Page 5 - Module 5 - Key_Players_in_the_financial_game

Module 5 – Understanding the game between the bulls and bears

understanding the game between bulls and bears
In trading there is a constant “financial” game or war going on between the Bulls and Bears. Bulls want
prices to go up. Bears want prices to go down. Many traders do not understand the importance of the
last relative high or low.

Bulls are always trying to take prices to new highs and Bears are trying to take them to new lows. When
the Bulls are in control, they keep taking prices to new highs. When the Bears are in control, they keep
pushing prices to new lows.

The reason we monitor all the short-term and long-term highs and lows is that when prices get close to
a recent high or low, they will probably make a new high or low. Why are the Bulls trying to make new
highs and the bears constantly trying to make new lows? Because when you are Bullish or trading long,
you would want prices to go higher.

Conversely, if you are Bearish or trading short, you would want prices to go lower. However, after we
take a position, there isn’t a whole lot we can do sitting at our computers to change the market.

That understanding influences our trading strategy and increases the probability that prices will move
in the direction of our trade. Of course, there are not actual Bears and Bulls trading. They are traders
that have taken a position to either go long or short to make a profit. Bulls go long. Bears go short. You
can be a bear on minute and a bull the next.

The logic behind understanding support and resistance and highs and lows is that most traders place
their protective loss stop orders at the latest highs and lows. Orders build at these highs and lows.
Think about it! When you are chasing the market, you are constantly moving your stop to the last high
or low locking in profit as prices rise and fall. Right? Well, so is everyone else.

Resistance (sequential highs on the chart reading from right to left) is where there are more orders to
sell than buy orders. Support (sequential lows on the chart reading from right to left) is where there are
more buy orders than sell orders.

Resistance is a price where selling is strong enough to interrupt and reverse an uptrend. When an
uptrend hits ceiling of resistance, it is like a ball that has hit a ceiling and bounces off it. Support is a
price level where buying is strong enough to interrupt and reverse a downtrend.

When a downtrend hits the floor of support, it bounces like when a ball hits a floor. The longer a support
or resistant area is established, determined by length of time and/or the number of hits or bounces it
took, the stronger or more impenetrable it tends to be.

Remember the financial game? Envision in your mind at each level of support or resistance a line of
strong, mean, big, ferocious, football players trying to hold the line. They try not to allow the opposing
team to break through.

The more a Bear hits the line of support and cannot break through it the stronger the line of support.
The opposite is true when Bulls hit levels of resistance.

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