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Time stamps:
1:00 - Breakout traders psychology
2:28 - Momentum traders
3:43 - Short sellers
5:46 - Dip buyers
7:30 - Swing traders
8:55 - What do all these traders THINK at the market open after an overnight gap up?
11:06 - Stock charts represent psychological emotions of traders buying and selling
These are the FIVE major players in the penny stock market
1. Breakout traders
Perhaps the most predictable traders in the market. These traders buy penny stocks when it's near premarket high, intraday high, and previous day high. Breakout trading pattern is the most commonly taught strategy in many day trading chat rooms. Thus the crowded buying could cause penny stock breakouts to fail.
2. Momentum traders
Momentum traders join strength after breakout traders have taken the stock higher. Momo traders love volume, hype and strong candles pushing parabolic to either the upside or downside. These traders will sell their penny stocks once they see an exhaustion candle and weakness in the penny stock.
3. Short sellers
Short sellers love to lurk near the top of each stock. Shorting penny stocks are a very commonly taught trading strategy as well. But the immature shorts could sometimes be victims of a penny stock short squeeze. To get out of their position, short sellers have to buy to cover. That's why during penny stock intraday break outs the squeeze can go parabolic because the shorts are trapped.
4. Dip buyers
These are traders who love to buy stocks that's going strong on the day on pull backs at a cheaper price. Dip buyers and short sellers are often looking at the same support level to buy. Those two players buying creates the "bounce pattern" we see a lot in intraday trading.
5. Swing traders
Swing traders buy penny stocks that are holding gains well and closing strong on the day. These traders love to sell their stocks on overnight gap ups or the morning spike. Which is why many times when penny stocks gappers gap up overnight, they tend to sell off on profit taking.
The buying and selling of these five players are what creates the technical patterns many beginner day traders are studying. While learning strategies and patterns certainly help, it's important to understand that PEOPLE create these patterns. Therefore it's even more important to study how people think and learn day trading psychology.
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