UnitedHealth Group Incorporated (NYSE:UNH) presents potential trading opportunities as its stock consolidates, forming a new range between key support and resistance levels. We have made it our Stock of the Day.
There are two basic strategies that traders use when a stock is rangebound. One is to buy near the bottom of the range and to sell close to the top. The other is to wait for the shares to either break out to the upside or break down to the downside.
As you can see on the chart of United Health, the top of the range is around $372. There is resistance at this level because some buyers have become remorseful.
$372 was the last level of support in May before the shares collapsed. Some of the people who bought there regretted doing so when their positions became unprofitable.
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Some of these unhappy buyers decided that if they could eventually do so, they would exit their positions at breakeven.
As a result of this, when the shares finally rallied back to $372, they placed sell orders. There were so many that it created resistance at the level.
The bottom of the range is around $352. There has been support at this level. There is support here because it has been a resistance level.
Some of the people who sold their shares at around $354 experienced seller's remorse after the resistance was broken and the price moved higher. A number of them decided to repurchase their shares if they could eventually get them at the same price they were sold for.
When the stock dropped back to $354, they placed buy orders. There were so many of these orders that it created support at the level.
Successful traders understand that buyer’s remorse can turn support into resistance, and seller’s remorse can turn resistance into support. This gives them insight into where to enter and exit positions profitably.
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