I’m focusing on your 9/21 entry entitled “A Trader’s Thoughts.” What I did was take screen shots of the intraday graphs for AAPL, CAT, AMZN and BIDU and laid the 9/22 charts to the right of each one respectively. That was saved as “1100921d2” and is the GIF that I’ve attached to this email so you can see for yourself how these support calls worked out.

While the CAT call was, at best, meh; the BIDU level was workable and the AAPL and AMZN support calls were simply sterling. The interesting thing is that these played out so well despite SPY drifting below the support levels that you referenced in the same article (SPY for 9/22 can be seen at top right corner). Nice work !

I have two questions.

1. When you called out these support levels, was it a result of simply eyeballing the intraday charts or did you insist on spotting some telltale signs on the tape that the battle between the bulls and bears played out in such a way that you could then endorse these levels as playable for the next day ?

2. After looking at these charts for a while, it occurred to me that all 4 of these support levels were established in the final hour of 9/21. The 282.75 that held for the first 2 ½ hours of trading in AAPL looked so beautiful that, at first, I simply assumed you had been working off that earlier level. I have been pegging my own support and resistance levels for the past 4 weeks now and in my limited experience have come to distrust afternoon levels while placing confidence in morning ones. How battle-worthy are final hour levels ?

Bella Responds:

I would like to purposely not answer your question at the start if you do not mind (but answer below).  Doing so will teach the more important point.  Do you think it is more important to get your levels correct or develop a system that makes sense to you as to how to trade your levels? Mr. Chairman the gentleman from SMB casts a vote for the later.

When trading first ask how important is your level.  One a scale of 1-10 what grade of importance should it receive?  Next develop a set of trading rules for your most important levels, and then your lesser levels.

For a support trade you are going to have consider the following when a stock reaches this level.  Are you willing to buy without confirmation the level has held?  How much above the level are you willing to buy so you do not miss a quick rejection of this level?  Will you reenter if the level fails but then quickly holds the level again?  Under what circumstances will you pass on buying the level?  When will you really load up if the level holds?  And where?  I will stop here as a blog is not the forum for a complete exhaustion of all things considered at support levels.

But you should get the point.  It’s not necessarily picking the levels, it’s the execution around levels.  It’s being consistent with how you choose your levels.  It’s developing a grading system that makes sense to you for your best levels.

Now back to your question so as not to disappoint.  We find levels based on volume after fresh news in a stock is released.  Battles develop on the tape after fresh news that are most meaningful to how we trade.  These levels are most important for the next three days.  Volume + fresh news = most important levels.

Mike Bellafiore

Author, One Good Trade