RE:The Cycle of Lifestarsearcher40 wrote: Well, not real life. Just the "life" of a stock that is in motion. Whether you're a trader or investor, I think it's good to have this backdrop. It helps to steady your thinking and provides context for what is happening.
So a stock starts to move. Let's say up.
1) Long investors are there first. They've been buying the stock long before it started moving, as they believe it will be going higher.
2) Stock starts to move. Other "on the fence" longs come in.
3) Traders start to take notice, and come in, adding further fuel to the upside flame.
4) "Late to the party" longs and traders buy in, as this stock is clearly going to the moon.
5) Short will start to come in. If they time the short wrong (still too much strength and exuberance, then they have to cover, extending the upside party. This can actually happen multiple times, but they're usually fairly nimble and can avoid a devastating squeeze. It does happen though.
6) Traders recognize the top, and start unwinding and or going short.
7) The short position eventually gains control.
8) "Late to the party" longs barf their shares, adding to the downside/retracement fuel.
9) Period of volatility in the share price as traders play/exaggerate the swings up and down.
10) Usually a cascade of lower lows, but eventually the stock finds a base and looks to settle down.
11) Shorts test the base. If it holds, they start to cover. If they can knock it, they will, and the short party continues.
12a) . When close to the "real base", the downside effect of breaking the temp support is minimal, i.e., no hard drop. A drop, but not disastrous/gut-wrenching. This minor drop then stability is a good sign that the short/downside party is about to end. When traders see the "sell" signals, and the selling is weak, it gives them confidence buy in long.
12b) The "other" ending is a full-on capitulation where the stock is out of control and people just barf shares all over the place. No question when that happens. That IS the bottom. Full on capitulations happen about 30% of the time in retracements that are from extended runs up.
13) Longs start to see the bottom being put in, and then they start to buy again. For a company that is growing and healthy, this will be a series of "higher highs" on the longer term charts. (weekly/monthly) . When this happens, you're back at #1 again...and the cycle starts all over again.
So as it applies to WEED, where are we? Personally, I think we're in 12a right now, which is a good place to be. Hopefully, this will prove to be right, and we can then reconfirm 13 and get back to #1 !
Thanks for this generous post SS40. This is a nice complement to reading a chart as it helps to understand the psychology behind those dojis. All the best!