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The break up to new levels in a rising market or down to new lows in a falling market can be signify cant because it often triggers fresh buying or selling momentum. From the psychological perspective, the performance of the stock market is rather like that of an athlete who is trying to improve on his or her previous best time or distance. A new personal best generates a great buzz of excitement and positive feeling. Having achieved their goal, most athletes do not sit back and rest on their laurels but start looking ahead to the next challenge or objective. So it is with the markets. When a previous high is exceeded, investors start looking for the next target. When an athlete breaks a world record, it becomes front-page news. Similarly, when a market hits an all-time high, those usually completely uninterested in the financial markets suddenly take note and may even be tempted to start buying shares. The positive impetus generated by reaching successively higher highs gradually begins to fade in a stale bull market. Instead, investors become more cautious and start booking profit until, eventually, the market rolls over just as the mature athlete, eventually, have to retire. There is also a technical reason why a move through a previous high indicates strong buying momentum. At market peaks there is usually an increase in trading activity as some investors take their profit while others buy into the market for the first time. As soon as the price begins to fall, disciplined investors will cut their position, but the evidence suggests that most investors are not disciplined. They persuade themselves that what might have been intended as a short-term punt is really a long term investment. When the share price eventually creeps back towards the peak at which they bought, these stale bulls are anxious to close out what has been an unproved table investment as quickly as possible. On the approach to a previous high, volume often rises as stale bulls rush to sell their holdings.
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