Back in college, there was a brief moment when I entertained the idea of pursuing a degree in psychology. Although that path didn’t pan out, I ended up carving out a career that’s deeply intertwined with market psychology.
As Liam Neeson might put it, I’ve developed “a very particular set of skills.” For decades, I’ve delved into the world of technical analysis.
For those unfamiliar, technical analysts rely heavily on charts to gauge investor mood swings—essentially pinpointing those sweet spots where the mindset shifts. These moments are prime for making calculated decisions about when to buy or sell.
Take, for example, the scenario from last April when I advised my readers about Samsara (NYSE: IOT). The stock went through a rough patch, diving from $40 down to nearly $30. Despite this dip, it rode a longer-term upward trend, creating an upward channel—my absolute favorite chart pattern to work with.
The beauty of this strategy is that you’re buying in when the stock is undervalued. And if it turns out you’ve miscalculated, and the price slips below the channel’s floor, it’s a clear signal the market’s psychology has shifted, prompting a swift and modest exit.
From December 2022, every time the price of this stock bounced off the trendline, bullish investors swooped in, rallying the stock back to the channel’s peak.
Then April came, and I anticipated that pattern to repeat itself. And indeed, it did. In just over three weeks, we enjoyed a 31% increase in the stock, and our call options reaped a staggering 301% return.
Even when the market takes a downward swing, there are still opportunities to profit. By reading chart patterns and understanding investor psychology, money-making possibilities abound.
You might recall the post-election climb in November, soon followed by a downturn. It was not long after that I took on a bearish stance with Schlumberger (NYSE: SLB).
Schlumberger’s stock had been on a downward trajectory, forming a pattern of lower highs and lows within a declining channel. When it hit the channel’s top, I strategically shorted the stock and snapped up put options, banking on the stock taking a further tumble.
True to my expectations, just over a month later, the stock hit the channel’s lower side. This move translated to a tidy 15% gain from shorting the stock and a remarkable 246% gain on the puts.
More recently, even amidst a market in decline, I helped my readers more than double their money with a long position. Just last week, on March 6, I advised snapping up CNH Industrial (NYSE: CNH) as it hovered at its channel’s lower boundary. The risk seemed minimal, while the potential gains appeared highly enticing.
Merely four days later, we bagged a swift 12% profit on the stock and landed a 140% increase on our options, despite the market’s bleak landscape.
I trade various chart patterns, but the channel remains a personal favorite. It’s straightforward, allows us to buy during dips, and boasts an excellent risk-reward balance.
What’s fascinating is I don’t need to dive into the complexities of Freud, Maslow, and Skinner to tap into the minds of investors. A simple glance at a chart offers a snapshot of trader behavior and, more often than not, clues about what lies ahead.
