Theres also a name for the price point where the stock price stops rising and

Theres also a name for the price point where the

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There’s also a name for the price point where the stock price stops rising and either heads down or stays put for a while. The FAC method calls that recurring price level a “Ceiling,” as in “you can’t get past the ceiling.” When the price finally breaks through the Ceiling and moves up, the
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Ceiling often becomes the Floor. Just as in a high-rise apartment, your ceiling is your upstairs neighbor’s floor and your floor is your downstairs neighbor’s ceiling. And just like that, a stock price seems to move in somewhat consistent steps from Floor to Ceiling. Then it breaks through and moves on, or it can eventually return and drop down to test the old Ceiling to see if it’s really become a Floor. On a chart that shows a business’s changing stock price over time, Floors and Ceilings are represented by (imaginary) horizontal lines where the price stops and reverses direction. They are formed by recurring reversals at a specific price. We’ll be taking a look at these shortly so you see exactly what I mean. There is one more thing to look at: the Trend. The Trend is the general direction of the price over a relatively long period of time. Trend lines are drawn at the top and the bottom of the jagged lines created by price swings within the Trend. The top prices of the diagonal trend form an imaginary Resistance on the price-timeline chart, and the bottom prices of the diagonal trend form an imaginary Support on the same chart. These lines are different from Floors and Ceilings because they’re diagonal, not horizontal, but they’re used the same way as Floors and Ceilings: to predict where the price will reverse itself. We could call these price levels Floors and Ceilings, too. But it helps me to think of them differently. Trend lines are imaginary diagonal lines that form over a long time. Floor and Ceiling lines are imaginary horizontal lines that form over a short time. Floors and Ceilings and Trends can help us determine a better time to stockpile our business than the robot-like purchases of the MAC method. They help us pick our Stockpile Price and maximize our returns. Let’s take a look at Burlington Northern (BNI), for example (see graph below). BNI’s Trend, Floor, and Ceilings
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The bottom dashed upward line is the Support Line of this Trend. The top dashed line is called the Resistance Line. These lines do not appear on Yahoo! or MSN charts. I drew them. I just looked at the graph and saw there was a consistent Trend produced by Support and Resistance and drew the black diagonal dashed lines. You can see there is a long Support Line. The more often the price touches it and bounces off, the more solid the Support Line grows. From early 2004 until July 2007, the Trend was consistently upward on that Support Line. That Trend would have been well established by July 2005 because of the many times the price bumped against the Support Line from March 2004 until September 2004. I’m sure, given how clear this Support Line was, that traders were making trades using this Support Line from July 2004 onward. Each time the stock price came down from a previous high
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  • Spring '20
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