|
|
|
|
|
|
|
|
|
So, moving on with our example, the price begins to rise from $40, and at the $41 dollar level, 200 folks decide to sell out, and at each subsequent one dollar level, the folks who decide to sell will increase by 25. So at $42, the volume is 225, etc. The available buyers want this stock very badly, so they keep bidding the price up, and at every level, more holders sell out. The volume is still relatively light but increasing. Finally, the price approaches $50 level. So far, 2700 original holders have sold out and there are still 7300 original holders showing a 25% paper profit, plus the 2700 new holders showing various amounts of profit. There is still a very large large contingent of available buyers out there who want a piece of the action. Everyone wants the stock before the train leaves. So far, there has only been moderate but increasing volume at each level up to $50. Now, finally, we have a lot of folks showing huge 25% profits. The thought of a new car, new boat, exotic vacations rush through their heads. Why, this is the most money they've ever made in this short of a time period. "Gee", they say, "I'd better sell out now before the price drops on me, I'm up pretty good". You have at least 7300 folks saying this exact same thing. So what happens??? The buying pressure is still there, all 7300 original holders sell out at $50, creating a huge volume spike, you see a flurry of activity on your level 2 screen at $50 and then a lull in the action. What has happened here? The price reached a point where the supply has finally equaled the demand. All buyers have been satisfied, and all sellers have been satisfied. Everyone is happy as apple pie. But now what happens? Everyone has been satisfied, but the new holders are sitting there with their stock, wondering why the price isn't going up anymore. Its not going up anymore, because there are no more available buyers at $50. So, the new holders sit on their positions for awhile, then start to wonder if they made the right decision. Some start to sell, creating selling pressure. This time in reverse of the trip up to $50. Folks start to panic, and prices go down. This is why its so easy to buy a top or short a bottom..........because that is the easiest place to get your order filled, its the point of least competition. Its the point where the supply equals the demand, and this is why you will see high volume bars at major turning points in the market, be it on a daily basis or intraday basis such as on a 5 minute chart.
|