I'm trying to learn more as I go. My example was an oversimplification that illustrated the plan of a single player. Now, if we assume that at least 100 big players are in the market at any given time things get incredibly complex. So my best guesses so far would include:
*No single player can affect the market in any meaningful way
*Even the big players are subject to outside conditions just like everyone else
*Watching volume can help a little, but only sometimes
*Watching cycles can help a little, but only sometimes
So we're back to the original question: how can we monitor the moves of the big players?
Uhhh... Because I don't know the answer I wonder whether monitoring the moves of the big players truly provides an edge. Even on a 5 minute chart with the gomiladder, I can't tell what will happen an hour from now.
there are 2 types of analysis, technical and fundamental. in order to understand the big moves, we need the fundamentals. not talking about intraday moves. we have to take in consideration interest rates, economy, earnings, etc...institutional players normally don't do day trading. sure they look at technical indicators, but base their trading decisions (overweight or underweight, take a new position or liquidate a position, increase or decrease cash, etc) more on fundamentals.
this will give us the underlying trend of the market. of course more in a longer term view. shorter term moves (intraday) is a different story. this can be influenced by many different things.
To understand why markets move one has to understand value. I believe the market is an auction. Each player has his own concept of value based on timeframe and information and because of this asymmetric information each player has his own strategy to maximize profits given his assumption of value and his assumption what the other player perceive to be value (auction theory). This means that even if the object being auctioned has a real and fair value each player has his own opinion on what this value is. Imagine an auction of a painting. It is not unusual that the auctioneer has to lower the opening price to attract the interest of buyers but as the auction progresses the price soon rise above the opening price. Why is that? Why does a player who didn´t bid initially enter the auction and end up buying the object above the opening price?
When it comes to manipulation of markets, that’s just a part of the game and I don´t think it´s something to track. Offcourse a big player will try to get some artificial momentum when the orderbook is thin by thowing in a big lot or a player that wants to buy a very big lot has to sell some to keep prices down. But even the manipulators end up with bad positions.
I do think volume is a big piece of the puzzle in trading. I too got fascinated by Tom Williams books and worked with volume patterns off the Better Volume Indicator when I found Barry Taylors blog a little less than a year ago. But I don´t think it´s that easy. Market has changed a lot these last couple of years. The TABB Group published a study this year showing that 73% of NYSE volume is made up of algorithmic trading. So you got a lot of volume just playing for a tick or two not interested in moving the market. The same goes with indicators like volume delta. I use this kind of indicators a lot in my trading but you can´t put a filter on 500 lots and think that you are tracking large players. They might enter a 500 lot and immediately start scaling out in 5:s or less. With all that algo working NYSE that’s more likely than not. You cant eighter be sure they aren´t just offsetting a nother position.
Then you have the big institutions that move their money abound asset to asset, region to region. If they are risk averse they sell both good and bad equity and buy safer bonds and so one. Because of this kind of hearding it´s hard to diversify portfolios. This is something that we´ve seen a lot more of since 2008.
I think market profile is a “best practice” when it comes to understanding volume, timeframes and the market, even if you don´t trade using the method. There´s a lot of books on it but the best by far is Daltons “Mind over market” and the sequel “Markets in Profile”. Plotting the volume-by-price reveals a lot about the conviction of the market players. They can manipulate all they want but using this kind of histogram you see what price is fair and what is unfair.
I agree somewhat. Simply understanding the events themselves doesn't provide insight as to whether Goldman and BofA are going to dump their positions tomorrow. We know that many big movers guess wrong. Therefore, I think we need to better understand how Goldman (and all the others) will interpret the state of the global economy tomorrow, not caring at all whether they are right or wrong, or whether we are either for that matter. I gather that some retired institutional traders understand this idea well after reading New Market Wizards. Bill Lipschutz, a former currency trader at Saloman, watched the news all the time and kept in regular contact with his former colleagues to understand when and how Saloman and the other big traders were interpreting the Forex market. I don't know any traders at Saloman so this doesn't help me. So the only way a retail trader can learn this information, I think, is through some kind of technical analysis of the order flow.
