With broker firms making available chart services, more and more people have come to know about charts. To have some knowledge about charts is easy. To be proficient in chart interpretation is indeed extremely difficult.
Professionals know that a great majority of people now depend on charts to time their purchases and sales. So they will do what is necessary for their own benefits.
Let’s say a professional trader has a big block of shares to unload and the market is in equilibrium (buying and selling in balance). How can he unload his shares without disturbing the price? The only way to do it is to sell into strength. So he waits for the stock to test it resistance in a high level. With some well-timed purchases, he pushes the share price above its resistance. This causes a false breakout. Conditional buy orders are triggered. People become excited and join in the buying creating great demands for the stock. The professional then releases his holdings. Other professionals short the market and soon the stock is back to square one.
Buying on breakouts was profitable in the early days. Now you have to be very careful indeed. You must be witty to survive.
Good luck.
