One of my friends asked me about the importance of technical analysis. I explained him the real beat behind those analysis. Most of the analysis of a Stock price in the market is based on past performance, stock price move, support level, resistance level, other blah blah etc.
What i felt is that, these price indicators are certain levels where either all participants in the market may go SHORT or LONG. Some indicators followed by the Western socalled analysts are being followed by all people in the world. So a particular formula using by all analysts will give same RESISTANCE AND SUPPORT LEVELS.
So if an action happens then these levels will be hammered more.
i took a postion in Reliance Future at 2445 LONG POSITION with 14 days to the expiry. Resistance was told by most analysts were around 2490 and support at 2435 . Some say it is 2500 and 2440 repectively.
at the time of market close, Reliance surged and closed at 2522. 30 minutes before the close it was above 2495. This created a huge short covering and took the price to 2522. Remember the stock touched intraday high at 2531 also. At this ponit I call an analyst and ask him whether I hold it or not? He replied that I should hold it because the nest resistance is at 2564 so that I can make more money.
I was happy hearing that and slept very well at night.
At night, Dow was flat and Dow futures were in negative zone.
NSE and BSE opened flat and I saw Reliance coming down to 2500 levels. I put a stoploss at 2450 and decide to wait. Immediately before closing a negative news related to Reliance came and Stock price went down sharply taking my stoploss and closed at 2410.
The nexy day management refused the authenticity of the news and it went up again despite the negative trend shown.
When i discussed about this to analyst the he said, it was due to the negative news, or it was an unusaul behaviour.
BUT I STARTED NOTICING THIS IN MANY STOCKS.
WHAT I FELT IS :
All analysts and media creating a fog around resistance levels. Retail traders or some institutions either fresh buy or cover their shorts thinking that it will move up again. This creates an upside move well above the said resistance level. Here, all BIG PLAYERS take Fresh short and wait for any negative trigger. Most of the times, such negative triggers will come from media saying that information from sources
This will help some participants who anticipate such move to make money and all others especially, poor participants like me will loose money.
SO BEWARE OF ALL RESISTANCES AND SUPPORTS: something is cooking behind