Welcome to emotion trading. I have been doing something similar for many years. I truly trade the emotions and/with the framework. Every now and again I'll throw in some technicals to validate my feelings. But for me, the entry and exits happen in what those who know me call a gut feeling. I can't seem to explain the rationale to them as to me it makes for a simple logical map. For a long while I haven't tried to either. To me it makes so much sense.
The price patterns are actually a reflection of these "emotions". The market is all about investor psychology. The patterns reflect this psychology over very short to extremely long periods of time. As I see it, there is an overriding psychological cycle that last for years at a time. A positive cycle generates a bull market, and visa versa. The price fluctuations are simply the vibrations of that cycle as it ebbs and flows over time. As one watches the market, you can almost sense the urgency in one direction or another: the enthusiasm, the panics, the desparation and despair, and of course the greed and the fear. One can not see the major cycle, unless of course, one stops looking at the tree and looks at the forest. For day traders, the market is really a gut check. For position traders, it's really buying into the peak of fear and selling into the peak of enthusiasm, and visa versa. Aliens would never be able to help, they don't have the human emotional makeup
You guys got it. I tell you, most have no idea what we're talking about. Sometimes they get so into crunching numbers they forget its a people game. Just like in other people games (speficically the ones played for money), there is another level that parrallels, somewhat, the numbers level. The fear and greed traders talk about, numbers don't feel that, people do. And people can be so easy to read when money is on the line. Much more so when they don't realize anyone is trying to do it! It's possible to tune into a market much like a good poker player tunes into his game. After a while, you get to know the specific opponents, market. You get a feel for how they act and react, which somewhat tells what price should do with any new information. All the way up, and all the way down, price is as predictable as the market. At the turning points, price gets away from the market for a while, there is a stretch, a snap, and the market flips the other way. When these flips coincide across the timeframes, there is almost always a pretty big move. Its pretty strange how patterned group emotions are in this game. Most seem under the impression people are unpredictable and random. Only on the shortest timeframes. There is a connection between speculative minds that goes beyond "oridinary". Bohm turned me on to this angle with his book Wholeness and Implicate Order. Simply the act of a group of humans focusing on the same market connects them. This type of connection is easily seen watching a big sporting event, say the SuperBowl. Tens of millions of hugely varying individuals galvanize in such a way that they essentially become only TWO emotional bodies. Whatever happens next in the game will have a VERY predictable reaction from both sides. So predictable that every individual on both sides knows what to do and precisely when to do it. The score is tied with 3 secs left in the game, field goal attempt, ball is up... And what happens next is supposed to be unpredictable??? Not talking about the ball going in or not, rather what the people do in either case. The proof in a market is all over a price chart. Patterns that repeat over and over again prove that emotion in a market crowd follows very specific patterns. And that price itself has a lot to do with determining which pattern emotion on either side will follow. Christ, it just gets so predictable. Sometimes, it's so easy I can pretty much write tomorrow or next week's IBD headlines. Almost dissappointing, I figured this game would be much harder. Took a long time to figure out how to do it, but almost no time at all once the way was seen. It's almost too easy.
I just noted something odd. It can be shown that crowd emotions are most unpredictable on short timeframes and most predictable on the larger timeframes. The belief in "unpredictability" comes, a lot of times, from short timeframe traders, daytraders and such. Longer term traders are always using "cycles" of one sort or another, something predictable. Maybe the issue isn't so much black or white. Maybe it's relative to the timeframe one operates on.
Hi Wolfe, Ah, but your just touched upon another part of the human psyche, knowingly or unknowingly. One can NEVER get too confident. Staying tuned in has its term in many sports: being in the 'zone'. If one just observes and reacts to their observations they'll be okay. But when one gets too confident it can knock them of out sync with what is transpiring. Then it takes a while to get realigned again.
I have an announcement to make ...Wolfe77 was abducted by the aliens and returned to us to share on ET.
I try to stay away from using the term "predictability" and replace it with "Read". I have found that using "predict" has a negative reaction with traders, as it should, where "read" has more objective results. I have found that in the Longer Term there is less stress in reading the markets but that if the same stable non-varying environment is applied to the shorter term, one succeeds there as well but must apply patience, taking trades only at confirmed extreme oscillation levels.