The chart of Amazon.com, Inc. AMZN teaches an important lesson about the markets. Some price levels are more important than others. And the $3,530 one is clearly an important one for AMZN.
It was resistance in April, support in July, and now it is resistance again. Levels can convert from resistance to support and support into resistance because of investors' remorse.
Investors who sold AMZN at $3,530 in April regret their decisions to do so after it traded at a higher price. Many of these remorseful sellers decide to buy their shares back. But they will only do so if they can get them for the same price they sold at.
As a result, they place their buy orders at $3,530. This large concentration of orders forms support like it did here.
After AMZN fell below this level, many of the investors who bought it regret their decision. A number of the remorseful buyers decide to sell.
But they don’t want to take a loss, so they place their sell orders at their buying price. This large concentration of sell orders forms resistance like it did here.
Understanding that certain levels are more important than others is a basic principle of successful trading.
To learn more about chart reading, join the new Benzina Trading School.
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