And just to be clear, technical analysis is the observation and studying of shares movements, volume transacted, timing and etc. That is, anything that is chart related, nothing to do with the company's information or fundamentals.
I want to share and explain what is Psychological Level. Hence I made a page for it for future reference.
Psychological Level refers to the price of an underlying security, commodity or a derivative, where, the number is something that is "easy to remember," such as a rounded-off number.
This means prices like, $1.00, $0.20, S$0.50...
When a specific shares reaches such a price, financial market participants (traders, market makers, brokers, investors, etc.) tend to act on their positions (buy, sell or hold).
Take a look at Dyna-Mac.
All these while it has been resting at a level below S$0.40. Thus this is what we call psychological level of S$0.40.
Also, I want to point out the fact that, once it croses S$0.40, the price continue to go past that. There is an increase of volume, increment of Macd, and RSI went off the charts. Literally up and up.
So what can you do with psychological level and how can you use as it an indicator to your advantage?
Assuming this was before the breakout, and also assuming that we do not rely on the increasing Macd as another indicator, i would tell my clients to buy straight up at S$0.405. That is to say, when you see that the prices go from:
0.390 / 0.395
0.395 / 0.400
0.400 / 0.405 <=== BUY @ $0.405!!!!
Of course, there could be a fake breakout too. Refer to the same counter at an earlier date. This has been captured below:
As shown above, the price did hit S$0.400 / S$0.405. But shortly after, it came down, and remained very much below, unable to cross the psychological mark of S$0.40.
Assuming this is the case, and buy positions have been taken at S$0.405, I would suggest to my clients to cut loss at S$0.395.
Reasons:
- Significant decrease of volume (not even 20% of the previous trading volume)
- 2 red bars of MacD
- T+3 day would be the turning point, and before hand, there are no positive indications. Not a good idea to wait till T+3.
Why T+3?
Because this is when the contra players are due for payment. They would be thinking, "forget it la, just cut loss."
Hence it will trigger a sell down.
While psychological level can help to reap big profits, do note that there are other factors to monitor too.
Better to cut loss at the spread between $0.405 and 0.395, than to lose more at 0.385 (assuming we do not know what is the lowest)
Likewise, better not take a calculated risk to buy at $0.405 and earn the spread up to $0.425 (once again assuming we do not know the highest possible price).
Of course, some may argue that they would want to buy at $0.395 or lower so as to profit from a bigger spread.
My question to them would be: looking at the charts, from 16 July to 25 Aug, what are the chances to pick THAT particular day that the price will rise significantly?
This is the whole reason for writing this page on Psychological Level, to reap profits in the shortest time!
In fact this is one of the successful ways to contra effectively!
Always know the 2 sides and take a calculated risk!
No risk, no returns, but a calculated risk is always worth for a calculated return.
