By now, every trader and investor should be watching the price charts for support and resistance patterns. So often, we see people in the trading community getting caught up in the story that they hear on TV or by their broker. Regardless of what type of trader you are you should be following this simple chart rule.
Here is the rule. When a stock is trading higher it is critical for the trader to see what type of chart resistance the stock is running into. Often traders will look at moving averages or something else on the chart, but it is extremely important to watch the type of sell off bar that the stock is pushing up against. As obvious as this seems it is usually overlooked by most traders and investors. If a stock is rallying up and coming into a wide range red candle-stick bar that was accompanied by heavy volume there is a very good chance that particular equity will face major resistance and likely pullback. The key to this setup is the volume. Remember, traders will often hold stocks even when they are losing on the trade, so when they have a chance to get back to break-even or close to a flat position from a losing position they will usually look to take profits. Please see the chart below as it will give you a visual pattern.