Price action & Psychology - Reversal after panic sell

Hello !

Key points :

• Gap down : The stock gaps down probably because of bad news; opens at old support level
  
• Panic selling : The bad news and the gap down triggers panic selling which explains the surge in volume
  
• The stock finally settles on a previous support area
  
• Last selling burst occurs and indecision rises as volume goes back up
  

Through this trade I want to emphasize the fact that one should be careful when evaluating the shadows (or wicks) of a candlestick . On this particular trade, there is no need to put the stop loss below the shadow, because it is the irrational behavior (fear) that formed it.

Watch out the area around 7.00 as it is an important congestion zone on a weekly chart (3 years - weekly). The final target would be the 8.00 area.

***Disclaimer : This is not an advice to buy the stock. You should never ever blindly follow a trader's idea without knowing exactly what he talks about.***

Thanks for reading and if you have suggestions or wanna discuss the idea, just leave a comment, I'll be happy to answer.

Comment:

Considering the current turmoil of the stock market, be careful when placing any trade. In fact, as I stated in my analysis, irrational behaviour is driven by fear. Therefore, I would avoid placing orders before market open.

For the next analysis I will explain how I time my trades using the S&P500 index as a guide.

Trade active:

I'll just let the trade unfold, once we break the 7.00 zone I'll add the other of my initial position and let it ride until somewhere around 8.00.