What is Overhead Supply?

What is Overhead Supply? A critically important concept to learn is analyzing price movement is the principle of overhead supply. Overhead supply is when there are areas of price resistance in a stock as it moves up after experiencing a downtrend. These areas of resistance represent prior purchases of stock and serve to limit and frustrate a stock's upward movement because the investors who made these purchases are motivated to sell when the price returns to their entry point. So it is normal that a number of traders who are already in "red" will sell when they see a chance to get their money back. Good chartists know how to recognize the price areas that represent heavy areas of overhead supply. They will never make the fatal mistake of buying a stock that has a large recent amount of overhead supply. However, a stock that's able to fight its way through its overhead supply may be safer to buy, even though the price is a little higher. Supply areas more than two years old create less resistance. Visit: two leading stock picking services http://stockadvisorgroup.com and http://stockpicksguaranteed.com for stock picks and more trading tips.