Cocoa, I don't do charts but simple instinct trading so for charting someone else could much better explain.
When a share like AJM goes up with a large spike you will see.....
1. A lot of opportunistic short term traders come in.
2. A lot of FOMO (fear of missing out) watchers come in thinking that the spike may continue. They tend to know a few basics about the company and are not always experienced investors but driven by emotion and hype.
3. LT holders tend to hold to the spike.
When the top is hit we then hit the correction phase. Typically what happens...
1. LT holders will often trade a portion of their holding at highs. As LT holders they tend to have a better instinct of what constitutes a real high from constantly watching volumes/prices.
2. The ST opportunistic traders leave (stop losses reached or move on to the next stock)
3. The the FOMO buyers will start to panic sell. That's why you can see a decent retrace happen quite quickly.
What we then look for is a consolidation period. Most ST traders are out and the LT traders are buying back into the portion of holding they sold at a high. This period is best described a s a balloon. Every seller lets some air out and every buyer blows some air in.
This is precisely where I see it now. There's a lot of air in that balloon and you can see it on the buy side now compared to the sell. It's usually a great period to hold or try to pick up a few at the lower end because it's the point needed before a another leg up.
There are so many ways to read the market. If any was foolproof then everyone would use it. I usually hold a few stocks and may trade up to 30% for a bit of fun but there is no doubt in my mind that a good FA investor that holds for the LT does best.
AJM Price at posting:
5.3¢ Sentiment: Buy Disclosure: Held
