I love things that just plain work.
I have a Shadrack car-top ski rack by Allsop that cost me $40 brand new in 1986.
It’s just some nylon straps that don’t hurt the car’s paint, with some epoxy-coated hooks that grab onto the doorframe. There are four sets of plastic ski holders attached to the nylon straps with ingeniously simple elastic ties that secure the skis. I can install the rack and toss four sets of skis on it in 3-5 minutes.
I wouldn’t trade it for any fancy $500 roof rack out there. (They quit making these 20 years ago – and I’ve really tried to find them. So please let me know if you’ve found somewhere to buy an extra one…!)
Every time I put this wonderful gadget on the car, my wife has to endure a soliloquy where I extol its magnificent design.
And why not?
It makes something that should be a chore (mounting skis for a trip) into a sheer delight.
And I love trading tools that work this way too – turning tasks like finding extremes from being a labor into something simple and easy to execute.
Last Saturday, I spent some time in our 10-Minute Millionaire Weekender Video talking about how we buy stocks in a broad market that doesn’t give any significant pullbacks.
We looked at three very recent examples – two from my elite Stealth Profits Trader service, and our most recent recommendation here at The 10-Minute Millionaire.
Today, I want to dig a little deeper.
I want to show you how I used my single-most-used tool for identifying and confirming extremes on these trades.
A Tool That’s Older Than the Hills
When I identify extreme pullbacks, I use multiple indicators and tools.
But there’s one that trumps them all.
Support and resistance levels are the most important indicators in my toolbox for two simple, and powerful, reasons:
- They are key reflections of what market participants are thinking.
- They just plain work.
Support and resistance areas show us, quite simply, where market participants reacted, forming short-, mid-, or long-term tops or bottoms.
The zone at $26 on this chart of the iShares Latin America 40 ETF (NYSE: ILF) shows the classic characteristics of an important support and resistance area.
The price either tests the support and resistance level and bounces off, or it cuts straight through with a “clean break,” and clear follow through.
We can see that a support zone in March of 2015 broke cleanly, and became resistance in April of 2016.
After one more test, that zone is once again broken cleanly to the upside to become support multiple times in September – December of 2016.
What we see here is an action area on the chart created by the emotional reactions traders and investors have when the price of ILF approaches this level.
And it’s that exact “anticipation of a reaction” that allows us to effectively use support and resistance to help us Find the Extreme.
Now that we understand the psychology a little more, let’s see how this reliable tool worked in the three trades that we reviewed this past weekend…
A Precise Entry
Over the weekend, I explained that Best Buy Co. Inc. (NYSE: BBY) was a trade that my Stealth Profits Trader subscribers entered after a good earnings report (showing underlying strength) that was marred by poor forward guidance for profit margins:
It was a classic, emotional overreaction that led to 200% profits in the call options we recommended.
Under different pullback circumstances, a similar technical setup played out in Emerging Markets Bull 3x Shares (NYSE: EDC):
Here, Stealth Profits Traders pulled in 241.7% gains on our call options.
And for our last example, here’s how we discerned that the pullback in our recent Hudbay Minerals Inc. (NYSE: HBM) recommendation was at an extreme for the entry – you guessed it – using a support level:
Here, we see that after our entry, the stock tested the support level again and has pushed up from there.
Instead of being troublesome, this type of action is a confirmation of our premise and shows that the support level is quite strong.
The bottom line is, support and resistance is one of the oldest technical tools there is, and one of the most powerful. It’s not to be underestimated.
It doesn’t matter what you trade; it doesn’t matter how you trade it, if you use this successful technical tool on the market, you’ll greatly improve your chances for success – and great returns.
And as we continue to on our journey together here at The 10-Minute Millionaire, I’ll continue to show you how to use it like a seasoned pro…
D.R. Barton, Jr.