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5 Stock Charts You Need to See

Actavis

Pharmaceutical firm Actavis (ACT) is showing traders a similar pattern to Google's right now. But instead of converging support and resistance, Actavis' price action is getting "boxed in" by a rectangle pattern with horizontal resistance range above shares up the $130 level and horizontal support at $120. The trading implications are the same though: When ACT moves out of is rectangle pattern, it makes sense to take a position in the direction of the breakout.

>>4 Red-Flag Stocks to Sell This Summer

The existence of a resistance range, rather than a single price level, does make trading ACT slightly trickier, but not by much. More risk-hungry traders can step into a position on a move through $127, while risk-averse traders should wait until $130 gets creamed on the upside before jumping in.

Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, triangles, rectangles and the like are a good quick way to explain what's going on in this stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.

ACT's resistance level at $130 is a place where sellers have recently been more eager to keep selling than buyers have been to build a position in the stock. But a move through $130 indicates that buyers have finally gained enough steam to absorb all of the excess supply there. That's what makes it a buy signal.

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