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User’s Manual
Version 2.0
Getting Started 1
Welcome ....................................................................................................................................1
Installation..................................................................................................................................2
Why Support and Resistance Develop .......................................................................................3
Why Trends Develop .................................................................................................................4
A Sample Strategy 11
Run the Exploration .................................................................................................................11
Study the Charts and Indicators ...............................................................................................12
Look at the Expert Commentary ..............................................................................................12
The Decision ............................................................................................................................14
Troubleshooting 17
Frequently Asked Questions ....................................................................................................17
Welcome
Trendlines and Support/Resistance lie at the very heart of technical
analysis. As Steve Achelis (Founder of Equis International) said in his
book Technical Analysis from A to Z, “Wise investments aren’t made
with Ouija boards, they are made using logical approaches that minimize
risks and maximize opportunities. Most investors spend their time
looking for easy money (which is not an easy search) instead of learning
the key factors to security prices—supply and demand.”
Because technical analysis in general and particularly the drawing of
trendlines and support/resistance levels are considered somewhat of an
art, it is difficult for a computer algorithm to exactly draw the lines as a
human would. In fact, given the same chart, and two people, each person
would likely draw these lines in different places.
We have made every attempt to calculate and draw these lines as
accurately as possible. In most instances you will find them to be very
accurate. In some case, you may find the accuracy of the lines to be
adversely affected by extreme volatility.
The tools for drawing the automatic versions of the lines include a
“dynamic” variable that allows them to be drawn on any type of security,
be it a stock, bond, future, mutual fund, or index.
Your package includes the following:
• Four Support/Resistance custom indicators: Support (longer
term), Support (shorter term), Resistance (longer term),
Resistance (shorter term). There are <auto> and <manual>
versions of each of these.
• Four Trendline custom indicators: Trndline Up (longer term),
Trndline Up (shorter term), Trndline Dn (longer term), Trndline
Dn (shorter term). There are <auto> and <manual> versions of
each of these.
• Two Support/Resistance explorations: Equis – Support &
Resistance (longer) and Equis – Support & Resistance (shorter).
• Two Trendline explorations: Equis – Trendline Breakouts
(longer) and Equis – Trendline Breakouts (shorter).
Installation
To install the Support/Resistance and Trendline tools:
1. Insert the Program CD into your drive. The setup starts
automatically.
You can plot multiple 3. Position your mouse pointer over the small icon to the left of the
indicators simultaneously desired indicator. Note how the mouse pointer changes to a
by choosing Indicators from hand.
the Insert menu.
4. Click and hold the left mouse button and drag the indicator until
you have it positioned on the chart’s price inner window. The
color of the price bars will change to inform you that they will
be used to calculate the indicator.
If nothing appears on the chart when you plot one of the indicators, this
simply means that no current trend or support/resistance level was found.
If the y-axis of your chart is scaled in semi-log, your trendlines may
curve, particularly if the trend is steep and covers a wide price range.
Typically, you will find that the most currently detected support level is
below the most currently detected resistance level; however this is not
always the case as can be seen in the following chart.
For the first two-thirds of the chart, support is below resistance (as
expected), however, in April the support level moved above the
resistance level. Exxon had extended its breakout from the previous
November and entered a trading range with detected support around 50.
Later, in July, the lines got back into a normal mode as a new resistance
level was detected around 65.
As you would expect, the shorter term support and resistance levels,
represented by the dashed lines, responded more quickly to the changing
conditions.
The chart below shows a template applied to a chart of the British Pound
that plots the support and resistance custom indicators.
To create a template:
1. Choose Open from the File menu.
2. Select a security and click the Open button.
The Decision
If we are forced to make a decision on which of these two stocks to buy
based strictly on the analysis so far, the edge would have to go to
Johnson & Johnson. Johnson & Johnson’s breakout is impressive since it
coincided with a trendline breakout. In addition, the volume on the
breakout was a bit heavier than Wal Mart’s.
Interestingly, the most recent resistance level for Johnson & Johnson
coincides with the left and right shoulders of a classic head & shoulders
pattern, with the left shoulder forming in May, the head in June, and the
right shoulder in October.
Q: Prices are currently far above the most recently drawn Resistance
line. Why is this line still called “Resistance”?
A: The chart below shows a good example of this. In the August to
October time frame, prices were far above the most recently determined
Resistance line near 41.50. Yet MetaStock continues to extend the
Resistance line out since it is the most recent one. This has its
advantages, since a common occurrence is for a penetrated Resistance
line to later provide Support. This Resistance line (although penetrated
in June) provides Support later in October and November.