exactly the same price, I know guys, I've taught this so many times from the stage, I've taught this concept so many different times in different ways as has Cameron, as have uh many of our coaches, and I know the questions that are going on in your head. You're thinking, well, okay if I can calculate this absolutely precisely then I can be more accurate in terms of when I get into a trade when I get out of a trade, and the answer is yeah, but you know it just doesn't work quite that way. It works this way with that big fat magic marker or that big fat area. So you want to see it get through that level, right? And David asks a great question.
David says, well, wait a second, do we need to see it go through that whole level? At some point, we get caught in this conundrum. We say, OK, well, how wide is this range in which this price needs to break through in order for this to be confirmation? Because realistically, I know very, very possibly that there are traders who are looking at this rectangle and saying, well, no, maybe it's just not. I want some additional confirmation that is broken through that resistance. So my rectangle is this big. And that's fine. That's fine. Just recognize that that's probably an outlier. Now, that being the case, if you define your level of support or resistance as that wide, great. Then that is additional confirmation. Recognize that the signal will probably come a little bit slower.
And if you say, hey, you know what? My rectangle that I'm using to determine my breakout area is this big, then you may be subject to more false signals, but you're going to get in a little bit faster. And that's always the trade-off. More confirmation, slower signal. Less confirmation, faster signal. Higher incidence of false signals. And that's kind of the tradeoff that we play with and use when it comes to technical analysis. So this is a resistance break. And again, I want you to start thinking about the idea of if this, then that. So if we were sitting here on this particular day, if we were sitting here yesterday or the day before, we're saying, all right, fine.
If this is the level of resistance that I had drawn from previous times, My thought process at this point might be, if price breaks resistance, then that, then enter the trade, else wait, else wait for a breakout or something else. So, given that idea, we can always structure a decision-making paradigm, an algorithm, if you will. We can always say, if this happens, then this is what I'm going to do. Or if something else happens, then that's what I'm going to do. And Siri asks a great question. So going into earnings, is it possible to see a pullback? To that move? You know, is it possible that we see this come back down? Yeah, absolutely. Just because it's broken through a level of resistance and is moving in a particular direction does not mean that that now becomes a support level that is impermeable because it's broken through that particular resistance level.
But what that also suggests, and you can see the nature of that occurring. Remember, old resistance becomes new support. So if this breakout of this old resistance, in fact, was a resistance breakout, then it's very likely that there are buyers that are waiting to step back in when the price gets back down. Because somebody might say, oh, you know what? I saw that at resistance. I went away for a day. It broke through the resistance. I'm going to wait for it to come back down to that support because it's too expensive to buy it up here personally. Not me personally, but that. seeing the hypothetical trader. It's too expensive to buy it up there, so I'm going to wait for it to come back down.
And when it gets back down to where it was before, then I'm going to buy the trade. That then helps to create that, reinforce that idea of old resistance becomes new support. So could this retrace? Yeah. This is news, right? The earnings announcement is news. That news can change the situation, can change the balance of supply and demand. That's over the horizon a little bit. So Siri asks great questions. Well, how do you identify the bearish target if it does pull back? Well, that's the nature of support and resistance. That's one of the great things about support and resistance. So I'm going to take a couple of these lines off of here. I'm going to remove a couple of these lines here. And I'm going to say, hey, you know what?
I'm going to grab my line tool down here. And I'm going to draw in right about here. So notice what's gone on right here at about $153 or so, thereabouts. Again, remember, not too particular, not too precise. And I'm going to draw a level of support right there. So if price were to break down from this level of support, let's grab my magic marker here real quick, and we'll just kind of draw these lines in here. So perhaps the first level of support that might serve as a pullback target if this breaks down is one, that one right there, the one that we identified as previous resistance. There's another one right here because this was previous resistance. And so what does previous resistance potentially become? New support. So that might be two.
Where else might there be support? Three. What about down here? Four, yeah, what about down here? Because that was resistance and resistance. What about down here? That was support and previous resistance, so that might be five. So you can do this yourself on your chart. You can go in and you can draw those lines in and you can say, hey, where might it pull back to? So you might say, look. If the trade is going, if you got into the trade on this breakout, that might be if price breaks support at number one, then exit the trade. Or it might even be if price breaks to number two, then exit the trade. Or if price breaks number three, then exit the trade. Else wait. So this is what helps us to make better informed technical trading decisions.
And so a lot of different ways that we can approach that. So that's using horizontal lines as levels of support and resistance. So let me kill that annotation really quickly here. And let me kind of zoom back out. We're going to just zoom back. A couple of other things that are going on here as well. Number one: As we think about this, one thing to consider is that previous levels of support and resistance oftentimes can influence. Oftentimes can influence where we see levels of support and resistance existing in the future or potentially in the future. What that means is, Those buyers who missed out getting into the trade here. Or bought as it was running into that resistance level back here in October.
