People buy stock = price goes up
People sell stock = price goes down
Trading is a zero-sum game. Money is not created or destroyed (for the sake of this argument pretend the FED does not exist). Money simply trades hands. There are times in the market when everyone is making money or everyone is losing. For someone to make money, someone else has to lose money. The stock market is a free-for-all battle field and it is every man for himself.
When I am trading, I don't simply look for patterns that I've learned about in books but I try to interpret them. If I can figure out what everyone else is doing, I have the advantage and can counter them. Each candle is a collection of players buying and selling and tells a story.
Who is the player?
Institutions, big time investors, day traders, swing traders, amateurs, bagholders, the 9-5 worker, etc. Each group behaves differently and follows a different set of logic.
What are they doing?
Buying, selling, short selling, buying to cover. Although buying to open is the same action as buying to cover, one opens a position while the other closes. This difference leads to different implications on these two actions.
Why?
This is the most difficult part. Every trader had a different reason for making a trade and a lot of the time there is a lack of reasoning. Through observing the market, it is possible to recognize certain behavior that is always present in the market including
Who is the player?
Institutions, big time investors, day traders, swing traders, amateurs, bagholders, the 9-5 worker, etc. Each group behaves differently and follows a different set of logic.
What are they doing?
Buying, selling, short selling, buying to cover. Although buying to open is the same action as buying to cover, one opens a position while the other closes. This difference leads to different implications on these two actions.
Why?
This is the most difficult part. Every trader had a different reason for making a trade and a lot of the time there is a lack of reasoning. Through observing the market, it is possible to recognize certain behavior that is always present in the market including
- panic selling
- greedy chasing
- denial/egotistical bagholding (refusal to close a losing position).
Understanding the people that are playing the market and understanding their thought process allows you to get a better indication of the 'why?'. Although it is impossible to distinguish what each individual might be thinking, it is possible to get a good sentiment on the aggregate players in the market.
Hypothetically, if you knew what every player was doing and thinking, every trade would be perfect. The closer you can get to the reality of what the market is thinking, the better your trades will be.
-Still Broke
-Still Broke
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