Resistance zones

[andrew@allentra]

Hi

I am after a little help from you expert techies.
Say I spot a reistance level on a stock and place a line across it. The stock maybe quite close to it and have technical reasons to short. However the stock maybe quite volatile and trade above the reistance before closing below still enforcing the reistance zone. How is it possible to measure the volatility of the stock so I may have an envelope around prices so that fewer trades are stopped out due to the daily range.

Any help would be greatly appreciated

[DuaneG]

Hi Andrew,

It sounds like you're trying to filter out the noise and whipsaws that are common around pressure points and when a particular price level is being closely watched. You need to basically determine a standard of error aka: wiggle room, which is tolerable for your style of trading.

You may want to start using the ATR (Average True Range) indicator. Here is the link to the Technical Analysis Dictionary where the ATR is discussed in further detail. In addition to that, you may want to perform some backtesting to see how the price has behaved during previous tests of support and resistance. By looking at how a stock performed during a particular test, you can calculate an average during these tests to get a sense of how the stock behaves and what the common fake-out point/percentage is like.

Keep in mind that this average is solely dependant upon the symbol in question and the interval being tested. Hope this gets you pointed in the right direction.

[andrew@allentra]

Thanks

Thanks Duane