Now might say, all right, I'm going to stay on the bus all the way back down here. I'm going to ride that bus back to where I get to the same place that I got on the bus. And now I'm going to get off because I'm not being injured at that point. I'm whole. I'm not taking a loss at that point. And so those investors might have ridden that price all the way down and then all the way back up and said, you know what, I'm done with this. As soon as it gets back up to that price that I got in back here where that previous resistance was, I'm out. And when there's selling pressure like that, that can create a level of resistance.
So one thing to think about is to look left, look left to confirm right. Look left to confirm right. Um, so what happens to serious point? What happens if you don't have a left to look at to confirm? Well, then it becomes a little more difficult, doesn't it? If you don't have historical context to help you to determine where those levels of support and resistance might be, that becomes a little bit of a challenge. So I don't normally do this, but I'm going to do this in this particular case because it supports the discussion and the flow of the discussion. So thank you, Siri, for this. But I'm going to bring in a particular stock, CRCL, correct? Circle. And this is a stock that is really just a few weeks old from its IPO.
So how might we determine where those levels of support and resistance might be? So one way to do that is if you turn on the Thinkorswim platform, you come down here to this little circle down on the bottom right-hand corner, and you turn on your crosshairs. Take it off of none, turn on your crosshairs, because what that can do is it can help you to visualize horizontal and vertical orientation of your cursor. So if I can come back down and I can start to look back against that price movement. There's only a few weeks of price movement, but I can already see that this level right here at 264. 32 has objectively objectively, not subjectively, objectively meaning I can prove it. It's visible. I'm not just guessing.
That level has existed as a level of resistance. How do I know? Well, if I were to draw my line there, I'm just going to draw my trend line across that area. Not too particular, not too precise. I'm not measuring it and angling it right down to the top of that candle right there. And you notice that I'm drawing near the body of this candle and to the top of that candle or the shadow on that candle or the shadow on that candle. That's fine. that. But what happened here? Price came up, changed direction. Price came up, changed direction. Price came up and changed direction. So I can say, look, even on a stock that's two weeks old or five weeks old or a month old or whatever it is.
I can identify levels of support and resistance by seeing where price changed on the chart. Now, is that gonna be a solid level of resistance or support? No, it never is. Is that going to be a historically supported level of support or resistance? No, it's not yet. But is that going to be a level of support or resistance that I can identify on the chart? Absolutely. Now, if I come back down again. And I can come back down into this range right here. I can say, hey, you know what? If I draw my line across here, kind of right across that whole. Support area here, I can say, you know what? Price kind of broke through that area. Midpoint of that candle is kind of aligned on that support.
Came down and changed direction. Came down, changed direction. Came down, changed direction. Came down here, changed direction. Came down here, changed direction. Came down here and changed direction. It's starting to bounce. That's a level of support. I can point that out objectively on the chart. And we can come down here and we can say, look, price kind of created a little bit of a gap in here. Gaps in price can oftentimes act as levels of support and resistance. So you can go back on any particular chart and identify where those levels are. So that could be helpful in being able to do that. So let's go to another chart. Let's look at another chart here that is maybe moving in a particular direction.
So I'm going to go to this one, MCD, and you've probably seen this stock before. You've probably been to one of these locations before. So you notice what I've done is I've just kind of drawn in some levels of support and resistance on this particular chart. I can even draw some diagonal levels of support and resistance. Remember those trend lines as we draw those can also act as levels of support and resistance. Yeah, David, not. Not so amazing when you think about that midpoint of a big candle can oftentimes act as a level of support and resistance, kind of that equilibrium tipping point. But look at what's going on here on McDonald's. We've got a level of resistance that's squeezing down from the top, and we've got a level of support that's squeezing up from the bottom.
And that kind of inclining or declining level of support and resistance helps to create what we call price patterns. Price patterns can help us to identify movement of the price of the stock or likely movement of the price of the stock because of what they've done in the past or what they might indicate could happen potentially in the future. Again, no guarantees. But looking at these levels, that can certainly help to understand where price is changing direction. And that is the identification process. Where did it change direction? Where did it change direction? Where did it change direction? Where did it change direction? And if you can identify those levels and draw to those levels that make sense, that can help us to identify those levels of support and resistance.
So this is an example of that. So now, what we might do is we might say, if, let's just put a trade together here really quickly. Price breaks this resistance level, then enter the trade else wait. So you know what I'm going to do? I'm gonna give it a little bit. I'm gonna make that if statement B and that rectangle B all the way up here to 302. So I'm going to say if price breaks this resistance level around the 301, 302 level, then enter the trade else wait. So I'm just going to right-click and I'm going to create a buy order right here. But I'm not just going to go ahead and click on buy because it's not proving to me yet that it's breaking through what my definition of resistance is.
So I'm going to edit this order and I'm going to say, hey, you know what? A buy stop now a buy stop order says, 'stop wait until a particular condition is met.' The particular condition that we want to have met here is a move above $302. 11, which is our resistance level, kind of the outside edge of that resistance. So I'm going to say, you know what, buy stop, wait until price breaks that higher. You know, some of you are saying, why don't we just buy it lower? Why are you buying it higher? Why do we want to buy something when it's more expensive? Because we want it to prove that it is moving through a resistance level objectively, not subjective or not guessing that it's going to turn around.
