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False Breakouts – The Trap Set by Institutional Investors

i-hate-breakouts

If you’ve ever playing sports, one of the things coaches are supposed to tell you is to separate your emotions from the game.  “Have an even keel,” athletes are told.  Don’t get too high, don’t get too low.  If you make an error or cost the team the game, shake it off.  Don’t dwell on it. 

Because ultimately, those who succeed don’t harp on tiny mistakes – they emotionally separate themselves from the task at hand.

Of course, every day we see athletes who wear their emotions on their sleeve, but the main point still resonates: keep your emotions in check.

This lesson, one would think, would be embraced by traders, but the exact opposite is true: the entire stock market is predicated on emotion.  If a trader sees a stock price inching back towards his cost basis, emotion takes over, and he’ll sell.  This action is replicated countless times and in the process, forms resistance lines that kills a rally.

When the market rises above resistance and lures buyers in, we get a false upside breakout.  When prices fall below support, attracting bears, we get a false downside breakout.  Institutional traders rarely avoid (Read More….)

Day Trading Wedges are Predictors of Performance

day-trading-wedge

About ten years ago, there was a really cool movie called “Pi.”  Sadly – but perhaps not surprisingly – it sunk without a trace.  But the premise of “Pi” is pretty nifty: a genius named Max finds that stock market trends can be revealed in – you guessed it – the Bible.  Kind of like a Dan Brown-meets-Warren Buffet thriller.

As you can guess, there are bad guys in the movie – the suits – and the movie is one big action sequence as Max tries to elude his pursuers while simultaneously unlocking the financial revelations in the 4,000-year-old text.

The good news is you don’t need to pour over the Old Testament or incur the wrath of faceless, murderous plutocrats to make money by studying patterns and trends in the stock market. 

Day trading wedges, for example, identify classic bullish and bearish patterns.  These are patterns that have been seen over time and bring with it, for a lack of a better term, an associated science to it.  Other patterns are less definitive, where it would be premature to determine if they are bullish or bearish.

(Read More….)