How to Calculate Support & Resistance Levels – Chart of MIC Electronics

Vamsi asked question about MIC Electronics Limited and though I have suggested him thought emails what all levels to look for I think this stock offers lot knowledge about how to calculate supports and resistance for the stock. I don’t track the stock myself and so I will not talk about fundamentals of the company but will suggest everything based on charts and technical.

Let us look at the stock charts for past 1 year.

As you can see some numbers and horizontal lines in the above image. Let me explain each number.

  1. Stock was purchased at around 33 in the month of January. It was clearly not the right time to buy this stock because of clear break down in the stock charts forming lower bottoms from 40 to 36 to 32 and finally to 28.
  2. If purchased at around 33 in January, we should have a strict stop loss at the last support levels of 28. I would have taken this position if and only if I am fine risking my 5 Rs per share because this is very high risk trade because you are trying to get into a stock which is falling for last few days. Few days after the purchase, stop loss is hit but the fall is very sharp. Either use the stop loss in the fall or wait for a bounce after the fall to exit the position.
  3. Point 3 clearly shows that we have a strong bounce after the fall and I prefer to use the bounce to execute my stop losses. A point to note here is the bounce can never take the stock pass 28 which was a support and is now acting as a strong resistance. See Why Support Becomes Resistance When Broken
  4. 28 is a strong resistance and this is confirmed once again with the formation of double top. Stock opens above 28 on a day but could not close above 28 clearly suggesting it as strong resistance.
  5. Many a times we want to see if the resistance is taken out or not but this has to be done again with a new stop loss. 22.5 should be the second stop loss from that point because you could see the stock bouncing from that level.
  6. As we did miss everything now we have no option but to have the stop loss of 16.5 and hold on to the stock.

I hope this helps other fellow traders understand the market technically.

Final Thoughts

Technically this stock is showing complete breakdown for the last 7+ months and so I would be very sceptical about the company and will only be only looking to come out of my position if either it cracks 16.5 or reaches near 27 odd levels.

Comments

  1. Mehul says

    Hi Shabbir,

    I was reading about RSI above, and i tried to analyse and study the stock that i’m currently holding. “JP Associates”. When i bought the stock i didn’t have much knowledge i just bought using fundamentals and now i’m loosing continuously but still holding.
    As per your point 1, i purchased JP Associates when stock was trading between 97-100 on 1st week of December. I now realize that it was wrong time to buy that stock.
    1) I would like ask you that, how would i have been known about this trend situation and applied correct stop loss.
    2) Also, I did some analysis using Stochastic which showed momentum above 50 and reaching 80 points but still the trend remains bearish. What one can learn from this. ?
    3) When should one use RSI and Stochastic indicators?

    Thanks, for this valuable information.

    • says

      Hi Mehul,

      I don’t use RSI when trading but my strategy is price action based strategy that I have been teaching my members. Still both RSI and price action strategy clearly suggest that 100 in December 2012 was not the right point to enter in this stock and even if you had gone long, there should have been a stop loss that could have saved you from a 40% loss.

      1. Pretty basics of any strategy that you apply will suggest you that was not the right entry point. Even if you miss that, you can be easily have a stop loss and came out of it.

      2. Again I don’t follow Stochastics but then again the trend is positive and target of 80 is pretty round the corner with my strategy as well.

      3. This can be answered by those who use it more often in market but I would say that I use my price action strategy almost in every trade or investment that I do.

      I hope it helps Mehul.

  2. Jagdish says

    Hi Shabbir,
    I want to acheive the following Support levels ( 3rd March to 18th March and Resistance levels (19 to 21st March). Can you tell me if it is possible to get these figures. I am ready to pay for this.

    3-Mar-14 6230
    4-Mar-14 6259
    5-Mar-14 6286
    6-Mar-14 6330
    7-Mar-14 6396
    10-Mar-14 6452
    11-Mar-14 6490
    12-Mar-14 6519
    13-Mar-14 6532
    14-Mar-14 6546
    18-Mar-14 6558
    19-Mar-14 6569
    20-Mar-14 6564
    21-Mar-14 6560

  3. Chris says

    Hi there, I have lost lots of money … Even so, I am holding on to trade again! I hope to get everything back an make a ‘comeback’ using Ur guidance … I am going to practice these support an resistance levels on a demo account an jump back in …

  4. kumar says

    Hi Shabbir Bhimani
    can check and suggest about the stock Fedders Lloyd Corporation Limited.i am holding this stock from average levels of Rs 97.Now trading around 42-46.Pls help me.Thanks You.

  5. rajan says

    Dear Shabbir,

    I am presently holding 1150 shares of TataMotors bought at 4 different levels, viz., 236. 241, 245, and 251 and the stock is trading around 290 in the bourses. Can I wait for some more time to get more profit or is it time to sell off?
    Please advise me accordingly. Thanks.

    • says

      Hi Rajan, I don’t prefer sharing stock and exact levels but prefer my reader find those levels themselves by reading my ebook but still If I would be in your position I would hold on Tata Motors with a strict stop loss of 260.

  6. zulfikar says

    Thanks for the information provided. Your books seems to be interesting and would like to go for it. But i have few questions and it would be great if you provide me your valuable feedbac.

    1. you book mentions about charts and patterns. But my basic question is where will i find this charts and pattern. Is there any free site which provides these details?
    2. there are thousands of companies listed on NSE and BSE. Do we need to make daily analysis of all the companies chart. or is there any site which provides stock screeners ie which company is forming a chart?
    3. is your book available in crossword or any book market or i need to book it online only.

    Please let me know your feedback

  7. Soumya says

    Hi Shabbir,
    I was curious to know how does a day look like for a day trader.I have finished reading your ebook and I think I am all set to start.

    1. How do you pick stocks to start your day with.There are so many and day trading is all about picking the right stock at the right time.Things can change in minutes.

    2. What tools and resources should a day trader keep in handy through out the trading session.

    3. Do you have a specific list of stocks that you track religiously.

    As always,thanks again for your ebook and advises.

  8. Chaitanya says

    Brilliant analysis!

    How did you learn to do such brilliant analysis ? I’m not a finance guy hence I find this technical analysis stuff damn complicated…is there an easy way out ?

    Btw I’m an electronics and telecommunications engineer, got into trading coz love the excitement that it offers…besides money :P

      • Chaitanya says

        I see you have written a book on Technical Analysis :)

        Is this book enough for me to master technical analysis in a nut-shell ? Coz I am not looking for any complicated stuff, just something that works for me to read the daily graphs on Yahoo Finance and Google Finance….and take a confirmed call that works ?

        I’m not much into Finance, except I love the excitement and profits of trading ;) So will buying this book of yours give me a “short-cut” in a positive way to achieve nirvana in Technical analysis ? :P

        Thanks

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