There are no coincidences in the financial markets. Stocks reverse their trends for a reason. The best traders know this and it's why they make money.
These traders understand that price levels that have been important before can become so again. And if, and when, a stock eventually returns and gets back to one of them, there can be opportunities for low-risk trades.
As you can see on the chart of Super Micro Computer, Inc. SMCI the $68.50 level and the $50 level have been important. This is why our team has decided to make it our Stock of the Day.
It isn't a coincidence that Super Micro ran into resistance at the $68.50 level in August. And it isn't a coincidence shares have just run into resistance at the important $50 level and have reversed their trend.
These levels were support before.
Price levels that were support can convert into resistance. This is a common occurrence in the market and it's because of traders and investors who regret buying.
These remorseful buyers thought they had a good idea when the shares rallied after they bought them while the shares were trading at the support. But if the support breaks and the price heads lower, they start to lose money.
Some of them decide to sell their stocks if they can do so and get out at breakeven. So if the shares eventually reverse and rally back to the price they bought their shares at, they place sell orders.
If there are enough of these sell orders, it will create resistance at the same price level that had previously been support.
In April, the $69.50 level was support for Super Micro. In August, this level turned into resistance. The $50 level was also a support level; now it is resistance.
The ability to identify important price levels is a way traders can profit. Important price levels can be seen on the chart of Super Micro. Traders who understand these dynamics can make “Super Profits.”
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