Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Hi ho Silver

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Couldn’t resist the headline. Sorry.

Here’s a brief post on using support and resistance lines.

Word to the wise: I have a position in this investment. I share this chart analysis with the word not to drive up the price, but because it makes a good lesson.

iShares Silver - SLV

The horizontal line on the chart above (click it to make bigger) hints at resistance in the price movement. Note how for five days or so, the price approaches my drawn black line in intraday trading, but can’t seem to overcome it. Where I put the question mark is where I estimated the resistance to be.

I entered a limit order to buy shares once the price moved up through that resistance point. The order was executed after a day or two where I drew the arrow.

Why not just buy before the price goes UP? Seems counter-intuitive to wait for an investment to go UP before buying, right? The answer is safety. Sure, you can buy at any time. But how do you know the price is going to up? It can flutter sideways for a year, or just fall away in price depleting your capital.

Don’t put your capital at risk unless the odds of a successful investment are in your favor. The trend IS your friend.

Follow up lesson: After SLV moved above the resistance, note how over the next two weeks that same price area became support for the investment. Think of it as a price “floor.” I can’t explain WHY it happens, but I will tell you it happens often enough to learn about it and try to incorporate it in your investing.

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Written by heyercapital

April 4, 2007 at 9:07 am

Posted in stock ideas

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