Little-Known Indicator Signals 'Buy' While Investors Are Running Scared

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered to be the "father of technical analysis," went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form.
Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years.

Investor psychology does help explain resistance on a chart, for example. After a bear market, there will be some investors who will be thankful to recover their losses. They might sell when the market gets back to its old highs. This appears as resistance on the charts. After resistance is broken and prices start moving higher, we often see a "market melt up" as investors rush in since they are worried about missing out on the upside. (more)
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