|Technical traders draw support and resistance lines by connecting lows, highs, or closing prices together. Low points should be connected to other lows, highs to highs, and so on. In addition, the time between connection points should generally not be so long as to call into question the validity of the support or resistance line. There is one other important thing to note: a line is formed by connecting two points, but until a security tests the line at a future date and that support or resistance line holds, it is nothing but an unconfirmed estimate of where support or resistance might be. A line is not valid until at least three points are connected, and the more successful test of a support/resistance line, the more solid the support.|
|Cisco Systems (CSCO) is approaching an old support zone that was formed between February 2005 and August 2006. In five separate instances, CSCO dropped to between $17.13 and $16.83. Having tested the $17 range of support five times qualifies this as a reasonably strong support zone on which to base a trade (Figure 1).|
|FIGURE 1: CSCO, WEEKLY. Having tested the $17 range of support five times qualifies this line as a reasonably strong support zone on which to base a trade.|
|Graphic provided by: Wealth-lab.|
|In addition, note that the bar circled in blue on this weekly chart is actually a large gap between $17.65 and $19.35. Should Cisco continue to fill this gap and eventually close it, that would provide a good opportunity to consider going long while having a solid support level close by.|
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