Guide to Day Trading Strategies

SUPPORT AND RESISTANCE
Now that you have a basic understanding of candlestick charts, we will discuss the importance 
of looking for daily chart patterns. We know that each candlestick represents one day of price 
action on the daily charts. Whenever I am trading, I typically look at about 3-6 months of 
trading history on the daily charts. I always keep a daily chart up for each stock I am trading. 
Remember, that as a day trader, our primary focus will be on 
À
nding chart patterns on 1min 
and 5min charts. However, all intraday charts exist in the context of their daily chart. This 
means we have to keep an eye on nearby daily support and resistance levels that could come 
into play. All charts will have price levels of support and resistance, and it is important that 
you know how to identify these levels. Since the critical support and resistance prices will be 
respected by professional traders, if you do not realize where they are, you may end up buying 
when and where everyone else is selling. Plotting price history on stock charts is a form of 
technical analysis. In contrast to fundamental analysis where we place trades based on the 
strength of a company, technical traders base trades on chart patterns and indicator readings. 
As momentum day traders, we are looking for technical breakout patterns. Remember that 
volume will always be the con
À
rmation that the breakout is real. Without volume, the breakout 
typically will not be sustained.
I am a strong believer that a great daily chart will provide day traders with setups that have 
home run potential. However, I have seen thousands of stocks make incredible intraday moves, 
despite a poor daily chart with a lot of resistance. This will happen when there is such a strong 
catalyst that it overrides all daily resistance levels. For example, imagine a pharmaceutical stock 
that has a lot of daily resistance, but has just developed the cure for a previously incurable 
disease. The news is so great, that the daily chart becomes almost irrelevant as traders scramble 
to get a piece of the action. This is a good time to remind you that stocks can be irrationally 
strong or weak! Sometimes, stocks are strong beyond what the fundamental analysis of the 
company could possibly project. This shows a disconnect between the fundamentals and the 
actual behavior of a stock. We have to think like a trader and focus on trading the chart patterns. 
If a stock is continuing to show bullish sentiment and has no indication of reversing, there is 
no reason to sell a long position or begin a reversal trade. While we will review the important 
levels you need to understand on daily charts, it is also important to remember that a strong 
catalyst will typically override a weak daily chart. Conversely, a weak intraday catalyst will rarely 
breakout despite a strong daily chart because a weak catalyst results in low volume and lack of 
retail interest. The best breakouts occur with high relative volume, if there is no volume, there 
will be no trade.

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