The Psychology: Selling At Former Peaks Revisited
Traditions and proverbs can fall by the wayside, but some endure because they touch a nerve. The adage, ‘Sell at former peaks,’ is one such evergreen saying that shines a light on trader psychology.
For Intuit Inc., denoted by the ticker symbol INTU, this saying holds particular relevance, which has caught the eye of our adept trading panel, anointing it as today’s “Stock of the Day.”
Stocks often hit a wall when they rally back to price levels that acted as a barrier in the past. There’s a rationale behind this market phenomenon.
The Logic Behind the Hesitation
Some traders and investors purchased shares at the prior peak, only to witness the value decline shortly thereafter. Tinged with regret, many of these investors choose to offload their positions.
To cut their losses, when the price retraces to their buying price, they initiate sell orders. When a critical mass of these remorseful buyers triggers sell orders, it sets up a resistance level at that price point.
A quick glance at the chart reveals a recurring pattern – each time INTU approached the $672 mark over the recent months, it encountered resistance, invariably leading to a downturn.
The Play of Psychology
After hitting a resistance level, stocks often experience a sell-off. Psychology once again comes into play.
Sensing the influx of selling interest, some shareholders grow jittery. They anticipate a surge in sellers entering the market, halting the upward momentum.
Concerned about executing trades without getting caught in the rush of lower prices, they begin lowering their selling prices. Other anxious sellers follow suit.
This chain reaction can snowball, triggering a downward trend for the shares.
Seasoned traders versed in technical analysis comprehend that charts are visual representations of human sentiments and psychology.
Resistance at former peaks arises from buyer’s remorse, and stocks dip off from resistance levels due to nervous sellers.
“Sell at former peaks” stands as a tested Wall Street adage, and the chart of Intuit serves as a compelling real-time testament to this wisdom.
The Parting Wisdom
The dynamics of the market often echo the ebbs and flows of human psychology. Understanding these underlying principles can equip investors with a valuable edge in navigating the unpredictable waters of trading.
As we reflect on the nuances of the stock market, it becomes evident that some timeless sayings carry profound truths that transcend market cycles and trends.