THE HAnDbook of TEcHnIcAl AnAlySISfigure 11.33 Finding Support and Resistance on the Daily Chart of Light Crude Oil.
Courtesy of Stockcharts.com
(7) as a price barrier
The most popular use of moving averages is to employ them as levels of potential
support and resistance. As such, they may be used to also provide levels for initiat-
ing long and short trades. See Figures 11.30 and 11.31.
Figure 11.32 illustrates the ideal scenario where a moving average support is
also part of a prior support level in price, which occurred around October 2011.
This is an example of a bullish confluence.
Figure 11.33 illustrates another ideal scenario where a moving average re-
sistance is also part of a prior resistance level in price, which occurred around
September 2011. This is an example of a bearish confluence.
Figure 11.34 shows price finding resistance at both the 50- and 200-day SMA
on the daily chart of Amazon.com Inc.
Figure 11.35 illustrates a series of bullish confluences from November 2012
onward. We find prior support levels around the levels that price test the 100-day
uptrending SMA. The uptrend line also helps to create a stronger bullish conflu-
ence, giving the trader more confidence in the reliability of the SMA as a barrier
to price action.
It should be noted that moving averages may also find support and resistance
at other moving averages as well, where a rebound to the upside is regarded as
bullish and a rebound to the downside as bearish. This is often seen occurring
in oscillators, too. One typical example is that of the stochastic oscillator, where
we sometimes observe the slow %K finding support or resistance at %D. See
Figure 11.36.