Moreover, research in behavioral psychology suggests that people tend to overreact to unexpected and dramatic news events. Supply and demand are governed by numerous factors both rational and irrational, and that the market is efficient in that it continually and automatically weighs all these factors. You can disregard minor fluctuations in the market, as stock prices tend to move in trends which persist for an appreciable length of time. Changes in trend are caused by shifts in demand and supply. These shifts, no matter why they occur, can be detected sooner or later in the action of the market itself.
Markets tend to overreact.
Extreme movements in stock prices are often followed by subsequent price movements in the opposite direction. The more extreme the price adjustment, the greater will be the subsequent adjustment. A common explanation given by technicians for market movements is that individual stocks and commodities have support and resistance lines. Where you draw the line is important. Make sure you draw the trend line from the lowest low to the highest low immediately preceding the highest high, and making sure the connecting point you select does not pass through any prices between the two points.