So I'm going to say buy stop. Now, this isn't going to be a guarantee of what final price we end up getting this order filled. But it's going to tell us, we can specify at what price we want that order triggered. So I'm going to make this a buy stop order at 302. 11. And if it goes up through 302. 11, enter the trade. Else, wait. And I'm going to click on confirm and send. And we're going to fire that order off. I'm going to put this down here in my stocks group. And I'm going to click on send and fire that order off. Make sure that I'm aware of that. And that's orders sitting there waiting. Now, let's take a look at one other example here.
Let's take a look at something like BK. I think this is BK. All right. Nope, not the one I wanted. But a breakout of resistance nonetheless. Let's take a look at this one. UPS. I think this is sitting. Nope, UPS already broke that. It's Honeywell. I know I had an example here. All right. So let's say I was in this position already. I was in the stock. I was long the stock, meaning I owned the stock, and I had identified this level of support. And I said, you know what, that's the point at which, from a support and resistance standpoint, I want to exit the trade. If it breaks that level of support, that's where I want to get off the bus.
Instead of riding the bus all the way down here again, I want to get off the bus because it's now going the way that I don't want it to go. I want that bus to go north. So I could specify a stop order. So a stop order oftentimes is going to be based on levels of support and resistance. So I can say, hey, you know what, 221. 59. I'm going to give it a little bit of flexibility here at 220. So I'm going to say right click. If I already own the stock, I'm going to make this a stop order. I'm going to click on Edit. We're going to make this a sell stop, and I'm going to say stop at 220 and get out of the trade at that point, and that would be my stop order.
So I'm going to go ahead and click on Confirm and Send, read through the order, make sure that that's what I want it to be. I'm assuming in this particular case that I already have a long stock position in this stock, and I don't want to borrow because I was creating a short order or short position. But what I would do is create a stop order based on that level of support. If price breaks support, then exit the trade, else wait. So how do you identify these levels? How do you use these levels? This is a great opportunity to build a watch list of stocks that you feel comfortable with from a fundamental standpoint or whatever means you use to put them into a watch list. And then use levels of support and resistance.
Draw lines on the chart. You'll see, if you look at Cameron's charts, if you look at my charts, if you look at Mike Fairbourn's charts, James Boyd's charts, you'll see lots and lots and lots of lines drawn on those charts. Because what we're doing is we're putting in and continually updating, continually updating this metaphor, this construct of levels of support and resistance to help us to understand that price movement and make decisions around those price levels. So Siri, yes, we're going to talk about momentum at levels of support and resistance as we get into the next discussion next week about candlesticks. But this is objectively starting to build that language in our heads about being a technical analyst and understanding those levels of support.
So a couple of quick tenets of levels of support and resistance: Levels of support and resistance are areas of turning or changing direction in price movement. Levels of support and resistance can be horizontal, we can draw those as a horizontal line. We can draw those as a diagonal line, and levels of support and resistance can also occur at levels indicated by moving averages. Once levels are broken, they oftentimes reverse rolls. They are not impermeable. They can be broken. They are not guarantees, and they are theoretical constructs for the most part. One other thing to think about, look left to confirm right. If I can identify that the level has been a level of support or is near a level of support previously, that can oftentimes act as a reinforcement to my idea of support and resistance in the near term.
So I wanted to come over here to our Trader Talks webcast page, and I just wanted to type in the word 'resistance'. And I want you to see how many times that word resistance comes up. So here's Cameron May talking about five ways to identify support and resistance on a stock chart, a great webcast that can help reinforce this. Can this tool identify support and resistance? Swing trading using support and resistance. Support and resistance. Swing trading. When is resistance not as important? Getting started with technical analysis. Support and resistance. Three points for identifying support and resistance. On and on and on and on and on. You see multiple, multiple levels of information about how to identify levels of support and resistance.
And we're going to get into more advanced ways to identify or reinforce or confirm levels of support and resistance, things like Fibonacci's and pivots. Those are other technical indicators. Those are not in and of themselves indicators of support and resistance. They help to confirm those levels. But great way to find that information right here on the Trader Talks webcast page. Also, remember to click on subscribe while you're right here. And if you've not done so already, we talked about the basics of support and resistance. We discussed ways to identify support and resistance. Talked about trend lines. We put together some examples on the chart as we put this discussion. Yeah, so serious question about, again, about Fibonacci's and pivot points. Those are great confirming tools, but in and of themselves, they don't tell us what levels of support and resistance are.
Remember, I'm going to say it one more time. I took my glasses off before. I'm going to take them off again. Price action determines levels of support and resistance, not a technical indicator, not a momentum study, not VWAP, not some kind of third-party data provider, not Fibonacci's, not not pivot points. What you see happening with price is the easiest, best, and primary way to identify levels of support and resistance. My thanks to Cameron May for helping out today. My thanks to all of you for joining me, and of course to Bree and all of our great production staff for helping out with this discussion. Guys, we'll see you back here next Tuesday for more information about getting started with technical analysis. Take care, everybody. Bye-bye.
