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In my journey of trying to understand the market on a more strategic / high level standpoint, I find that I'm continuously asking myself the following questions.
Why are people selling right now? Why are people buying right now?
Of course as a speculator, I can do nothing but speculate and high five myself thinking that I'm right whenever I win a trade. This might help me make/lose money, but it doesn't do much in terms of understanding the philosophy behind why buyers buy and sellers sell.
I think at first glance you might think I'm an idiot for asking this question. But when you start to consider the different players in the market, long term high capital individuals, hedge funds, prop firms, short term intraday traders, technical traders, fundamental traders, etc. you start to see that different players have different reasons for buying and selling.
I want to compile a list of those reasons from experienced traders in hopes of being able to get a better understanding of this buying and selling activity. I think the more detailed we get around this, the more we will be able to understand different perspectives.
I'm hoping that this is something that would help all those who view this thread.
I'll start with why I think an intraday trader looking to capitalize on the biggest couple swings of the day would buy:
Why I would buy
I feel price is discounted as to where it should be and cannot continue going down for much longer, timewise and points wise
Anxiety that I might miss a bull wagon will get me to enter a long position (hurts me more than helps me, and it's something I need to change, but it's true)
I've hit my short stop
I've seen signs in the market that my stop position is not going the way I thought it was going to go
Price is nearing a key support zone that I think price will bounce back from, and I want to capitalize on the confidence that other traders have also set on that zone
I've hit my short target
I noticed a lot of volume at an area that I was already watching closely and I expect that this will turn the market
Of course the list is not comprehensive but this is what I could think about right now, I will add more in the future as the discussion grows.
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
Posts: 2,311 since Nov 2011
Thanks Given: 7,341
Thanks Received: 4,518
I don't think thinking like this and asking these questions is idiotic at all. I think it's a sign of mature contemplation. As I understand from my readings about 5% of traders are consistently profitable in a big way. So approximately 5 million traders world wide.
All buy limit orders executed have corresponding sell market orders that paired with it. Same for sell limit orders and buy market orders. So all buys are met with sells and all sells are met with buys. It takes two to tango. But since most are supplying the winnings in this zero sum game it might be better to ask where will traders dump there position, puke from pain? Where is the aggression? The support and resistance? Where are we compared to yesterday's range last week's last month's etc etc?
Short on time now but will be long it next week. Continue then........
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Traders are risk takers. Those risks can be calculated and in some sort being avoided.
Taking a trade means going into a market with uncertainty.
During many times that risk is on the lower side of the scale - especially looking at setting stop loss levels.
But on certain times this risk is getting much higher - sometimes only for seconds:
Example a FED or ECB decision.
Knowing your risk means for a responsive trader (speaking here of short time traded futures) to stay at the sidelines
during known "hard and uncertain moments".
So...
Money flows INTO the markets when risk is easier to calculate. And flowing OUT when risk
is getting higher or is NOT to calculate.
Such is the case
a) Over night
b) over weekends
c) over holidays
d) short time on announcements
e) after a long rally to take profits
f) start and end of session
g) others
All those moments are avoided by some bigger players too and one can see it from the volumes
in the markets - especially before and after mentioned events.
To make it short: Money is flowing in when "normality of markets is assumed" and flowing out
when uncertain / or long pause moments are to be seen.
I am using described "money flow" as the first rule for my systems to stay in the markets...
My two journals are to find here exactly with this background.
