Sunday, November 01, 2009

How to Daytrade Support

AU had been on our newsletter (Thursday newsletter) as a support buy on 36 near the 200 SMA on a deeply oversold/extended daily.

On Friday it set-up intraday. One of the most important things to remember when buying support is to stay away from the intraday base. In this case the intraday base was at 37 -- 1 point above our buy spot. Perfect. The stock accelerated into our buy zone as panic started taking over -- a steep descent into a major support zone is exactly what you want when you buy support. Entry was on the reversal of the candle into 36 (low 36.05) with fill around 36.2.

Where do you exit? By definition if you are buying the reversal of a deep speedy descent you will be buying away from the 5 min/20 EMA. The first partial exit is on the EMA. Now what about the rest?

Look at what the stock is doing on the EMA. Is it basing above, on, or below? If the latter two then start lightening your position even more -- if its basing above then hold to see where the stock can go. AU rallied straight away from the 5EMA and into resistance of S1 -- a perfect exit as the stock rallied away from the EMA . Rule of thumb when buying support or exiting against resistance -- buy the spike down away from the EMA and into support (on reversal so you have a stop and don't get blasted) and sell the spike away from the EMA and into resistance.