Are your trading clues and cues too complicated to be consistently effective? It’s certainly not unheard of. It’s all-too-easy to worry so much about the trees that we forget to look for the forest. Here’s a reminder not to fall into that trap using the real-life example Procter & Gamble (PG) stock is providing right now.
The premise here is simple enough. Although not always, sometimes a stock’s chart will point out clear straight-line floors and ceilings. P&G shares are giving us a few of both.
Take a look. There’s a trio of color-coded patterns in place here. Let’s start with the yellow ones that frame the stock’s trading range going all the way back to 2018’s low (although the ceiling didn’t come into play until its late-2021 peak). This is the biggest and widest trading range in force for Procter & Gamble shares right now. While there’s plenty of room to roam within in -- plenty of room for decent swing trades -- it’s a move outside of these lines that would be of most interest. It would take some doing, but once that ball’s rolling it could be difficult to stop.
The yellow guidelines aren’t the only support and resistance lines to keep your eye on though. Mostly within those boundaries are two other lines serving as a ceiling and floor. Plotted as blue dashed lines, take note of the fact that the narrowing trading range in place since September of last year is still steering Procter & Gamble shares upward. This so-called “rising wedge,” in fact, is steering P&G stock up and beyond the upper bigger-picture ceiling.
Also note that while the last few weeks have been anything but bullish for Procter stock, the lower edge of this trading range is still holding up as a floor.
The only other noteworthy item readily evident on this chart is the horizontal ceiling (red, dashed) at $158.00. That’s where PG shares peaked for three straight weeks in late July and early August. It’s worth pointing out and plotting just because that’s also where Procter & Gamble shares bumped into a technical ceiling back in April. There’s something about that level that the bulls have a problem with.
None of this may end up mattering. It’s just a historical framework. PG shares may continue using these lines as support and resistance. They may not. They may use some of them, and do so for a short while or a long time. We just don’t know.
Nevertheless, being aware of these basic shapes can help you a great deal even when you’re using other kinds of indicators. Indeed, being aware of these chart shapes can help you decide if a questionable buy or sell signal is more likely to be wrong or more likely to be right.
Don’t misread the message. If you’re a systems-based trader, you should have enough faith in your system to take any and all trade signals it cues (with the exception of clearly-errant triggers based on extremely-rare circumstances). If you don’t have at least some degree of blind faith in your trading algorithm, you may want to rethink it. The point being made here as that a chart’s shape can help you gain some perspective on… well, everything. More information is never a bad thing.
If nothing else, understanding where a chart’s historical ceilings and floors are will help you set price targets… something even most of the very best trading systems still can’t do. it's particularly beneficial when you're trading options, since all options have a limited lifespan.