Memories, Pain, and Regret
Support and resistance exist because people have memories. Our memories prompt us to buy and sell at certain levels. Buying and selling by crowds of traders creates support and resistance. If traders remember that prices have recently stopped falling and turned up from a certain level, they are likely to buy when prices approach that level again.
If traders remember that an uptrend has recently reversed after rising to a certain peak, they tend to sell and go short when prices approach that level again. For example, all major rallies in the stock market from 1966 until 1982 ended whenever the Dow Jones Industrial Average rallied to 950 or 1050. The resistance was so strong that traders named it "A Graveyard in the Sky." Once the bulls rammed the market through that level, it became a major support area.
Support and resistance exist because masses of traders feel pain and regret. Traders who hold losing positions feel intense pain. Losers are determined to get out as soon as the market gives them another chance . Traders who missed an opportunity feel regret and also wait for the market to give them a second chance.
Feelings of pain and regret are mild in trading ranges where swings are small an losers do not get hurt too badly. Breakouts from trading ranges create intense pain and regret. When the market stays flat for a while, traders get used to buying at the lower edge of the rang and shorting at the upper edge. In uptrends, bears who sold short feel pain and bulls feel regret that they did not buy more. Both feel determined to buy if the market gives them a second chance. The pain of bears and regret of bulls make them ready to buy, creating support during reactions in an uptrend. Resistance is an area where bulls feel pain, bears feel regret, and both are ready to sell. When prices break down from a trading range, bulls who bought feel pain, feel trapped, and wait for a rally to let them get out even. Bears regret that they have not shorted more and wait for a rally to give them a second chance to sell short. Bulls pain and bears regret create resistance- a ceiling above the market in downtrends. The strength of support an resistance depends on the strength of feelings among masses of traders.
Support and resistance exist because people have memories. Our memories prompt us to buy and sell at certain levels. Buying and selling by crowds of traders creates support and resistance. If traders remember that prices have recently stopped falling and turned up from a certain level, they are likely to buy when prices approach that level again.
If traders remember that an uptrend has recently reversed after rising to a certain peak, they tend to sell and go short when prices approach that level again. For example, all major rallies in the stock market from 1966 until 1982 ended whenever the Dow Jones Industrial Average rallied to 950 or 1050. The resistance was so strong that traders named it "A Graveyard in the Sky." Once the bulls rammed the market through that level, it became a major support area.
Support and resistance exist because masses of traders feel pain and regret. Traders who hold losing positions feel intense pain. Losers are determined to get out as soon as the market gives them another chance . Traders who missed an opportunity feel regret and also wait for the market to give them a second chance.
Feelings of pain and regret are mild in trading ranges where swings are small an losers do not get hurt too badly. Breakouts from trading ranges create intense pain and regret. When the market stays flat for a while, traders get used to buying at the lower edge of the rang and shorting at the upper edge. In uptrends, bears who sold short feel pain and bulls feel regret that they did not buy more. Both feel determined to buy if the market gives them a second chance. The pain of bears and regret of bulls make them ready to buy, creating support during reactions in an uptrend. Resistance is an area where bulls feel pain, bears feel regret, and both are ready to sell. When prices break down from a trading range, bulls who bought feel pain, feel trapped, and wait for a rally to let them get out even. Bears regret that they have not shorted more and wait for a rally to give them a second chance to sell short. Bulls pain and bears regret create resistance- a ceiling above the market in downtrends. The strength of support an resistance depends on the strength of feelings among masses of traders.
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