We could be talking occupied France circa 1942. Or socks your father wore standing on the job all day.
But, no, it’s actually another boggle-the-mind post on technical trading.
(Ever notice that “boggle” is “blog” spelled with more “ge” as in “oh, gee!”?)
If you believe that historical pattern recognition can predict the future, then by all means, go subscribe to a stock or commodity price charting service and trade away.
Unfortunately, technical traders who study chart patterns to predict price movement tend to use lingo. And uninspired lingo, at that. “Head and shoulders”. “Cup and handle”. “Japanese candlestick”.
Why do traders eschew classic patterns like “Tartan plaid”? Or “paisley”?
A real missed opportunity here: Re-imagine a scene in the movie “Wall St.” where Bud jumps up from his desk and shouts across all his fellow brokers, “It retraced a double argyle! SELL!”
Two terms you must know to hang in the technical trading chat rooms: resistance and support.
Resistance is like the dentist’s office. You know you haven’t been there in a while and you really should go there. Even want to go there. And if you do, it will be really good for your long-term health. But you find excuses not to. Maybe you even make an appointment and then cancel it.
Think of the Dow industrials at 14,000. There will be resistance in the stock market to going there. You can find all kinds of bad news (Obama got re-elected, didn’t he?) that makes traders hesitate—resist—to pushing the index’s price about that level. They might test it on a Friday afternoon, but decide they’re not ready and so while the intraday high for the Dow might reach over 14,000, the index’s price will close for the day somewhere below there. Finally, when traders push the Dow through this resistance level, the market then surges to new highs.
Maybe.
Support is like your mom. You had a bad day at school. Some bully took your Twinkies. Teacher called you up to the front of the room just when you were thinking about the clingy miniskirt and tights Julie wore to class today. Then you get home and mom makes you hot chocolate and tells you how proud she is of your B- on your chemistry final.
There’s always a support level in a market, be it an individual stock like Apple, or a broad market index like the S&P 500. It’s a price level traders believe the market won’t go below. You can see in price charts how a market will bounce off a particular line drawn across the screen. Trading back up in price.
Unless it doesn’t. Meaning the price breaks through the support level and chart watchers create a new support line. At a somewhat lower price. And then, maybe the former support level becomes the new resistance level. Which traders call a “herringbone”. Only they don’t really call it that.
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