Charting Secrets by Louise Bedford

Author:Louise Bedford
Language: eng
Format: epub
Publisher: Wiley
Published: 2013-04-13T00:00:00+00:00

During a trend, the market’s perceptions about whether a share is ‘cheap’ or ‘expensive’ come into play. When the share price is trading at an all-time high, the share is perceived to be expensive. This often inspires selling pressure.

When the stock drops in price, it is then considered cheap, and new buyers enter the market. Existing shareholders add to their portfolios. This buying pressure drives the price upwards and an entry into a share at this time will allow you to harness the power of this bullish wave.

The market players are comfortable paying higher and higher prices and the attitude is buoyant. They are convinced that the share price will continue its ascent and the red rag for the bulls is unfurled with a flourish.

Many traders suffer from overconfidence and a misunderstanding about locus of control. An internal locus of control is the tendency to take responsibility for all situations. An external locus of control is the tendency to believe that outside forces control everything. When markets go up and we are involved in a long position, we often think it’s because we are smart. When markets drop, we tend to blame outside factors.

Because of the certainty effect traders prefer a small, but sure, gain now rather than a likely, larger gain in the future. This effect tends to encourage shareholders to sell when the market surges, producing a pullback to a support level. These shareholders think that they are incredibly clever and run around with a massively inflated ego. They practically dislocate their shoulders by patting themselves on the back so hard. They would prefer to ‘feel good’ rather than hold onto an uptrending share which has the ability to produce far greater profits in the future. Remember, keep your losses small and let your profits run.

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