In financial markets, certain price levels are more important than others. These are called support and resistance levels.
When a stock reaches one of them, there is a good chance that the trend reverses. As you can see on the chart of Alphabet Inc. (NASDAQ:GOOGL), a few of these important levels are clearly defined. That's why it is our Stock of the Day.
If the stock moves higher, there is a good chance it hits resistance around $162.70. This level was support in early May, and price levels that had been support can convert into resistance because of buyer's remorse.
People who purchased shares at this support level thought they made a good decision after the price moved higher. But after the recent selloff, the price is now lower.
Now many of the traders and investors who bought the shares when they were at support regret their decisions to do so. Some of them decide to sell their shares.
But they don't want to take a loss.
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As a result, if the shares rally back up to their buy prices, they will sell so they can get out of the position at breakeven. If there are enough of these remorseful buyers placing sell orders at the level that had been support it will convert it into resistance.
If the shares move lower, there's a good chance they find support around $151.30. As you can see on the chart, this level was support before.
There tends to be support at price levels that had previously been support because of seller's remorse.
There are traders and investors who sold their shares while Alphabet was at support in April. But as soon as they were done selling, the price moved higher. When this happened, a number of them came to regret their decisions to sell.
Many of them vow to buy their shares back if they can get them at the same price they were sold for.
And if there are enough of these remorseful sellers placing buy orders at the price that was support, it will form support at the level again.
Good traders know which levels are important. It is like having a map to the market. This awareness will lead to profits.
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