Unleashed on the individual trader for the first time…if you keep getting sniped by false breakouts 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.

You’re about to learn a low down dirty trick that institutional traders use against you.

It may upset you. It may piss you off.

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 I promise you you’ll be glad 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.

Knowing WHY support and resistance lines work will help you 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.

Everything you see on a chart is the result of emotions coming from the crowd of people trading that 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.

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.

Regret is the #2 Reason Why Support and Resistance Lines Form

Traders who come across a stock that has spiked up feel as if they have “missed the train.” If the stock drops back to a certain level, these traders who feel regret for missing the first move will jump at a chance for a second move. Their buying 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.

Warning: False Breakouts Are Caused By Institutional Traders

A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.

A false downside breakout occurs when prices fall 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.

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.

Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.

What institutional traders will do next is what is known in secret, behind closed door circles, as “running the stops”. A false breakout occurs when the institutions organize a hunting expedition to run stops.

For example, when a stock is slightly below its resistance at $30, the buy limit orders come flowing in near $28.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $28.50. They calculate that the stock will run to $31 if all the buy limit orders at $28.50 are executed. They short the stock at $30 to push it down to $28.50. At $28.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $31. 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 $30. That’s when your chart shows a false upside breakout.

If you get stopped out on a false breakout, don’t 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.

I hope you enjoyed this article. Leave any comments you might have below. Thank you and happy improved trading.

Lance Jepsen
President, GuerillaStockTrading.com
Your Trading Coach
(because everyone, even Tiger Woods, needs a coach)