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In a message dated 9/19/98 6:34:30 AM Pacific Daylight Time,
BOLUMENB@xxxxxxxxxxx writes:
> Hi, Brooke,
> Question:
> Perhaps I am not reading the chart correctly but looking at the times where
> T broke resistance in the prior months, they both happened to be at close
to
> the peak of the move. Could this be a contrary indicator<G>? or am I
> looking at this incorrectly?
> Thanks,
> Bill
It's true that stocks that break through resistance often fall back,
especially in this volatile market. However, I've found that breakouts above
resistance frequently signal good buying opportunities. Look, for example, at
breakouts above resistance in a chart of DELL. I've done well with quite a few
other stocks this year by buying when they broke above resistance.
But as you point out, it's hardly foolproof. Frequently, false breakouts
occur, and the stock falls back under the resistance level -- sometimes as
soon as the next day. Stocks that have broken through resistance must be
carefully screened with other indicators (such as SAR). The resistance
indicator does not provide a guaranteed system for picking stocks -- far from
it. This system is based on the idea that some will take off and many won't.
You must use protective stops to limit losses quickly and preserve capital.
Brooke
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