Today's Quote: “Real excellence and humility are not incompatible one with the other, on the contrary they are twin sisters." Jean Baptiste Lacordaire.

You buy a stock and watch it climb to its target. You see it getting extended and into resistance at a key reversal time, and you sell it just as it rolls over. A perfect trade. Did you ever wonder who just bought your stock?

In case you were not aware, for every buyer there is a seller. There is no magic “stock warehouse” where you load up on stock, and you are not dealing with the company who issued the stock. You are buying and selling from other people. Traders, investors, fund managers, market makers, etc. The only exception is when stock is first offered or when additional shares are made available from the company, but these are rare instances. So if you sold your stock at the ‘perfect’ spot, the question remains, who bought it?

Well, there are two answers. The first one you may be thinking but are afraid to say. Yes, a ‘fool’ may have purchased your stock from you. The market is a zero sum game (negative after commissions) and for every winner there is a looser. It is possible that someone made a very untimely purchase of your stock and took a loss on it. Don’t feel bad, the market place thrives on novices who feel it is “easy” to take money from the market. They are needed to support the market. Just make sure you are not on the losing end of too many of these trades.

The second answer is a bit more complicated. It is possible that you sold your ‘scalp’ for a nice profit, but the area you sold possibly took out resistance on the 15 minute or hourly chart and got the interest of a day trader who is willing to hold for a bigger target with a wider stop. When the day trader sells and wonders, “Who bought this stock at this extended price?” the answer may be the ‘swing’ trader. While it may be extended on an intraday basis, the fact that it traded over the prior day’s high may be the trigger needed to entice a swing trader. Again, with a wider stop and target expectation.

Also, at any ‘buy point’ in any time frame, there may be a host of other players jumping in based on sound, or not so sound, reasons. There may be real price support. There may be a nice trend holding. There may also be things like moving average crossovers, Gann Lines, Fibonacci levels, uptrend lines, stochastic triggers, MACD crossovers, etc, etc, etc. While any one of these my not be terribly relevant, a certain price area may trigger several of these and begin a rally.

The bottom line is simple. Having as many time frames pointing in the same direction as possible, combined with as many ‘triggers’ hitting in the same area, will be the best chance of getting a stock moving in the right direction. Then your job is to beat the crowd getting in. This is why trading against the bigger trend is always tough, and why understanding multiple time frames is critical.