Regarding false breakouts….. Why they are so strong and what is the psychological phenomena behind it?A level, say 1000 has been acting as a stiff resistance for a scrip and lot of people watch out for this level…….During the day, say it reaches 995….Now it goes like this.
1. There are a lot of bears sitting at 1000 to sell because they know that’s where the scrip has resistance or in other words last time the price went down when it reached that point.
2. There are bulls ( including amateurs) who want to buy @ 1000 and many have already placed an advance order say just above 1000.
3.There are Big pockets who are ready with small size orders to test who is strong at that resistance level ( testing whether enough bears are there at 1000).
4.Professionals who are just waiting by the side like jackals waiting for either
1.Retest of breakout or
2.Breakout failure.
Now people mentioned in number 3 puts the order through 1000 to test the bears…..Now say it reaches 1110…..all the advance long orders sitting at 1000-1110 gets caught. Amateurs also join the league because they can’t “Miss” something.Now what ? the bears who are sitting at 1000 sell heavily. The price goes down. Now big bulls who have put sample orders come to know that there are enough bears and they keep quiet. Remember bulls have put very small size ( sample like) orders.
Now the people who have gone long on breakout, wait thinking that prices will comeback. To their dismay there is no followup since big bulls have gone quiet.(Price to make higher highs needs volume and follow-up.).Now price keeps on declining and the panic sets in.Go to previous post and see the place marked as no 10 in the chart.Now comes professionals who have been sitting on the banks looking at the ongoing TAMASHA.
Now along with bears, who are selling heavily ,the people who have gone long on breakout upside, also start selling in panic.the velocity of fall in the price increases……….Remember fear is a greater force than greed. Thay’s why false breakouts are powerful in daytrading .They happen every now and then.
Has any book taught this to you?
vice versa for failed breakdown.
Bulls have not lost because of sample orders…..
Bears have made money……
Professionals have made money……
Only amateurs gets beaten up….
Example…..
thanks raghav….I didnt think that…yesterday I thought its normal reversal…but now I realize from your post that it is a breakout failure…after gap filled its immediately comes down…but my problem is that all these realization I got afteer EOD…not in live chart…hope fully with experince I will be master in charts like you do
thanks again and waiting to see how tomorrow homework you do…I learn a lot after seeing your homework..
Thank you Raghav. Will definitly put more effort on it.