Pyschology of Channeling Stocks

Many have heard of channeling stock as, and those that do, certainly know that if a channeling stock goes lower than it's support it goes much lower, and if it goest above it's resistance that it goes much higher.
There are many people who understand this, and use it, and make a lot of money on it, but not many people understand why this occurs.
The reason is this...
When a stock starts to go up, some people say it's too high, and they start to take profits, and when it gets to a certain point, they sell all their shares or close to it, and others say it's too high and they really short the stock. But then it comes back down again, and some people might add to their position as it goes down, but when it really goes down either the same people averaging down load up on it, or value investors step in and say the stock is cheap, time to buy. Meanwhile, those who shorted the stock cover their short and take profits.
This type of behavior causes the stock to channel back and forth, but what happenss when it breaksout say to the up side?
For whatever reason the market might turn up, or the company might release good news, or the outlook might raise, or their might even be no known thing that happens. But perhaps the bears give up on the stock, and those buying the stock have decided to hang on or add more on the way up. Perhaps those that bought finally have liquidated other funds and they need to load up on this. For whatever reason the stock breaks out. When this happens it attracts growth breakout investors that notice it clearing the base, the shorts who just tried to short might continue to try for awhile, but eventually they'll realize that its gone too high, or their stop will force them to cover. When thss happens they get squeezed, and the bulls win. Now at some point the bulls will take profits, and perhaps the stock will have a correction or a pullback, but it could very well return to climb. Another scenario is the bears reconsolidate, find other investments, but now that the stock has climbed they REALLY think it's overvalued, or something still is going to happen, and maybe they short and the people long in the stock need to sell. But regardless, the stock still will have gone on a pretty big run after that breakout point.

On the short side when the stock goes below the channeling stock's support, people say "OH CRAP!" and maybe the stock even had a false breakout before returning to channel again, and now you have a head and shoulders pattern. People freak the heck out and sell everything, and other investors see an opportunity to short and buy puts. the stock gets beaten down until those short cover, and those that sold look to re enter, and value investors really step in and enter a big time position.

A channeling stock can be seen as a fight between a bear and a bull, even though there's a lot more people involved. When a stock breaks through the resistance, the bear gives up, and the bull wins. When the stock goes below, the bull gives up and the bear wins. Of course, there's a little bit more too it, like the suppply and demand, the markets inaability to find the true value of a stock. But for the general part, that's the case of a channeling stock.

Stocks and shares of companies are much more than just stock prices randomly moving in directions. There are people behind those stocks owning the company changing fundimentals, and there are people owning those shares with different beliefs, and emotions which effects the prices. If you can understand the psychology behind the stocks, you should have an easier time understanding how to profit.
Up next: When channeling patterns are disguised, but the pyschology is the same: