What To Know: Many analysts and investors look at the charts. However, many of them don’t understand what they should be looking for.
If applied correctly, chart analysis is an illustration of the supply and demand dynamics in a given market. An awareness of these dynamics will lead to more profitable trading.
Buyer’s remorse is very common in the stock market. Investors who buy stocks that go down regret doing so. A number of these investors decide to sell.
However, they’re reluctant to take a loss. They will sell, but only if they can get the same price they paid for the shares.
As a result, sell orders are placed at levels that were previously support. If there are enough of these sell orders, the level could turn into resistance.
This simple concept is the key to understanding many chart patterns.
Why It’s Important: In early February, $12.05 was support for BlackBerry. But on Feb. 17, shares fell through this level.
Many of the buyers who paid $12.05 thought they made a mistake. They decide to sell and they place their orders at $12.05. This caused the level to be resistance in late February and early March.
Then the same thing happened with the $9.50 level. Buyers who paid $9.50 were profiting when the stock rallied back up to $12.05.
At the end of March, shares fell through this support. A number of the now remorseful buyers decide to sell, but they will only do so if they can get the same price they paid.
As a result, they place their sell orders at $9.50. This is why $9.50 is now a resistance level. These sellers could put a halt to a rally.
The same thing has occurred with Canaan. In this case, the buyers paid $15.50. These buyers are now trying to sell at $15.50. This is why it’s now a resistance level.
The $3.95 level was support for Express through the end of March and into early April. If shares rally and make it back up to $3.95, there’s a good chance they will hit resistance. That could put a top on any future rally.
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