What a Price Chart Really Represents

Have you ever thought about what a price chart really represents? Is it just the movement of price that is seen there? For every price to actually post, there must be a buyer and a seller. Price charts are actually psychographs that measure traders' beliefs of present and future values. Traders are emotional and the market price is not always right – especially at extreme tops and bottoms, where emotional momentum more often than not carries prices further than they really should go. Momentum highs tend to be emotional reactions to economic data and are determined by price ranges. Price highs are determined by closes and usually follow the momentum highs on different price bars. The March1993 S&P in October1992 made a momentum bottom by dipping down as low as 390.50 before closing higher on the day at 408.05. But the real price bottom based on value was made four days later at the 402.30 area. The S&P price distance between the momentum 390.50 bottom and the price 402.30 bottom formed a powerful support zone that has never been broken. However, in the near future, you may see it happen. 

The point here is that the real bottom in the S&P will be preceded by the emotional bottom. You can virtually guarantee that the emotional bottom will be significantly lower than the price bottom.

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