Yes, I agree that the "externals" can dilute our efforts if the trader cannot place into perspective the "whys" and "wherefores" of what is behind the price patterns we see on the charts. Now if the person is not trading, but investing for the longer term, then the "reasons" for the intraday swings in price and even the changes in price from one particular day to the next day can be meaningless. And I think it is certainly not advisable for anybody to be trading, and inparticular, trading options, unless they have substantial experience with the market and speculate with what they can afford to completely lose so they can sleep at night.
So perhaps covering some of what goes on behind the price changes, and what happens on the floor of the exchange is just "noise" that can get in the way of the learning process of a person new to TA. However, I am just attempting to fill in some of the detail of this picture for interest, and perhaps this added information sometime in the future will help an aspiring technician's perspective of the markets, in terms of the factors that influence stock prices in the market and how they show up on the charts. I think the more that is understood about price action, and some of the "reasons" behind it, the more it will become familliar and second nature to the technician.
How about stops? Anyone want to talk about where the likely places for stops are to be found from a look at the chart of a stock? The locals of the exchange floor, for instance, atttempt to bid the stock up to hit those stops in order to create a run on a stock where they can make some quick money. If they can bid the stock down to hit stops (sel orders) below the current price of the stock, and then whipsaw it to bid it up to hit stops (buy orders) above the current price of the stock, they make out very well. Some say it is not a good idea to use stops at all for this reason. They think the use of stops is like placing a target on their back for the locals and specialists trading on their own account to hit. But I think this depends on factors like trading approach, the stock that one is trading in, and so forth.
This effort for floor traders to hits stops can bee seen on many charts when the price of a stock gets close to an important value where the stops are likely to be found. Then out of nowhere the price of the stock makes a "beeline" for this value. When this happens, it seems that the stock price is levatating against gravity, where it looked like it was going to stop and turn down. Instead it took on new life and quickly moved up. This usually happens under comparratively lighter volume since it is the locals and traders in the act and not the commercials and institutions. Once the stops are hit, this triggers buy orders. However, the floor traders doing this are not always successful.
IMO WMT in its multiple attempts at 40 and beyond is an example of this. Once the stock arrived at above 38, I knew it would attempt 40. That is because it was in what I term "spitting distance". It made it multiple times to above 39 in a trading day. This went on for a period of time, where it even backed off for a period of time and then tried again. The stock demonstrated very good relative strength in comparison to the market when this was happening. When it did not make it for what I think was the third time, it then settled a few points down right above a support at about 35. Next, it dropped a few points from 35 down to 30, and then moved back up to try this all over again. Now it is slightly above 40. I think some stops weree hit at above 38 and at about 40. You can see the spikes in volume to account for this, from what I see on these quote.com daily charts. I suspect there are additional stops are at 42 and 45, for my guess. Once this stock moves past 40, I will probably pick up on some options for this stock.
Some say that the traders on the floor can "smell" that there are allot of stop orders hanging around a particular price of the stock. This is what they try to hit. The sudden triggering of a rather large pool of buy orders forces the price of the stock up more quickly. Meanwhile, the floor traders are divesting themselves of their position. After all, the price has gone up creating a profit for them, and they are selling into strength where there are allot of buyers available for the stock they have to sell. Some are agressive enough where once the stock moves close enough to where they think the stops are, they will then begin to place bids in above that level. In order for the buy order to be executed, the syop orders need to be executed first.
So, anybody want to throw out ideas where stops can be found upon examination of a chart?
Bob Graham |