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1. DO NOT LOSE ON FRIDAY'S
Traditionally; Friday is a book squaring day. It is by far the most difficult trading day of the week, with the final three hours of trade being an absolute crap shoot. To lose serious money on a Friday is uncalled for and will only ruin your weekend. My best trading day ever was a Thursday. My worst trading day ever was the next day, FRIDAY.
2. NEVER EVER ADD TO A LOSING POSITION
If they are a good buy at 60, they must be a real good buy at 50 and a real, real good buy at 40. This strategy may work from time-to-time, but over a 20-year trading career the only thing you will say good buy to is your money, spelt GOOD-BYE.
3. NEVER TURN A WINNER INTO A LOSER
There is a reason for every trade made. Some are scalps, while some positions are established for long-term plays. When you get the immediate edge on a scalp, or a nice lead on a long-term spec, do not lose money on the trade. IT IS NOT A PROFIT UNTIL YOU TAKE IT. Discipline will get you into the same trade at better levels.
4. NEVER TRADE OUT OF BOREDOM
Probably the worst trade in the book. With no rhyme or reason, you trade for the sake of trading. You trade because you are a "trade-aholic." You are bored and you need the 'action.' If you are bored, go for a walk. Or better yet, go shopping. Spend some of the money you would lose on a boredom trade.
5. NO OVERTRADING
If you are scalping E-mini's to Bonds to Eurodollars, if it takes you more than one price increment to get your trade on, you are overtrading. For long-term trades, you should look to initiate at 30% of your normal position limit. Some of my best long-term ideas never made a penny because I had too many on from the start and could not afford to take the heat. I was forever right, just early.
6. NEVER REVERSE OUT OF A BAD TRADE
You have a bad trade on. It is time to take your loss. Never flip the position all in the same trade. Instead, walk away. Take a small break. In the long run, flipping your position will result in being topped and tailed.
7. NEVER TRY TO RECOUP A BAD TRADING DAY ALL IN ONE TRADE
You are a 10-lot bond trader and you are having a terrible day. You are down 200 ticks ($6,250) and there is an hour to go. You have been wrong all day long. This cannot continue. The mind games begin. Making 4 ticks on a 50-lot and you are even on the day. Over a 20-year trading career this philosophy will be a financial disaster more times than not. Have position limits and stick to them.
8. BUY BREAKS AND SELL RALLIES
It does not matter if you are scalping E-mini S&P's or position trading the Gold Market. If you are not buying a break or selling a rally, you had better be looking for a quick scalp only. 90% of the time patience will get you into the trade at a better price.
9. NEVER TAKE A LOSER HOME OVERNIGHT
A losing trade is a losing trade. HOPING for the market to come back is not trading, it is HOPING. It is better to get out and have a good night's sleep. One day at a time, one trade at a time.
10. NEVER SPREAD OUT OF A LOSS
Your have a bad trade on. To spread out of it leaves you with two problems instead of one. Eventually, you will attempt to scratch the trade by lifting a leg. The old saying about lifting a leg goes like this. When you lift a leg, you end up tinkling on your other shoe. Take your loss and move on to your next trade.
11. YOU DO NOT SELL NEW CONTRACT HIGHS, YOU BUY THEM.
There is a reason a market trades to new contract highs. Picking a top is a disaster waiting to happen. You only sell new contract highs when you are taking profits on your long position.
12. DO NOT GIVE ALL OF A GREAT TRADING DAYS PROFITS BACK
You have had a good start to trading earning $5,000. You think to yourself, $5k is a good day's work. Should I quit trading? No. I will have a small break and get back at it. Set a monetary stop loss to retain your profits. I recommend 50%. Trying to get the 50% back is a disaster waiting to happen. Remember; making money is the easy part. KEEPING IT IS THE GAME.
13. AFTER THREE CONSECUTIVE LOSING TRADING DAYS, TAKE A DAY
OFF. After three consecutive losing days, a one day break should be mandatory.
14. DO YOUR HOMEWORK
Trading is all about levels. Every trader needs to know where the support and resistance levels are. STUDY
15. HAVE A GAME PLAN
If a trade goes wrong, where is your stop? If trading in general goes wrong, do you have a backup plan? How much are you willing to risk financially, and are you capable of stopping there? It could be a per-trade limit, a day limit, etc. Where, financially do you stand? Where do the risks and rewards stop on a physical level, as well as an emotional level?
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