Target Practice with BetterTrades
I often use analogies to teach principles and I have often said that you can't throw a pile of lumber off a cliff and have it land in the shape of a house. Stocks,
audio headphones reviews, indices and commodities charts can look random and erratic but there is usually a pattern hidden in there. From the right perspective those random and erratic movements can suddenly take on powerfully precise and rhythmic symmetry.
As I train folks to read charts I regularly demonstrate the charting wizardry of seemingly drawing lines that seem to control the subsequent movement of the stock. This is definitely not the case although it looks that way at times. In reality when I draw such a line, I am simply drawing it in the same place that those who have the ability to manipulate price activity have drawn it. These support lines and resistance lines seem to repeatedly bounce price movement like pinball bumpers.
Now that raises issues that I will address in detail at another time but simply put, there are certain traders in every market that have the ability to influence price action. That influence is felt buy large volume buying or selling at certain prices that if followed by the public can send stocks off in the direction of the next support or resistance. While many investors and traders look at charts, the masses do not chart, the masses follow momentum. It is a small group of skilled and influential traders who do chart and who have the ability to spark momentum shifts that are largely responsible for the symmetry and patterns in the markets. Again, pattern symmetry and rhythm is the subject today. The "Player" and their influence will be another discussion.
Finding the rhythm can be difficult for beginner and veterans alike. While it takes some real effort,
buy asics shoes, recognizing support and resistance is actually the easy part. Determining which support or resistance line has priority and is likely to be the next target is much more difficult. As with many challenges,
asics womens shoes, it requires some guidelines to begin with and a lot of practice but in the end it will make sense and when that happens it will seem easy.
I will address the b
asics of targeting in trends and trading ranges. This is a short version of a lengthy discussion.
TRENDS
A trend is a series of rising or falling tops and bottoms. In an uptrend the bottom or support line is the defining line and the top or resistance line is a reference point that will be a guide. The resistance is the defining line on a down trend and the support is the reference line. In an uptrend rallies are tested by partial retracements followed by higher rallies. Typical pattern behavior suggests that most patterns will repeat 3-5 times before the pattern breaks down.
When an uptrend pattern breaks, it may take several weeks for a new pattern to materialize. However those traders who are influencing a particular stock or market are not drifting aimlessly. Rather they have shorted the stock and are watching for the next significant price level where the market sentiment can be tested. This testing happens at places that are likely to illicit support from the public i. e. a previous rally. This behavior pattern can keep you trading the stock and anticipating the next support and resistance line even though a new pattern may be weeks in the making.
FALLING DOWN
When an uptrend breaks the next likely support will be the last major rally of the uptrend. Here BEAS is settling down on a very likely support line. $9. 00 was a significant rally point in December that produced a 4 point gain in 2 weeks. This will be tested by some buying to see if the public will rally the stock at this price. If there is not a robust response, BEAS will be shorted again to help drive it down and when it gets to $7. 90 there will likely be another test to see if buying support can be drummed up there. If the market is down and or there is no good news, BEAS could slide on down to the beginning of the original run up at which point it is extremely likely that those who bought the stock in September / October will rush in again to claim scoop up the bargain. Those who missed the last run up will want to make sure they don't miss this one.
CLIMBING OUT
When a down trend breaks to the upside the objective is to test previous failed rallies. The idea is that those prices represented major bloodshed to many investors and traders. Will the market buying sentiment remember the scene of the accident? Will they push on up anyway or will they shy away and pull back? This is a real sentiment. The major traders will test the markets resolve to buy up the price and if it shows weakness they will sell and short the stock. If the rally buckles and falters they will sell more to send it down. The degree that the public panics and follows suit will determine the support level that they will came back in at. The previous rally point fosters good memories and may draw the crowd back to the buying table.
Some former high flyers have been beaten down and fallen out of favor with the public. They no longer have upbeat news or the sector is out of rotation so they have settled into a long term support level. Here they will wait for good news or a general market upswing. When the fare winds blow again,
mens nike dunk shoes, their sails will fill and there will be a series of targets used to test the commitment of the public buyers on the climb out. These tests can be a brief pause on an upwards drive or a few days of indecision or a mugging that sends the buyer packing to the starting point.
HGSI is a member of the Bio Genetic club and has fallen on hard times. They have not stopped doing research into the genetically engineered drugs and further mapping the human genetic roadmap. They simply were caught in a hysterical market run up with fascinating news. They did not have product yet to back up their potential and like so many others have cratered. Nothing has changed about their potential and what are doing and may do. When the market wakes up so will the speculation of their future contributions to medicine and science. In the wake of the market winnowing they are back to the valuation they carried before they showed all this potential. The speculators in Biogenetics are salivating at these price levels but waiting for an "All Clear" signal from the geopolitical stage.
THE BIG PICTURE
Even the long term picture fits nicely into pattern. IVGN traded into a pennant wedge over an 18 month time frame. When it broke to the down side it did it with a gap. The gap dropped right to the first good rally point. It held for a few days but the public buying support was weak and so it was followed by a news driven gap to the opening (mouth) of the wedge.
In a candlestick chart we see that there were several other visits to this support line. The drop and attempt to hold was first at two previous knife point dips. Failing to hold there it settled down to a solid support line where it waits
today for the fare winds to blow again.
SUMMARY
There is a method to the madness. The major traders have too much money on the line to leave it to chance. They need the public sentiment to help them make money in the runs up and down but they test the rallies for strength and prime the pump at support. If it is strong they join in and throw some gas on the fire. If not they short it down to the next level. It is not an exact science as the masses are not perfectly manipulated but human nature is predictable enough that those who understand it and have enough money can create some very nice predictable patterns by nudging the market until it moves and then flowing with it until it is ready to change directions and then nudging it the other way. No Dorothy, we not in Kansas any more and piles of lumber don't land in the shape of houses.
FIND THE PATTERN AND PLAY IT UNTIL IT BREAKS
See you in class. "Two Days of Trading" is where you will learn to read the charts and see the patterns better than anywhere else. You will also train in a trading environment and you will become a better trader!!!
Ryan Litchfield with Better TradesContent Source: Free Article on BetterTrades Options Strategies were you can learn about Trading for Better TradesTopics related articles：
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