The Dirty Tricks Of Professional Traders 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 little known secret has saved me thousands of dollars and now I'm going to share it with you.
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.
It may even make you want to close this page and forget you saw it...
But I'll make you a promise - stick with it, hear me out...
And you will be happy you did.
Because by the time you finish this article you'll have a whole new method for avoiding false breakouts...
First I will talk about what support and resistance lines REALLY are, and then I'll talk about false breakouts.
Seeing why support lines and resistance lines form will help you learn how to better protect yourself 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 falls, some traders jump out and book profits, some traders jump out and take losses, and some traders hold on.
A chart is really nothing more than the result of emotions coming from the crowd of people in that particular stock.
Pain Is the #1 Reason 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.
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 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).
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 happens when a stock falls below support, attracting more bears just before a rally.
All stocks are fair game but especially any stock that has a high percentage of institutional ownership.
Institutional traders love causing false breakouts because this is where they make the most of their money.
Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.
Institutional traders have a secret practice they call "running the stops". A false breakout happens when institutions engage in hunting expeditions to run stops.
Take the following example: when a stock is just under resistance at $20, the buy limit orders come flowing in near $18.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $18.50. They calculate that the stock will run to $21 if all the buy limit orders at $18.50 are executed. They short the stock at $20 to push it down to $18.50. At $18.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $21. 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 $20. A false upside breakout will show on your chart.
If you get stopped out on a false breakout, dont be shy about getting back into a trade. Beginners tend to make a single stab at a position and stay out if they are stopped out. Professionals, on the other hand, will attempt several entries before nailing down the trade they want. - 23217
This little known secret has saved me thousands of dollars and now I'm going to share it with you.
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.
It may even make you want to close this page and forget you saw it...
But I'll make you a promise - stick with it, hear me out...
And you will be happy you did.
Because by the time you finish this article you'll have a whole new method for avoiding false breakouts...
First I will talk about what support and resistance lines REALLY are, and then I'll talk about false breakouts.
Seeing why support lines and resistance lines form will help you learn how to better protect yourself 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 falls, some traders jump out and book profits, some traders jump out and take losses, and some traders hold on.
A chart is really nothing more than the result of emotions coming from the crowd of people in that particular stock.
Pain Is the #1 Reason 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.
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 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).
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 happens when a stock falls below support, attracting more bears just before a rally.
All stocks are fair game but especially any stock that has a high percentage of institutional ownership.
Institutional traders love causing false breakouts because this is where they make the most of their money.
Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.
Institutional traders have a secret practice they call "running the stops". A false breakout happens when institutions engage in hunting expeditions to run stops.
Take the following example: when a stock is just under resistance at $20, the buy limit orders come flowing in near $18.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $18.50. They calculate that the stock will run to $21 if all the buy limit orders at $18.50 are executed. They short the stock at $20 to push it down to $18.50. At $18.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $21. 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 $20. A false upside breakout will show on your chart.
If you get stopped out on a false breakout, dont be shy about getting back into a trade. Beginners tend to make a single stab at a position and stay out if they are stopped out. Professionals, on the other hand, will attempt several entries before nailing down the trade they want. - 23217
About the Author:
Written by Steve Wyzeck. To discover more stock trading secrets they do not want you to know about visit stock market
posted by X - Men @ 7:12 AM
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