Stock market commentary, analysis, insight and opinion of the RightLine Editors is available every Tuesday/Thursday evening & Saturday
afternoon. The following is excerpted from the:
August 22, 2019 - The RightLine Report
Notes From The Editor
One measure of a trader's strength is the ability to adapt quickly - both mentally and emotionally. This often means preparing for potential price reversals that other market participants are completely unaware of.
Much of the daily price movement in the market results from shorter-term traders who base their buy and sell decisions on a completely different set of guidelines than the average investor. While investors spend most of their time watching the action from the sidelines, traders move in and out of stocks at a faster pace.
This group of traders anticipate potential reversals, knowing that once a chosen market or stock stops moving in one direction, the crowd is forced to make a decision. They can get in, get out, stay in, or stay out. No matter what the majority chooses to do, those choices will begin to move the market in one direction or the other. More traders will then jump into the short-term trend, adding to momentum and creating a snowball effect.
When stocks fall hard and fast, price movement quickly reaches a point where traders decide to take profits. Since many use support and resistance levels to determine where to enter and exit short-term positions, it isn't unusual to see stocks that had been headed in one direction suddenly stop and reverse at these junctions.
This is one reason traders should take a look at the Technical Analyst section of the RL Report when planning and managing positions. Speaking from experience, a bit of homework certainly helps traders who trade bounces prepare for the ride.
- Thomas Sutton, Editor
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