A commodities trader with decades of experience was having trouble in his transition from trading on the floor to trading in front of a computer screen. So, he asked one of his younger analysts to help him interpret some technical indicators.
One morning, the young analyst was explaining a system he used to identify support and resistance. He then plotted these key levels in the soybean market. After projecting the high and low of the day, both the analyst and the trader watched soybeans begin to move lower.
Skeptical of the quickly approaching support level, the experienced trader asked the analyst if he was certain that the market would stop falling and reverse higher.
“Absolutely! This is the low of the day,” the analyst said.
The trader then picked up the phone and called the soybean pit. He placed an order with the clerk to sell 2 million bushels at market.
Within just a few seconds, the price of soybeans dropped 10 cents a bushel—well below the young analyst’s projected support level.
“Now, where did you say the market was going to stop?” the experienced trader asked. “If I can do that, anyone can.”