Reading Price Levels

The words ‘Price Levels’ can be abbreviated into support and resistances. These are the basics when trading a stock, Essentially ‘making or breaking’ the way you want to trade.

I’ll be breaking ‘Price Levels’ down into categories:

  • Daily Levels
  • Psych Levels
  • Pre Market / After Market Levels

Firstly a Daily Level implies looking at bars that have closed or opened at similar prices in the past on a chart. See the example below for $AMZN.

As you can see, the price fluctuates and typically reverses from the black (support / resistances) lines. These are what you can ‘Price Levels’ and are critical when Day or Swing Trading when using technical analysis. These levels on $AMZN has been respected in the past, meaning they are likely too again.

This does not mean the price will reverse every time, but there is a high ‘chance’ that it will.

When I say ‘Daily / Weekly Levels’ I do not specifically mean just on these time frames. The greater the time frame, the more chance the stock will reverse from this level. You need to bear in mind that technical analysis works when OTHER TRADERS PRESUME that the levels will work again.

For example, Fred sees that Paypal ($PYPL) has fallen from $300 to $105 in the space of 8 months (which is true by the way). Fred thinks that $100 will hold as it has been a key ‘Daily’ support in the past. Not only does Fred think this price will hold, but over 1000 other traders do too. So once the stock hits $100, they all buy! Making the stock respect this level, allowing it to be confirmed as support.

Here are some more examples of daily levels: