I discovered the obvious last week – short-term support and resistance can be very useful in setting stops and entries. I also received a sharp, actually fatal, reminder that one must not forget tactical considerations while establishing or adjusting a trade, expecially in the heat of battle while the market is open. I chose a protective stop that was at a short-term support level, but I just didn’t think, and I placed it at a very vulnerable round number. Price dropped and touched my stop, didn’t go below it, then immediately took off to the upside. Two days later in my own account I used another short-term support level for a stop but placed it below the round number. Price dropped, touched the round support level price, didn’t go below it, and took off, and my position was safe.

By way of background, I picked AVY as my Spike pick last week (March 23). AVY was a strong performer relative to the S&P500 the previous week. On the weekly, the trend was still down, but AVY had closed up the past two weeks and was near the lower envelope. MACD-H showed a bullish divergence back to the November low, having ticked up the previous two weeks; Lines were essentially flat since November, but the fast line was rising, the slow line shallowing. Force Index was generally following price. Price had not yet moved up past the November low and retested it.

On the daily, things did not appear as good over the short term. Trends of price and MACD Lines were up, but MACD-H had just ticked down from its highest level since mid-December. Force Index had dropped sharply the previous two days.

On Monday March 23 the market opened higher and kept going, and my limit order wasn’t filled. On Tuesday March 24 price moved sideways and down. On Wednesday March 25 I placed another buy limit order and got left behind again as price streaked up from the open. At this point I was feeling kind of helpless, and that I had to figure out a way to jump onto the powerful moves reasonably safely. I decided to try OCO bracket orders: buy limit and buy stop, each with its own protective stop.

In the course of trying to figure out how to enter these choppy conditions late Wednesday morning, I was surprised in my inexperience to find a couple of solid support and resistance lines on a 25-min chart that had developed over the period since the Monday open. These were located at 22.20, 22.50, and 23.00.

Based on these support/resistance levels, and because I had not proven to be very effective in guessing the market’s next direction, I placed OCO orders (buy limit/buy stop) in my own account for AVY, as noted on the above chart. After dropping to within a nickel of the limit entry price (22.60, just above 22.50 support), price rapidly increased to a point half way to the buy stop entry price (23.00) and dropped again until the order was filled at 22.60. Eight minutes later price dropped to my nice round stop at 22.10 support, touched 22.10 exactly, and took off again. It was a bonehead rookie mistake. I used an even, vulnerable stop (22.10) and got picked off. I noticed shortly after that that 22.10 happened to be the mid-day (intraday) low on Monday March 23.

On Thursday March 26 I entered aother OCO order. This time the buy stop (23.00) was hit and the order filled at 23.28, granted with 28 ticks slippage. But I was in! AVY closed this day near 24. Before the open on Friday March 27 I raised my stop from 22.43 (a little below the 22.50 line) to 22.96 (just below the 23.00 line).

On Friday March 27 AVY moved sideways-to-down all day. Price drifted downward to the 23.00 support level, touched it exactly, and drifted back upward. My stop at 22.96, just a few ticks below the 23.00 resistance/support line, saved me, just like in the textbooks!

I must admit that I was surprised at how faithfully the price movements “honored” these rather arbitrary horizontal lines. Last week’s experience told me that it is essential that I look further into short-term support and resistance, and I will continue to attempt to use the concept in making short-term decisions in these unpredicable markets.