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...
This behind closed doors secret about institutional traders will save you from being ambushed. This secret has saved me thousands of dollars and now I'm breaking my silence to show you how to do the same.
You are about to discover the unfair trading tactics that institutional and professional traders use against you in the stock market.
It might get you angry.
You may be so amazed and sickened that you simple refuse to believe what you are about to read in this article...
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 must define support and resistance and then look at in more depth what false breakouts really are.
Learning the how and why resistance lines and support lines form will help protect you against false breakouts.
When most traders buy and sell, they make an emotional commitment to their trade. Their emotions can keep a market trend going, or send it into a reversal.
When a stock takes a plunge, some of the crowd trading the stock will sell for a loss, some of the crowd will sell for a gain, and some of the crowd will hold on to their position.
A chart is really nothing more than the result of emotions coming from the crowd of people in that particular stock.
Emotions Are Why Support And Resistance Lines Form
If a trader is still holding on to the stock when the price claws back to his cost basis, he's likely going to sell. He has painful memories of being in this stock and wants to get out as quickly as possible. This selling will temporarily stop a rally. These painful memories are the reason why areas of support and resistance form.
For example, suppose a stocks falls from $30 down to $25 where it trades for a couple of weeks. The longer the $25 level holds, the more that believe $25 is support. Suddenly, after a couple of weeks of trading at $25, the stock falls down to $20. Smart traders will sell quickly and get out at $24 or $23. Amateur traders will hold on and sit through the entire painful decline. Some amateur traders will get out at $20. Other amateur traders who haven't given up at $20 will be the first to sell when the stock gets back up to $25. They will happily jump at the chance to "get out even." Their selling will temporarily stop a rally and form a resistance level.
Regret Is A Reason Why Support and Resistance Lines Form
Traders who discover a stock that has spiked up feel like they have "missed the gravy train". When the stock falls back to a certain level, the traders who felt regret at missing the first spike up are eager to jump in for a chance at a second spike up or upward move. Their buying forms a support level.
Take your stock chart and draw resistance and support lines at recent tops and bottoms. You should anticipate the trend to slow down at these levels. Use these support lines and resistance lines to either buy (at support) or to take profits (at resistance).
Warning: False Breakouts Are Caused By Institutional Traders
A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.
A false downside breakout happens when a stock falls below support. The bears jump in and short the stock. Suddenly the stock reverses and heads back up retaking the broken support level.
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.
All limit orders are displayed on the screens of Institutional traders. They have the exact number of buy orders above a given resistance level.
What institutional traders will do next is what is known in secret, behind closed door circles, as "running the stops". A false breakout occurs when the institutions organize a hunting expedition 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.
False breakouts will knock you out of a trade. But don't do what most amateur traders do which is to take a single run at a stock and once stopped out, go bipolar and say the stock is bad and never return. Obviously there was something you fundamentally liked about the stock in the first place and that has not changed. Professional traders will take several runs at a stock until finally nailing down the trade they want.
This behind closed doors secret about institutional traders will save you from being ambushed. This secret has saved me thousands of dollars and now I'm breaking my silence to show you how to do the same.
You are about to discover the unfair trading tactics that institutional and professional traders use against you in the stock market.
It might get you angry.
You may be so amazed and sickened that you simple refuse to believe what you are about to read in this article...
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 must define support and resistance and then look at in more depth what false breakouts really are.
Learning the how and why resistance lines and support lines form will help protect you against false breakouts.
When most traders buy and sell, they make an emotional commitment to their trade. Their emotions can keep a market trend going, or send it into a reversal.
When a stock takes a plunge, some of the crowd trading the stock will sell for a loss, some of the crowd will sell for a gain, and some of the crowd will hold on to their position.
A chart is really nothing more than the result of emotions coming from the crowd of people in that particular stock.
Emotions Are Why Support And Resistance Lines Form
If a trader is still holding on to the stock when the price claws back to his cost basis, he's likely going to sell. He has painful memories of being in this stock and wants to get out as quickly as possible. This selling will temporarily stop a rally. These painful memories are the reason why areas of support and resistance form.
For example, suppose a stocks falls from $30 down to $25 where it trades for a couple of weeks. The longer the $25 level holds, the more that believe $25 is support. Suddenly, after a couple of weeks of trading at $25, the stock falls down to $20. Smart traders will sell quickly and get out at $24 or $23. Amateur traders will hold on and sit through the entire painful decline. Some amateur traders will get out at $20. Other amateur traders who haven't given up at $20 will be the first to sell when the stock gets back up to $25. They will happily jump at the chance to "get out even." Their selling will temporarily stop a rally and form a resistance level.
Regret Is A Reason Why Support and Resistance Lines Form
Traders who discover a stock that has spiked up feel like they have "missed the gravy train". When the stock falls back to a certain level, the traders who felt regret at missing the first spike up are eager to jump in for a chance at a second spike up or upward move. Their buying forms a support level.
Take your stock chart and draw resistance and support lines at recent tops and bottoms. You should anticipate the trend to slow down at these levels. Use these support lines and resistance lines to either buy (at support) or to take profits (at resistance).
Warning: False Breakouts Are Caused By Institutional Traders
A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.
A false downside breakout happens when a stock falls below support. The bears jump in and short the stock. Suddenly the stock reverses and heads back up retaking the broken support level.
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.
All limit orders are displayed on the screens of Institutional traders. They have the exact number of buy orders above a given resistance level.
What institutional traders will do next is what is known in secret, behind closed door circles, as "running the stops". A false breakout occurs when the institutions organize a hunting expedition 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.
False breakouts will knock you out of a trade. But don't do what most amateur traders do which is to take a single run at a stock and once stopped out, go bipolar and say the stock is bad and never return. Obviously there was something you fundamentally liked about the stock in the first place and that has not changed. Professional traders will take several runs at a stock until finally nailing down the trade they want.
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