Often I receive questions regarding how I determine important price points for establishing trades. It is a combination of several factors each time but by far the heaviest weight is given to recent support and resistance levels. You would be surprised at how often after I make a trade I’ll receive a comment like “you shorted at the 66.3% fib retracement” or “you got in at the 20 period exponential” something or other. Nope! Or at least that is not how I found my level. It just so happens that important S/R levels seem to match up quite often with many of the more commonly or uncommonly used technically derived levels.

Here is a short clip from today’s AM Meeting where I discuss what I view at the most likely trading range in PLUG for the day from about 7 to 8.30. Beneath the video is a chart I marked up to show you how I spotted the levels as well. In addition to the chart I considered the following factors when designing my trading plan for the day.

• PLUG had experienced a huge “trend day” on Tuesday so my expectation was that its range would compress for 2-3 days. Yesterday it had about a 2 point range so today I was looking for about 1.50. Once I saw how it reacted to its earnings release it became easier to use prior S/R levels that corresponded pretty closely with that 1.50 band
• If I have a range that I’m fairly comfortable with I simply look to short the top of the range and go long at the bottom. I try to avoid trades in the middle of that range as price movement tends to be more random
• The initial reaction to the earnings was positive with PLUG trading more than 1 point above the prior day’s range so that helped guide my initial thought process on where today’s range would fall
• PLUG actively traded in the pre-market respecting the levels I had identified solidifying the importance of those levels to me

I discuss trading setups like this each morning with our desk and then our traders can see me execute them live in SMB Real Time. You can find our more information on this and our other trading and mentoring tools here:

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, and options. He has traded professionally for 18 years. His email address is: [email protected].

Steven Spencer is currently long PLUG, GM, CROX and short WLT