Here is the section for those of you that are trying to time the market. Whether timing a purchase, a sale, or daytrading. This is the place to talk about short term swings in the market.
Day Trading Ranges:
Securities can sometimes get stuck in a rut; trading in the same range for long periods of time.
As a stock increases in price, it approaches what the technical analysts call a resistance level.
This is the uppermost bound of the established trading range for that stock.
When this happens, a lot of investors decide to sell the stock; realizing that it will probably not increase beyond its recent high.
This is called profit taking. Profit taking causes sales pressure, which in turn causes prices to go back down simply because there are more sellers than buyers.
If a stock is declining in price, once it approaches its support level (the lower bound) a large part of the market will view the stock as sale priced at a good deal.
This causes the stock price to increase merely because of the buying pressure.
This contributes to a self-fulfilling trading range for each security out there.
This is why the media always makes a big deal about having a new high for the NASDAQ or when the Dow Jones Industrial Average broke 10,000.
Once something breaks out of its trading range – it might continue on in trend to infinity – until it establishes a new range to trade in.
When choosing stocks, notice what the previous 52-week high and low is. Is it in the lower part of its range or the upper?
Did a lot of the shareholders pay more than what it is currently selling for?
This may contribute to additional profit taking on each successive advance with those high-paying investors trying to get their money back and just break even.