After I put my chart into a line chart setting, I am searching for possible trends - up, down or sideways. When I begin to draw my lines, if there are less than three exact hits I delete the line and try again. I try horizontal and diagonal lines. I need three or more hits for it to be significant enough of a line to call it support or resistance. Three or more hits mean investors will remember that price and react to it causing a stock to stall there and perhaps change directions.

As a more advanced look, if I don't seem to find a perfect line that gets three hits I will then put my chart into candlestick mode (I am not fond of bar charts) and then I will look to see if there are any wicks (also known as shadows or tails) that touch a line enough times to make it an important stopping point. If I get three or more hits then it is good enough to call it "soft" support or resistance.

I prefer the line chart, but sometimes you need to revert to candlesticks to figure it out. Both are fine. Remember anything less than three hits is not strong enough to hold the price level.

VOLUME

Volume is important; it shows the amount of interest in a stock or market. I prefer to look at average daily volume, but intraday we can get a feel for what is going to happen, on the short term. I also set my real time alerts to monitor unusual increases in stock volume. I'll get an alert if the share trading volume reaches two times the average volume. This alert notifies me that something is up. It is not the day traders or the little guys that cause large movements in volume, but the institutional trading. When the Big Guy's buy or sell it causes volumes to jump, watching this activity can give us an edge. I look at volume in two ways:

1. I want to trade stock with average daily volume of 1 million shares, so that enough people are trading the stock for it to move in predictable patterns. Once you are advanced, and you have made good money in today's market you might drop this number down to 500,000 shares, be careful smaller volumes means unexpected volatility.
2. I want to know if a recent move of the stock is sustainable or not. To figure this out I look at the volume. If the volume is weak for that stock, much lower than average, then the move probably will not be sustained and I anticipate it failing that direction. If it is higher than average volume then the direction is very sustainable and we can go with the flow.
3. Finally, if there is a jump in volume, there could be a change of direction soon. Volume is considered a "Leading Indicator" meaning that increases or decrease of volume occurs before an event (like a change of direction).