Resistance and Common Sense Trading
W. Henry Ford II

Resistance is so simple that a 7th grader could understand it, but over 50% of the
brokers out there do not know how it is formed or how to calculate it. If you do not
already know, I will inform you in a moment.

First: Most traders look at a stock that was recently trading at $43 and is now down to
$17, and say" WOW what a bargain! I'll buy in! ". This trader is hoping that it will
soon climb back to it's prior trading range(unlikely).

In our eyes this is a big mistake. Traders that buy on this mentality are often
referred to as "Bottom Fishers". If this stock was at $48, and is now at $17 there is
something desperately wrong with this stock. It most likely isn't a good buy. It has
decreased over 50% in the last 9 months. Despite these obvious facts, people buy in
to this everyday.

HOW IS RESISTANCE FORMED?:

Let's say XYZ sock is at $32. It is a good stock so a large number of traders buy it at
$32. Then the stock drops to $27.

YOU NOW HAVE OVERHEAD RESISTANCE!

The resistance is at $32. You have a large number of stockholders that bought this stock at $32, and are looking at a loss. They are now waiting for the stock to get back to $32 at which
point they will quickly dump it to break even. Thus causing a sudden drop in the
stocks price. This is not a scenario that we would like to buy in to, but traders still do
it everyday!

WE NEVER BUY STOCKS WITH OVERHEAD RESISTANCE!

This is the reason that we only buy stocks that are at a NEW HIGH. Stocks that are at
a NEW HIGH do NOT have any overhead resistance.

This is very simple stuff, but if everyone reading this article was to call their
broker and ask:" What is resistance, and how is it calculated?" I bet that 40% of the
brokers would not be able to give any kind of legitimate answer. I know because I
talk to brokers everyday who use our system, and I can hear them slapping their
heads!

There are many traps that an investor can encounter while searching for a "Deal".
I am fortunate to have a father who devoted the better part of his life to the
development of the stock investment systems that I trade today.

For more information on the systems, and indicators that Henry Ford I Has
developed, visit the Pitbull Investor Website: http://www.wwfn.com/pitbull.html