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So, now that you know the basic patterns and forms a chart can take, I’m sure you’re wondering about what happens when a stock is no longer in its range or channel.

“Ok Mr Over9k, this is great and all and I was identifying ranges and channels and buying at support and selling at resistance just like you showed me, but the stock’s no longer within its channel or range, what do I do now?”

Well, the answer is:

It depends.

When a stock busts its support/resistance or channel, what this usually means is quite simple:

Something has changed.

Now it might be really really obvious. It could be all over the news. Or it could be very difficult to figure out. The challenge for you is to figure out first what it is and second, whether you think the market has reacted appropriately to it. The market could be underreacting, overreacting, or even incorrectly (moving in the wrong direction entirely) reacting.

Only once you have figured that out can you start to think about what to do next (you would, for example, hold onto the stock if you think it’s dropped when it shouldn’t have same as you would sell it if you think it’s bounced when it shouldn’t have, or even just bounced too much).

But, and it’s a big BUT, the inverse is also true too. Something might change (and it could again be something really big and all over the news) and you then need to figure out how it’s going to effect your stock’s range and/or channel. It could shift the whole thing in a particular direction, it could only move the support side, it could only move the resistance side, who knows.

So now that we all have a basic understanding of chart analysis, let’s put it to use with a real world example and like I explained waaay back at the start of this guide, convert a verbal statement into graphical form.

There is a solar (renewable) energy etf I hold called “TAN”. It’s been an absolute ripper since the march lows of 2020 and made me an amazing return since I bought it. However, being a renewable energy stock, it is extremely sensitive to changes in the political environment, i.e it carries a significant amount of political risk. 

One of the times it absolutely surged in price was in response to the two runoff U.S senate elections held on the 5th of January 2020.

At the time, Joe Biden had just won the presidential election two months prior and the democrats had the house, but the republicans held the senate 52/48. Now the way the U.S system works is that in the event of a 50/50 vote in the senate, the vice president becomes the 101st vote/the tiebreaker, meaning that if the senate is 50/50, it is de facto in the hands of the party of the vice president.

This meant that if the democrats could pick up those two seats they would effectively flip the senate and in doing so have control of the presidency, the senate, and the house (and thus be able to ram through virtually anything they wanted without the republicans able to do a damn thing to stop them) at the same time. 

Problem was, nobody was expecting them to do it. One of them maybe, but certainly not two.

And then they did.

Now markets everywhere went nuts, but the stocks which went the craziest were those most exposed to political risk, and of those, those benefited the MOST were renewable energy stocks on account of the democrats being relatively pro-green-energy compared to the republicans and they now had total control of the entire U.S political system aside from the supreme court.

So with all of this in mind, let’s put our new chart analyst hats on and think about how this both might and will effect the price of TAN, the solar energy etf that I held at the time.

What we can absolutely say is that this is overwhelmingly good for renewable energy stocks, which means they are going to go up. Ok, but how much? Well we don’t know how much, we’re now in a totally new political environment. We have NO data to work with.

But the one thing we can say is that they certainly aren’t worth any less.

Now, that wasn’t an accidental use of term – whilst we have no idea how much more the stocks are worth now we can be certain that they are not worth any less. So let’s think about that for a second – what would a certainty that the price can’t be any lower look like graphically?

Well, here’s your answer:

[ATTACH=full]121903[/ATTACH]

See how our previous close price, the last price the stock traded at (meaning the price that the market agreed to be the fair valuation) before the election now becomes the support or minimum price after it?

Now it’s possible that it might have formed a new support level above this point but like a new resistance level, what that point would be we simply couldn’t know. What we could, however, be absolutely sure (certain) of is that the stock could not go below this point because it certainly isn’t worth any less now.

So this meant that the way to play this (assuming nothing else changed) was to put a big buy order in if the stock happened to get back to its prior-to-the-election close price because we know (we are certain) that it will not go any lower.

The only way it could go below this point again would be if something else significant was to change, or the market had mispriced the stock too high beforehand.

However, when we zoom the chart out we can see that TAN was already on a major uptrend completely irrespective of the election anyways:

[ATTACH=full]121904[/ATTACH]

And so this can give us some serious, serious confidence that we are not going back to anything below where we were before.

You will also note that I’ve marked what are called “consolidation points” on the chart – these are points at which a stock’s volatility and trend essentially just vanish. See how the movements in the stock have diminished enormously (so the stock has flatlined) while the candles (so the volatility) have gotten much shorter as well?

This means that this is the point that the market has basically just agreed to be “about right” until something else changes to set it off (in either direction) again.

You will also note that I have NOT drawn any trends or channels (or indeed, anything) that continues from the prior-to-election area into the post-election area because a major change like a total democrat sweep of the entire political system changes the market conditions entirely and thus all of your previous data/analysis/calculations are completely invalidated, so consider this me showing you me practicing what I have preached.

I made a very big point about this at the start of this guide for a reason. Do NOT forget it.

So there you have it, that’s basic chart analysis/chart reading 101 for beginners! If you’ve made it this far, you can now wear the honorary title of “No longer a COMPLETE newbie”

[ATTACH=full]121905[/ATTACH]

Godspeed!