As a general rule of thumb you want price to hold important reference levels on a closing basis. This means that you can allow for an intraday move below the mark. This is commonly referred to as a shakeout. However you must be aware that some shakeouts can be severe, especially in the high octane swing stocks. Due to this it totally depends on the individual situation if a trader should scale-out some quickly on the first intraday violation of support or wait until end of day with the risk to fall victim to a nasty shakeout. If a stock closes below the expected “support” w/o a shakeout it tells you that:

A) The stock changed character and could be in for a deeper pullback/consolidation or maybe it is gone for good

B) You failed at identifying a proper support level

C) The stock has only strong hands on board which are not prone to overreacting.

If the latter is the case you can scale-out and then simply scale-in again once price moves up through the mark tomorrow and or the days ahead. Large cap stocks which are widely followed move more like a ocean tanker so support and changing direction can be a multiday process which often sees closes below support.

The quintessence is this: You want your stock to show you that it adheres to proper support in one way or the other. If a stock stops doing what you want it to do you have to think about letting it go.

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Disclaimer: This article is my opinion which stems from my own experience gathered trading real money in the stock market. It represents my style and it fits my personality and risk allowance. More power to you if you are a net profitable trader despite violating everything that’s written above!

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