TRADING APPLICATIONS

One of the first uses that many technicians see for this technique is in terms of breakouts, much like in using bars.

The advantage in using real-body highs and lows for support and resistance is that ranges are tighter, allowing entry

into a trading position earlier than might otherwise have been the case.

Perhaps the most intriguing part of this new methodology, however, is its usefulness for day trading. Most

technicians use candlesticks as a day-end indicator, but this technique gives us a greater degree of depth than is

necessary for day trading. Real-body support and resistance allow us to take our analysis into the shorter time

frames, which in turn allows us to get better entry points for our longer-term trades.

In my own analysis, I favor trading counter to the prevailing market action when a nearby real-body support or

resistance level has been crossed intraday. This means that I recommend selling when the market has broken through

very recent real-body resistance, and buying when recent real-body support has been breached. This is my strategy

for trading against levels that are only a few days old, and one I recommend mostly for a very short-term position

(say, day trading).

Longer-term levels require trading against the approach of a level. Often, in such cases, prices have come from a

relatively long way off, and just reaching those key levels is a major achievement. Waiting for a break of support or

resistance may mean missing a trade. Positions set under these circumstances can be held for longer time frames,perhaps as long as a week.

In candlestick charting, as in bar charting, the more times a level is touched, the more significant the level becomes.

This is, however, a double-edged sword; if a resistance point is touched or penetrated slightly several times, it

becomes more likely that a real breakout is in the offing. The wrong side of a breakout is not where we want to be.

At the same time, however, the more times that a resistance point is touched, the larger the eventual decline is likely

to be if the market falls instead of rallying.