Science of Stock Price Action:
The Chart does not tell you about the future but it does tell you all about the present condition. The present condition helps you evolve a strategy for future. All you need to do - Trust your eyes and make some common sense observations
Let us try to answer a simple question:
What is Cisco Chart trying to tell us?
Here's the weekly chart of Cisco (that covers last 2 years)
Let us make some simple common sense observation:
Present Situation: Cisco has a ceiling (resistance) at $29. It means everytime stock rallies to $29 - there are sellers preventing stock to rise further. It means one is better off selling the stock at $29.
Future Action: Cisco needs to breakout above $29 to attract fresh trading interest that can take stock higher. What is Breakout - It is a situation where all sellers who want to sell at $29 are exhausted, and Buying Power overpowers the Sellers and more people inclined to buy the stock. The Fresh buying generates momentum and hence faster movement in stock price. In simple words - Cisco will become buy whenever it closes above $29.
I know it sounds weird...You will not buy Cisco at $27 but you will buy above $29. But remember, that's how the market works. There is BIG money that makes the market and trend followers/traders just follow their footprints. Breakout is a confirmation that big money is now driving the stock.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers