Using dayrange as support and resistance

This may be be obvious to some people but I have to say that when I figured it out it was something of a revelation. Instead of using fixed price points for support and resistance I use statistical day range. To do this I look at the average day range over the past 5 days (ADR5) as of the previous day and convert that into dollars and cents. The range is then calculated from the open price. Let's take a look at some intraday charts as examples.

Here's ABK from Friday:




ABK opened at 5.70 (I will usually round to the nearest dime) and its ADR5 as of Thursday was about 15%. That gives us about 85 cents to work with. ABK traded sideways in the morning and didn't look interesting. However if you went long in the afternoon at 5.50 on increasing volume like I did then you need to subtract out the .50 that ABK gave up in the down move to 5.20. This means that it only has .35 to give on the upside above 5.70 to 6. So this trade at 5.50 I expected to get .50 at the most. This is different that the red and green terms that are calculated using previous day close. ABK was "green" all day since it gapped up but at the break even point of 5.70 it had used up 9% of its dayrange already
(5.70-5.20=.50/5.70=9%).


Here is another example from last week- WM





During this week WM had an ADR5 of around 10 so a short below 5 on red from the open on Fri August 8 should be watched close around 4.50. By August 12 the price had reset to 4.60 so it had about .40 to give down to 4.20. By looking at this chart you can see that fixed resistance points don't seem to have any meaning. Looking at the daily chart shows no insight as to support and resistance levels.




Of course the stocks don't always adhere to these calculations but the point is that I watch these points close and take reversals around these points very seriously. I'm usually out at the first sign of a reversal. But if the stock keeps going beyond it, all the better!