Why Does Price Projection Work?

The basic program of any part of Technical Analysis is to generate mathematical, graphical models of the psychological behavior of market participants. Here we have a model, Arms’s price projection, which often works. So, what behavior of traders is it capturing when it works? Let's consider a flat bottom, a base, on a chart. It occurs after a downtrend. During that base, the new buyers, attracted by what they see as bargain prices, are snapping up the shares being dumped by discouraged holders who have owned the stock since it was much higher in price and are finally giving up on it. The downward pressure from the discouraged holders balances the upward pressure from the new bargain investors all the way across ...

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