Stock Of The Day: FedEx Delivers An Important Trading Lesson

The best traders understand that certain price levels in the financial markets are more important than others. They also know how to identify them. These are called support levels and resistance levels.

An important dynamic of the markets is how price levels that had been support can convert into resistance, and how price levels that had been resistance can convert into support. The chart of FedEx Corporation FDX shows clear examples of this. This is why it is our Stock of the Day.

As you can see, the $289 level was resistance for FedEx in late March. Then the level converted into support in late June. You can also see that the $255.70 level was resistance in June. Then it converted into a support level in September.

Price levels that had been resistance levels can convert into support because of seller's remorse.

Read Also: FedEx Stock Dips: Another Reason to Fear Recession Is Near

Some traders and investors sold their shares while the stock was at resistance. If the price trends lower after they make their sales, they believe their decision to sell was a good one.

But if the price moves higher than the resistance, a number of these investors and traders regret selling. They think they made a mistake and decide to buy their shares back if they can get them for the same price they were sold at.

As a result, when the price eventually returns to what had been resistance, they place buy orders. And if there are enough of these buy orders it creates support. This is what happened at the $289 and $255.70 levels for FedEx.

The chart also shows an example of a support level converting into resistance. The $276 level had been support in August. Then it became a resistance level in early October.

Support can turn into resistance because of buyer's remorse.

There are traders and investors who regret buying their shares while they were at support if the support breaks and the price goes lower. Many of them decide to sell their positions. But they don't want to lose money.

As a result, if and when the shares eventually rally back to their buy price, they place sell orders. This way they can exit their positions at breakeven. If there are enough of these sell orders, it will create resistance at the price that was previously a support level.

This is what happened with the $276 level for FedEx.

Understanding which price levels are important helps traders and investors decide where to place their buy and sell orders. This can result in profits.

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