The Secret Behind Psychological Price Levels Every Trader Should Know

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This is the Trading Playbook where the
charts do the talking and every session
makes you a better trader.
Hello everyone and welcome to the
Saturday episode of the Trading
Playbook. My name is Lawton here at
Verified Investing and I'm so glad that
you are here. Before I get any further,
a couple things. First of all, guys,
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comments. So that is thank you so much
for all the positive feedback. Um but
anyways, happy Saturday. One more final
announcement, big announcement. I'm so
proud of this, guys. Gareth and I are we
just started a brand new service called
the Million Dollar Long-Term Investor
and it's a long-term portfolio geared
towards anyone who might not have the
time to consistently trade um or is a
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Oracle and holding it for the long term.
Continuing to maneuver in and out of the
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over time. With that being said, let's
hop into it the play.
So, up on the screen, I have the S&P up
and I have a couple of orders on the
right. But before you we use these kind
of numbers, think about it like this.
Let's say you didn't have any of the
lines on the chart. You just saw S&P
$738.
And you had to find out where support,
where is resistance, where could you see
this thing going, where would you buy
it? Or
at an even simpler question,
what price is the SPY at right now?
Would you answer $738.03?
Some of you might, but most of you
wouldn't. Would you say $738?
Potentially.
Right, $738.
Or some of you guys would, if you were
explaining this in conversation or to
another trader,
you'd say $740.
Right, some of you would then say $740.
And then, you know, broader than that,
maybe you say, "Oh, it's around 750
bucks." Right? So, there are there are
tiers and they get less and less
specific. Right, but generally a
ballpark of where something could be.
So, that's what a psychological number
is. Right, so we're looking for a couple
things. First of all, we're usually
looking for a whole round number. Right,
especially when you're talking about
stocks that are
up and over 100 bucks, generally looking
for whole round numbers.
Maybe if the stock is sub $100, maybe
sub
um
sub 50 bucks. Right, what would you say
instead? Is it $47.49?
Is it $47? Is it $48? Or would you say
it's $47.50
that's where that point five would come
in. But generally you're looking for
whole round numbers that are easy for
our brains to kind of digest. Right?
>> [cough]
>> But [clears throat] when we're looking
at psychological numbers we're looking
for whole round numbers or numbers that
sound good in our head.
Followed by levels that are close to
or around the current trading price or
the price you're trying to indicate.
Right?
If I say that this stock the S&P got as
low
dipped down here
to $729.28
is that what I would say?
I might.
But
the more likely thing I would say is
well SPY got as low as 630 bucks
on this dip back in March. Right?
Finally we're looking for multiples in
5, 10, and 50 really.
So yeah 700
40 40 bucks could be a great level to
indicate right now.
But if we're taking a look at hey maybe
we're going to find resistance if it
moves up
my eyes directly drift to what level?
Not $745
but $750
just because it
works in our brain and that's the point
of a psychological number.
It's not necessarily chart based but us
as humans right if we were to say and
this is the most important part if you
are a retail investor
looking at a chart and saying I like the
S&P
I'm going to buy it here
and I'm just going to hold it and I'm
just going to look to sell it for a
couple dollar gain.
Right?
Say I wanted to make 10 20 bucks on this
where would I put my sell level? Would I
put it at $750.88?
Would I set it to $748.29?
No, I'd probably just set it at 750
bucks and be like, "If it gets back up
to 750 bucks,
I'm going to sell it."
Right? Or they put that when they look
at any chart and put arbitrary numbers
up, right?
Let's say they're looking at SanDisk and
saying, "Well, if SanDisk got to $2,000,
I'd sell it there."
Right? That's where I would sell.
Or if SanDisk ever got below, basically
back to 1,000 bucks, I'd buy it again.
Right? That's a key example
of how psychological level could work.
Now, they don't usually work to the
exact penny, but they can give you kind
of a a ballpark level of where you're
looking to potentially find support or
resistance, right?
So,
let's see. Do these really work? Lawton
just explained what my brain does and
was so simple, anyways.
And he took 5 minutes to do it. Well, do
they work? That's a great question.
Let's take a look at the SPY.
