Trade Price Response

The setting up of a trade which is based upon what the price of a security does once it reaches a certain critical level. After the security has to reacted the level, the security's positive or negative reaction is used to set up trades. Traditionally, the critical levels are areas of resistance or support for the security.

For example, say that the $25 level of a stock has been an important level of resistance, and it has had difficulty in moving above that level several times. A trade price response would be the setting up of a trade based on what the price does once it again reaches the $25 level. If the an upward move toward this level were to slow, a trader may enter a short position on the stock as the price has again failed to move above the level. On the other hand, if the price moved above the $25 level a trader may enter a long position in anticipation that the price will head higher after breaking through this critical level of resistance.