Swim Clear Of The Sharks In The Stock Market
Are you losing money in the stock market because of false breakouts? This article could completely turn around your trading...
I am going to tell you a stock trading secret that is so powerful, it will save you thousands of dollars. I should know, that is how much it saved me.
Institutional traders use dirty tactics in the stock market that are so bad, they should be illegal.
It may upset you. It may piss you off.
It may even make you want to close this page and forget you saw it...
But you need to know what they are doing...
And I promise you you'll be glad you did.
Because by the time you finish this article you'll have a whole new method for avoiding false breakouts...
We need to look at what support and resistance lines are and they what false breakouts are.
Knowing WHY support and resistance lines work will help you protect yourself against false breakouts.
When traders buy and sell a stock, they commit emotion to the trade. It is their emotions that will keep a market trending higher or send it into a reversal.
When stocks fall, a few traders will exit their position and take profits, a few traders will exit their position for a loss, and a few traders will stay in their position and hold on.
What you see on a chart is the emotional commitment, or lack thereof, coming from the crowd that is trading that stock.
Pain Is the #1 Reason Why Support and Resistance Lines Form
If someone trading a stock is still holding that stock when the price finally comes back to their cost basis, they are likely going to sell. It is painful to be in this stock and the trader simply wants to get out. This pain relief will temporarily stop a rally. These painful memories are why support and resistance lines form.
I am going to give you an example so you can better comprehend what I am talking about here. Say a $40 stock sells off and falls to $35. It then stays at $35 for several weeks. Traders get confident that $35 is "the bottom" the longer this level holds. A trader finally buys the stock at $35. Right after buying, the stock drops to $32. Seasoned traders would have set their stop loss right under the $35 level and so would have exited around $34. Amateur traders will stay in their position refusing to take a loss. They will hold this losing position until the stock finally comes back to $35 where they entered. They eagerly jump at the chance to "get out even". This "get out even" selling will temporarily stall a rally and cause a resistance level to form.
Regret Is A Reason Why Support and Resistance Lines Form
Traders who come across a stock that has spiked up feel as if they have "missed the train." If the stock drops back to a certain level, these traders who feel regret for missing the first move will jump at a chance for a second move. Their buying forms a support level.
Whenever you work with a chart, draw support and resistance lines across recent tops and bottoms. Expect a trend to slow down in those areas, and use them to enter positions or take profits.
Institutional Traders Cause False Breakouts
A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.
A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.
Any stock chart can form false breakouts but be especially careful of any stock that has a high percentage of institutional ownership.
False breakouts provide institutional traders with most of their best trading opportunities which is why institutional traders most often are the ones who cause these patterns to form in charts.
Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.
Institutional traders engage in what is called "running the stops". False breakouts happen when Institutional traders organize hunting parties to run stops.
For example, when a stock is slightly below its resistance at $30, the buy limit orders come flowing in near $28.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $28.50. They calculate that the stock will run to $31 if all the buy limit orders at $28.50 are executed. They short the stock at $30 to push it down to $28.50. At $28.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $31. If greedy traders start piling in, the institutional trader will stay long the trade. As soon as the buy orders start drying up, they sell short and the price falls back below $30. That's when your chart shows a false upside breakout.
If you are knocked out of a trade because of a false breakout, do not be afraid to get back into the stock. Amateurs usually make a single run at a stock and stay out if they are stopped out. Professional traders will make several runs at a stock before nailing down the trade they want. - 23222
I am going to tell you a stock trading secret that is so powerful, it will save you thousands of dollars. I should know, that is how much it saved me.
Institutional traders use dirty tactics in the stock market that are so bad, they should be illegal.
It may upset you. It may piss you off.
It may even make you want to close this page and forget you saw it...
But you need to know what they are doing...
And I promise you you'll be glad you did.
Because by the time you finish this article you'll have a whole new method for avoiding false breakouts...
We need to look at what support and resistance lines are and they what false breakouts are.
Knowing WHY support and resistance lines work will help you protect yourself against false breakouts.
When traders buy and sell a stock, they commit emotion to the trade. It is their emotions that will keep a market trending higher or send it into a reversal.
When stocks fall, a few traders will exit their position and take profits, a few traders will exit their position for a loss, and a few traders will stay in their position and hold on.
What you see on a chart is the emotional commitment, or lack thereof, coming from the crowd that is trading that stock.
Pain Is the #1 Reason Why Support and Resistance Lines Form
If someone trading a stock is still holding that stock when the price finally comes back to their cost basis, they are likely going to sell. It is painful to be in this stock and the trader simply wants to get out. This pain relief will temporarily stop a rally. These painful memories are why support and resistance lines form.
I am going to give you an example so you can better comprehend what I am talking about here. Say a $40 stock sells off and falls to $35. It then stays at $35 for several weeks. Traders get confident that $35 is "the bottom" the longer this level holds. A trader finally buys the stock at $35. Right after buying, the stock drops to $32. Seasoned traders would have set their stop loss right under the $35 level and so would have exited around $34. Amateur traders will stay in their position refusing to take a loss. They will hold this losing position until the stock finally comes back to $35 where they entered. They eagerly jump at the chance to "get out even". This "get out even" selling will temporarily stall a rally and cause a resistance level to form.
Regret Is A Reason Why Support and Resistance Lines Form
Traders who come across a stock that has spiked up feel as if they have "missed the train." If the stock drops back to a certain level, these traders who feel regret for missing the first move will jump at a chance for a second move. Their buying forms a support level.
Whenever you work with a chart, draw support and resistance lines across recent tops and bottoms. Expect a trend to slow down in those areas, and use them to enter positions or take profits.
Institutional Traders Cause False Breakouts
A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.
A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.
Any stock chart can form false breakouts but be especially careful of any stock that has a high percentage of institutional ownership.
False breakouts provide institutional traders with most of their best trading opportunities which is why institutional traders most often are the ones who cause these patterns to form in charts.
Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.
Institutional traders engage in what is called "running the stops". False breakouts happen when Institutional traders organize hunting parties to run stops.
For example, when a stock is slightly below its resistance at $30, the buy limit orders come flowing in near $28.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $28.50. They calculate that the stock will run to $31 if all the buy limit orders at $28.50 are executed. They short the stock at $30 to push it down to $28.50. At $28.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $31. If greedy traders start piling in, the institutional trader will stay long the trade. As soon as the buy orders start drying up, they sell short and the price falls back below $30. That's when your chart shows a false upside breakout.
If you are knocked out of a trade because of a false breakout, do not be afraid to get back into the stock. Amateurs usually make a single run at a stock and stay out if they are stopped out. Professional traders will make several runs at a stock before nailing down the trade they want. - 23222
posted by X - Men @ 3:29 AM
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