The best traders play defense. They don't guess. The plan is to let the market tell them what to do.
They know that if a stock or market reaches a price level that had been resistance before there is a good chance that it can become resistance again. They also know that stocks can reverse and head lower. This may be about to happen with JPMorgan Chase & Co. JPM.
As you can see on the chart below, it is at resistance. This is why we have made it our Stock of the Day.
If understood and applied correctly, Technical Analysis is the study of investor psychology. It is human emotions that create the price action that can manifest itself as a pattern on a chart.
Because TA is a study of human psychology, the same patterns can be seen on the charts of very different securities. Regardless of whether someone is trading stocks, bonds, ETFs, cryptos, etc… the traders who are trading them all experience the same emotions.
For example, there tends to be resistance at price levels that were resistance before in pretty much any market. This occurs because of buyer remorse.
Read Also: JPMorgan Launches Private Client Tier To Attract ‘Affluent’ Customers
Some traders and investors bought the security while it was at resistance who came to regret doing so when the price fell soon after. Many of them think they made a mistake and decide to sell.
But they don't want to lose money.
As a result, if the security eventually rallies back to their buying price, they place sell orders. And if there are enough of these orders, it will create resistance at the same level as it has for JPMorgan.
Another common occurrence in markets is reversing and selling off after reaching resistance. This is due to sellers' anxiety.
The sellers know the buyers will go to whoever is willing to sell at the lowest price. They become concerned that other sellers will undercut them, so they reduce the prices they are willing to sell at.
Other anxious sellers see this and do the same thing. It results in a snowball effect that pushes the price lower.
JPMorgan may be about to trend lower.
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