DETERMINING SUPPORT AND RESISTANCE

When a chartist looks at a bar graph, accumulations of highs and lows are often seen as key market levels. Breaking through these points signals important changes in the expected direction of prices. Candlestick real bodies, however,

may turn out to be better for this task. Much like highs and lows are on bar charts, an accumulation of real-body

highs or lows at a given level is significant.

An example of real-body resistance levels can be seen in Figure 2. The real-body high from the first day provides the

initial resistance point. Note how the second day's action takes prices above that resistance, even to a new high, but

the market ends lower on the day. The situation is similar after the fourth day. Twice the market rallies above

real-body resistance, only to fall back. Real-body support levels would work in a similar, but opposite, manner.The last candlestick on the chart is what would be considered a breakout. For the sake of our definition, a breakout

of real-body support or resistance is official only if it is on a closing basis. In effect, there must be a real-body

penetration of the support or resistance point before we can consider the action to be significant.