Unleashed on the individual trader for the first time...if you keep getting sniped by false breakouts in the stock market and are losing money, this article could change your stock trading forever...
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.
Institutional traders use dirty tactics in the stock market that are so bad, they should be illegal.
It might get you angry.
It may even make you want to close this page and forget you saw it...
Read this entire article...
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...
We need to look at what support and resistance lines are and they what false breakouts are.
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.
What you see on a chart is the emotional commitment, or lack thereof, coming from the crowd that is trading that stock.
Pain Is the #1 Reason Why Support and Resistance Lines Form
If someone trading a stock is still holding that stock when the price finally comes back to their cost basis, they are likely going to sell. It is painful to be in this stock and the trader simply wants to get out. This pain relief will temporarily stop a rally. These painful memories are why support and resistance lines 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.
Support and Resistance Lines Are Caused By Regret
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 breakout or false upside breakout is when the price breaks through resistance which causes buyers to come in, and then suddenly reverses and falls back down below the resistance breakout level.
A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.
Stocks that have a high percentage of institutional ownership often form false breakouts.
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.
Institutional traders have a secret practice they call "running the stops". A false breakout happens when institutions engage in hunting expeditions to run stops.
I will use an example so you can better understand what "running the stops" is. Let us say that a stock is below its resistance level at $10, the buy limit orders come flowing in near $8.50. Institutional traders can see these buy limit orders. They figure a calculation called the liquidity ratio which reveals how much a given stock will go up if all buy limit orders are executed at $8.50. They figure out that the stock will run to $11 if all the buy limit orders at $8.50 are executed. They then short the stock at $10 to force it down to $8.50 (they can do this because they have most of the money and can manipulate a market with their buying or selling power). At $8.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $11. 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 $10. 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. - 23309
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.
Institutional traders use dirty tactics in the stock market that are so bad, they should be illegal.
It might get you angry.
It may even make you want to close this page and forget you saw it...
Read this entire article...
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...
We need to look at what support and resistance lines are and they what false breakouts are.
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.
What you see on a chart is the emotional commitment, or lack thereof, coming from the crowd that is trading that stock.
Pain Is the #1 Reason Why Support and Resistance Lines Form
If someone trading a stock is still holding that stock when the price finally comes back to their cost basis, they are likely going to sell. It is painful to be in this stock and the trader simply wants to get out. This pain relief will temporarily stop a rally. These painful memories are why support and resistance lines 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.
Support and Resistance Lines Are Caused By Regret
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 breakout or false upside breakout is when the price breaks through resistance which causes buyers to come in, and then suddenly reverses and falls back down below the resistance breakout level.
A false downside breakout occurs when prices fall below support, attracting more bears just before a rally.
Stocks that have a high percentage of institutional ownership often form false breakouts.
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.
Institutional traders have a secret practice they call "running the stops". A false breakout happens when institutions engage in hunting expeditions to run stops.
I will use an example so you can better understand what "running the stops" is. Let us say that a stock is below its resistance level at $10, the buy limit orders come flowing in near $8.50. Institutional traders can see these buy limit orders. They figure a calculation called the liquidity ratio which reveals how much a given stock will go up if all buy limit orders are executed at $8.50. They figure out that the stock will run to $11 if all the buy limit orders at $8.50 are executed. They then short the stock at $10 to force it down to $8.50 (they can do this because they have most of the money and can manipulate a market with their buying or selling power). At $8.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $11. 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 $10. 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. - 23309
About the Author:
Written by Steve Wyzeck. When are you finally going to get tired enough of losing money in the stock market to do something about it? To make money stock trading go to stock market
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