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Investopedia Academy - Technical Analysis - Lesson 6.3 - Polarity Psychology - YouTube
Channel: Mike's Trading Channel
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So i want to go over the psychology聽
behind the principle of polarity聽聽
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behind that supply and demand and why聽
it is that one turns into the other聽聽
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so here's an example of a stock trading at聽
thirty dollars okay now let's say somebody聽聽
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tells me an analyst tells me that at聽
thirty dollars i should be buying it聽聽
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okay and i don't necessarily trust this analyst or聽
friend or colleague so I'm just going to watch it.
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So I'm told at 30 a share that i should be buying聽
it and i don't then the stock starts to appreciate聽聽
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thirty 31 dollars thirty three dollars聽
and the only thing that i can think of聽聽
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is man i wish i would have bought that stock at聽
thirty dollars like my colleague told me if it聽聽
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only gets back to thirty i can get that聽
opportunity again but then what happens聽聽
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the market continues to appreciate in the聽
opposite direction 34 35 a share at this point聽聽
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i didn't buy the 30 like they told me to so聽
I'm just frustrated and can only dream of the聽聽
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riches i would have made had i listened so if聽
only i get another opportunity to buy it at 30.聽聽
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so with the magic of the market it starts to聽
fall in price prices go from 35 down to 34 33 32聽聽
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i could feel it coming we're getting down to that聽
30 level so i can buy it sure enough it gets to 30聽聽
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we buy it now let's let's let's let's reverse聽
that and let's just say that i did buy it聽聽
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and now the stock goes to 35 and I'm聽
up five points from the 30 entry point聽聽
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I'm super happy right i did the right thing but聽
then that greed factor kicks in i didn't buy聽聽
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enough shares right so you're always wrong whether聽
you didn't buy or you didn't buy enough right聽聽
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if you're right on the stock you didn't buy enough聽
and if you're wrong you bought too much right聽聽
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that's how our minds think so it's important to聽
recognize that so now i was right on the trade but聽聽
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clearly in my opinion i don't own enough shares聽
so if only i can get back down to 30 i could聽聽
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double up on my position and own as many shares聽
as i should have bought the first time around聽聽
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so then of course the price of the stock starts聽
to fall 34 33 32 and then eventually when it gets聽聽
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down to 30 i go ahead and buy it so now you have聽
two sets two groups of people that either bought聽聽
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it or didn't buy it but there is memory at that聽
thirty dollars so when it returns down to that聽聽
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level you're going to get a combination of buyers聽
of people that did buy it the first time but think聽聽
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they didn't buy enough or that didn't buy it at聽
all and now they're getting their second chance聽聽
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so if you missed it at 30 when it gets back down聽
to 30 that support really comes into play so now聽聽
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let's flip things the other way around let's say聽
instead of buying the stock my colleague suggested聽聽
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that i went ahead and shorted the stock instead聽
so okay so i listen to my friend and at 30 a share聽聽
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i short the stock because i think it's going to聽
20 or so my colleague convinced me that it is聽聽
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so i short the stock at 30 essentially betting聽
that the price of the stock is going to fall聽聽
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and then what happens it goes to 35聽
the pain in my stomach of being wrong聽聽
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is something i just can't handle i bought too聽
many i shorted too many shares i was wrong man聽聽
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if the stock can only get back to 30 where i聽
originally shorted it i could then break even聽聽
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cover those shares and just call it a wash but聽
now I'm getting killed so as the price of the聽聽
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stock starts getting back to where i shorted it聽
i get back to break even and i buy the stock so聽聽
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now you have three sets of buyers the buyers that聽
bought it the first time and didn't buy enough the聽聽
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ones that didn't buy the first time and now they聽
have a second chance those who shorted the stock聽聽
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and now can cover it right you have many groups聽
of people so when the longer that prices touch a聽聽
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certain point the longer it stays at a certain聽
level the more important that level is you.
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