How To Develop A Vision To Ensure Success Unquoted Companies
ne. A horizontal line can be drawn below which the share price never falls but keeps 'bouncing'off. The best time to buy is when the shares have just started to bounce up again; the best time to sell is when the shares are, say, 20% above the resistance level, or have just started a downward turn. Traditionally such a share price only bounces up to five times before starting another pattern.
ii Resistance line. A horizontal line can be drawn above which the share price never rises. (See Fig. 5.) This is, in effect, the opposite to the support line, and the reverse rules apply. Sell as the shares start to move down from the resistance line; buy when they are, say, 20% below or start to move up. Traditionally such a share price bounces up to the line no more than four times before drawing a different pattern. Some chartists prefer to wait a little when the shares move up to see whether the resistance line is penetrated.
iii Penetration of a support line. When the support line is penetrated, this is bad news and the shares should be sold. Everyone else will be selling too of course and such a large sale will push the price even further down. You might choose to await a slight recovery in the price if you failed to get out early enough.
iv Penetration of a resistance line. Usually good news. It is a signal to hold shares and possibly buy more
v Support becomes resistance. When a horizontal line which acted as a support becomes a resistance line, the company is regarded as in serious trouble, and the usual course of action is to sell. This can become yet another self-fulfilling prediction which results in the shares being marked down below their intrinsic value. If you believe this, you can hold the shares or possibly even buy more at discount prices, but be careful. Even if you are right, it is likely to take a while before the market generally regains its confidence, begins to agree with you and the shares can be profitably sold.
vi Resistance becomes support. This phenomenon is fairly common. The line which provided the resistance becomes a support line and the shares bounce back to it, perhaps twice, before continuing a general upward trend. The shares are bought when the price has bounced back to the line. They are sold when they start to turn down, when a new pattern emerges, or when a predetermined margin has been reached. There is rarely any pressing need to sell.
vii Upward trend. The upward trend is an upward sloping support line. A bounce up from the line is the time to buy. It is usually prudent to wait a little while to see that this really is a bounce up, and that the line is not about to be penetrated.
There is no need to sell a share at all during an upward trend, but if you do want to sell, the best time is when the price is about 15% above the support line or when the value starts to turn down again.
Instead of being straight, the line could be curved. This affects the degree to which the upward trend is expected to continue, as will easily be seen by projecting the curve. If the curve faces up, the upward trend will peter out; if the curve faces down, buy like mad.
viii Downward trend. Immediately this trend is spotted, the shares should be sold, as traditionally the trend (unlike its upward counterpart) tends to keep going longer.
Like the upward trend, the line could be curved rather than straight. If the curve faces down, the downward trend is dying out and the shares may even recover. If the curve faces up, sell quickly.
ix Upward channel. This comprises upward support and resistance lines between which the share price bounces. Marginal profits can be made during the bounces, but generally the shares are held until the patt
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