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How to Beat the Market Makers at Their Own Game: Uncovering the Mysteries of Day Trading by Fausto Pugliese

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CHAPTER 11 Watching the Trends

The key to maximizing the information presented in the stock chart is to find the support and resistance levels at any given time. To do so, you must learn how to draw a trend line. (See Figure 11.1.)

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FIGURE 11.1 Ten Day Bar Chart

Let's return to our building analogy from Chapter 10 for a moment and refer to the above chart. The grid lines on the chart act like tiny windows. By peeking into these windows, we can see what's going on with the stock; namely, what floor it is currently bouncing around on and where it is likely to head next. With this in mind, we can notice trends. In the above chart, the trend is that the stock continually tops out around $44.50. Time and again, the stock has risen to this level and then immediately dropped downward from the resistance level. The only exception is the two days that the stock traded at around $45 before dropping back below this particular resistance level. Even with that exception, there were eight different times when the stock either approached or reached $44.50 before falling.

In this chart, you can see that the stock is once again approaching $44.50. If you owned this stock, what would you do? I know what I would do: I would sell it. In this case, I would have eight very good reasons for doing so. If history repeats itself, this stock will hit a ceiling at around $44.50 and then the price will ...

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