Carnival Corp (NYSE:CCL) is trading lower on Thursday. The shares gained more than 11% yesterday. Analysts attribute the move to President Donald Trump's announcement of a ceasefire in Iran and the drop in oil prices.
But the shares have hit resistance, and the rally has stalled. Carnival is the Stock of the Day.
• What should traders watch with CCL?
Investor and trader psychology can have a big impact on the market. Successful traders understand this.
One of the most prominent emotions that influences the market is buyer's remorse or regret. This occurs when someone buys something and the price drops below their purchase price. They make the decision to hold on to their losing positions.
But they also decided that if they could eventually exit at breakeven, they would. So if the stock returns to its buying price and they sell.
Examples of this can be seen in Carnival’s chart.
Some of the people who bought shares at around $32.50 in September decided they had made a mistake when the price dropped. As a result, when the shares rallied back to $32.50 in December, they placed sell orders.
The large concentration of these orders created resistance at the level again.
Buyer's remorse can also turn what had been support into resistance. This is why the move higher ended around $28.
Some of the people who purchased shares at this price in late January regretted it in early March when this support was broken. Now that it has returned to this price, these unhappy buyers are selling, and this has put a ceiling on the price.
When good traders buy a stock, they develop an exit strategy. One of the ways they pick their price targets is by identifying price levels that have previously been support or resistance
They understand that there may be resistance at these levels because of remorseful buyers who want to sell.
Photo: Shutterstock
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