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Today we’re going to take a look at a significant thing in trading, and we’ll also talk about day trading psychology. There will be episodes covering day trading psychology in great detail later on, but I wanted to cover one topic that really shows both trading psychology and price action. If you want to learn more about trading psychology make sure you subscribe to our channel as we will cover that in coming videos.
In any case, today we’re going to investigate “new highs”, and the market psychology or trading psychology that goes together with a new high in the market.
First of all “new highs”, or “new lows” for that matter, are always significant. At whatever point the market makes another high Everybody is discussing it. If you tune in to CNBC, Bloomberg or any tv channel covering the markets you will hear about it. If you read day trading blogs you will find out about it. On the off chance that you partake in trading forums or discussion boards you will hear about it.
The S&P 500 just made a new high, the NASDAQ or the Dow just made a new high. Apple or Facebook made a new high. Or Google made a new high….
The same applies when the market is in bearish mode and makes new lows, or some popular stock is crashing and makes a new low. You will hear about it.
What’s more, when we hear of these things, when everybody’s discussing it – without a doubt there will be a great deal of interest in trading that, and a lot of trading going to happen at these levels.
So, what are new highs really. Once in a while, during exceptionally bullish periods the market makes new highs pretty much each and every day – and despite the fact that that is something that leads to a lot of interest and a lot of demand – catching wind of the market making new highs every day, and does not seem to stop. It is going to the moon.
But then the most important new high is when the market has been in an uptrend, then pulled back and then breaks out of the previous high. That’s also the easiest time to be trading these situations.
Same thing in a down trend, the market rallies and then reverses and starts moving downward again breaking down through the previous low.
Now, all of this is usually more significant if you’re swing trading. Because swing traders are looking at the same time frame as the talking heads on TV and the general public. We have a lot of traders who both swing trade and day trade and I do recommend that because you get a whole new way to diversify and spread out your risk. But for day traders, any time period when there is a lot of interest in the market will bring more volatility, more liquidity and that’s good for day trading.
But you can and should be looking for New Highs in day trading as well, and new highs are usually found when the stock breaks out through resistance or support. The stronger support or resistance the more important will the New High or New Low be.
We covered this in an earlier episode. So what you will see is the market breaking through, and volume picks up – more and more traders notice the break out – the new high – and together push the security upwards, through, and away from the resistance because of all the demand that enters the market.
Everybody wants a piece of the action – that’s where the trading psychology comes into play. When you see a stock, currency or commodity make a new high – you see all the trading, all the volatility – then more and more traders get interested in trading that particular instrument.
The traders don’t want to miss out always. Traders fear missing out on a big move. That’s what happens, that’s pretty much how the market psychology works in this case. More and more traders will start trading emotionally, they feel they have to get in, they have to trade, although the market already made a big move.
Then, when everybody who wants to buy have already done so, there will be a pullback on lower volume. Why is that? Because there is not as much demand anymore. More and more traders or scalpers who bought at the top after the breakout, these guys will start selling because the market seems to head downwards and they’re not making any profit on their trades, and the reaction causes short sellers to enter the market. So less traders are buying and more traders are selling or selling short.
This is also something we talked about before. This is a very good time for you to enter your position: There was a break out and a big rally, then the market pulls back and again continues its move upwards. When that happens again, more and more traders will participate in on the up move. If you buy when the market reacts and pulls back, then you will have no difficulty getting in at a good price – you are not competing with a bunch of other traders for the best price.
We’ve had a lot of interested people in our day trading mentorship program recently, so we have a new mentorship group starting soon. There are a few seats left, so go to DayTradeToWin.com to find the dates and reserve your seats. We have 10 different day trading strategies that we teach in the program.
We also have individual training courses, strategies and software available for you so you can get a head start in day trading.
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