$750. Key psychological level cuz our
brain automatically goes by hundreds,
right? And 50 domination denominations.
$750 sounds a lot easier for your brain
to comprehend than a 730 level, which
sounds better than a $727
level, right? So, $750, we can see what
happened on the SPY. Well, it pushed up,
pulled back just shy of it, pushed up,
and then had another pullback from it.
And you can see since then it has been
in a tight range between two key levels,
$750 and $740,
right? With that $750 level being
stronger, right? Another example, when I
talked about down here,
key level to break
isn't $629.30 or $0.28,
right? See, I just did it there. It's
600 It's 700 um
Excuse me, it's $629
and $0.28, but you would say $630
in this case. I'm getting mixed up
with my numbers. I apologize, guys.
On this dip here on the SPY, where did
you get a bounce?
Just under $720.
Yeah, it got down to 716.53,
but that 720 psychological level came
into play. I'll show you on a couple
other charts, and we're just going to
remember these rules.
I'll see if you guys can find examples.
So, taking a look at this,
can you see any key psychological levels
that we might have traded around that
could have provided support or
resistance? You can pause it here
and determine for yourself.
All right. Well, first off, key level
$750.
And oops.
While it didn't necessarily get there
exactly and pierce there, it came pretty
darn close, basically right there,
right? And that's why I'm saying we're
using this as a ballpark of where you're
expecting resistance, around 750 bucks.
When it came down, where did it come
down?
Basically 560 bucks, ballpark around
this 750 550 to 560
dollar level,
right?
So, we're continuing to look at these.
LITE, same thing. What is this key level
here? $600.
This past week, look how many times it
pierced $600 or hit $600 then it had a
bounce. There's an 8% bounce. Here's a 4
and 1/2% bounce. Right, key
psychological levels. To the upside,
yeah, it got past a thousand bucks on
LIT briefly, right, almost to that 1,100
bucks we're talking about. But
eventually did get that pullback at that
psychological level. And when it came
back up, also pulled back from a similar
level. We can keep going down the line.
Where did Sandisk stop
on Wednesday?
Right here.
A thousand bucks. A thousand dollars.
Another key
level to watch. Right, just continuing
to hammer it on that yes, these kind of
levels make sense in our brain, they're
easy for us to understand. But if
they're easy for us to understand and
draw as potential levels, so is retail.
Imagine you're looking at the chart with
no knowledge of technical analysis,
you're just using whole round numbers,
right, or throwing a dart on the board.
And that's what you're using for support
and resistance. A couple more. Micron.
Look at this. $750
on Wednesday, got so close to that level
and bounced just shy of that. That's why
I said ballpark. This level is so
comforting to us in our brains and
seeing it get right there,
right there's the bounce.
Final one, Reddit.
Reddit, when this thing pushed up
initially on the IPO,
where did it first find resistance?
Right here, perfectly, basically at
$230.
Now, it's hard to know which
psychological level is going to be the
correct one. It's hard for me to say
right now that if it pushes up, $290 is
going to be the psychological pulls up
pulls back from. But, as I am closer,
and this is why I kind of hammered down
and says it has to be near the current
trading price for close term support.
I'm not talking about long term
necessarily.
I'm looking at something near because I
can't look at this and confidently say
290, right? I could say that $300, what
do I know? It's a whole round number.
So, it's going to be more powerful
because it's a multiple of a five, of a
10, of a 50, and a multiple of 100,
right? So, that's going to be a lot of
psychological resistance.
But,
right here, what levels am I looking at?
Near term, $200 for resistance.
Near term bottom support,
500 150 bucks, right?
All right, guys. I hope that made sense.
And this is something that we
automatically do, but just recognizing
it and using it to kind of set levels,
right? To kind of improve our trading
will help us become better traders and
maneuver the markets even better and
kind of get a look into what retail
likes to think when they're just getting
started trading.
With that being said, that's all I have
for you today. My name again is Lawton
here with Verified Investing. Thank you
so much for watching. Please comment,
like, and subscribe. And on tomorrow's
video, I'm going to give you three
actionable trade setups using key
psychological levels on a couple charts
coming up real soon. Hope you guys have
a great rest of your day, and I'll see
you tomorrow. Bye, guys.
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