The Dirty Tricks Of Professional Traders In The Stock Market
by Steve Wyzeck
Are you losing money in the stock market because of false breakouts? This article could completely turn around your trading…
This little known secret has saved me thousands of dollars and now I’m going to share it with you.
You are 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…
Read this entire article…
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.
Learning the how and why resistance lines and support lines form will help protect you 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 takes a plunge, some of the crowd trading the stock will sell for a loss, some of the crowd will sell for a gain, and some of the crowd will hold on to their position.
A chart is really nothing more than the result of emotions coming from the crowd of people in that particular 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 A Reason Why Support and Resistance Lines Form
Traders who discover a stock that has spiked up feel like they have “missed the gravy train”. When the stock falls back to a certain level, the traders who felt regret at missing the first spike up are eager to jump in for a chance at a second spike up or upward move. Their buying forms a support level.
Take your stock chart and draw resistance and support lines at recent tops and bottoms. You should anticipate the trend to slow down at these levels. Use these support lines and resistance lines to either buy (at support) or to take profits (at resistance).
Institutional Traders Cause False Breakouts
A false upside breakout occurs when the market rises above resistance and sucks in buyers before reversing and falling.
A false downside breakout happens when a stock falls below support, attracting more bears just before a rally.
Any stock chart can form false breakouts but be especially careful of any stock that has a high percentage of institutional ownership.
Institutional traders cause these false breakouts to make a ton of money off amateur traders.
Institutional traders have access to all limit orders. They know how many more buy orders are above a resistance level.
Institutional traders engage in what is called “running the stops”. False breakouts happen when Institutional traders organize hunting parties to run stops.
Take the following example: when a stock is just under resistance at $20, the buy limit orders come flowing in near $18.50. The institutions calculate the liquidity ratio which measures how much the stock will go up if all buy limit orders are executed at $18.50. They calculate that the stock will run to $21 if all the buy limit orders at $18.50 are executed. They short the stock at $20 to push it down to $18.50. At $18.50 they cover their short position and go long as the wave of buy orders are automatically executed pushing the stock up to $21. 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 $20. A false upside breakout will show on your chart.
If you are knocked out of a trade because of a false breakout, do not be afraid to get back into the stock. Amateurs usually make a single run at a stock and stay out if they are stopped out. Professional traders will make several runs at a stock before nailing down the trade they want.
About the Author:
Written by Steve Wyzeck. To people who want to profitably trade but can not get started visit
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