Stock Market 101: Staying Clear Of Professional Traders
Posted by
patrick
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.
Institutional traders use dirty tactics in the stock market that are so bad, they should be illegal.
After reading this article, these dirty tricks might make 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 very thankful you did in the long run.
Because you will learn an entirely new way of looking at the stock market and in particular 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 stocks fall, a few traders will exit their position and take profits, a few traders will exit their position for a loss, and a few traders will stay in their position and hold on.
Everything you see on a chart is the result of emotions coming from the crowd of people trading that stock.
The Main Reason Support And Resistance Lines Form Is From Pain
If a trader is holding on to a stock and hoping that it is going to come back, and it finally does, she is probably going to sell that stock. Staying in that loser of a stock is just too painful as she laments her entry. This selling to relieve the pain will momentarily stop a rally. These painful memories are precisely why support lines and resistance lines form at certain price levels.
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.
Resistance Lines and Support Lines Form From The Emotion Of Regret
Traders whose stock screener has alerted them to a stock that has spiked up will feel regret because they missed the move. If the stock retraces, they will quickly buy the stock for a chance at a second move up. This regret then excitement causes buying which forms a support level.
Whenever you work with a chart, draw support and resistance lines across recent tops and bottoms. Expect a trend to slow down in those areas, and use them to enter positions or take profits.
False Breakouts Are Caused By Institutional Traders
When the market rises about resistance and pulls in new buyers and then suddenly reverses and falls back below that resistance, this is called a false breakout.
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.
Stocks that have a high percentage of institutional ownership often form false breakouts.
Institutional traders cause these false breakouts to make a ton of money off amateur traders.
Institutional traders can see all the limit orders for a given security. You and I do not have access to this information. They know exactly how many buy orders are waiting to be automatically executed above a certain resistance level.
Institutional traders engage in what is called "running the stops". False breakouts happen when Institutional traders organize hunting parties 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.
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.
After reading this article, these dirty tricks might make 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 very thankful you did in the long run.
Because you will learn an entirely new way of looking at the stock market and in particular 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 stocks fall, a few traders will exit their position and take profits, a few traders will exit their position for a loss, and a few traders will stay in their position and hold on.
Everything you see on a chart is the result of emotions coming from the crowd of people trading that stock.
The Main Reason Support And Resistance Lines Form Is From Pain
If a trader is holding on to a stock and hoping that it is going to come back, and it finally does, she is probably going to sell that stock. Staying in that loser of a stock is just too painful as she laments her entry. This selling to relieve the pain will momentarily stop a rally. These painful memories are precisely why support lines and resistance lines form at certain price levels.
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.
Resistance Lines and Support Lines Form From The Emotion Of Regret
Traders whose stock screener has alerted them to a stock that has spiked up will feel regret because they missed the move. If the stock retraces, they will quickly buy the stock for a chance at a second move up. This regret then excitement causes buying which forms a support level.
Whenever you work with a chart, draw support and resistance lines across recent tops and bottoms. Expect a trend to slow down in those areas, and use them to enter positions or take profits.
False Breakouts Are Caused By Institutional Traders
When the market rises about resistance and pulls in new buyers and then suddenly reverses and falls back below that resistance, this is called a false breakout.
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.
Stocks that have a high percentage of institutional ownership often form false breakouts.
Institutional traders cause these false breakouts to make a ton of money off amateur traders.
Institutional traders can see all the limit orders for a given security. You and I do not have access to this information. They know exactly how many buy orders are waiting to be automatically executed above a certain resistance level.
Institutional traders engage in what is called "running the stops". False breakouts happen when Institutional traders organize hunting parties 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.
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 visit stock market
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