does thee olde trading adage 'the crowd is always wrong", stand up to logical/rational scrutiny ?? think about it, "the crowd" would have to be buying for the market to go up, selling for the market to go down--- does the "crowd" by defination mean the most money or the most people..... just some things to ponder.... best, surfer
Most of the time, the crowd is right. If they weren't, the large moves wouldn't take place. However, they are nearly always wrong (along with everybody else) at major turning points. The "surprise" reversals and the panic buying or selling, whichever the case may be, are what add fuel to the reversals. What matters is not trying to divine what the crowd is thinking, but to understand trend and know the signs for slowing momentum and potential trend change and reversal. Then, when the market runs out of greater fools, one is in a position to take advantage of the reversal.
The crowd is whatever the price is doing at the time. The problem is that the crowd often gets trapped during the midnight hours when the volume is thin. By the time the crowd gets to work and the market opens the price has changed significantly. Then it's a new chessgame. The question will be. Will the gap fill, or is the crowd really trapped? How many times has the price traded down to right at prior support or right up against prior resistance. It happens pretty often. Then the market will often look for a first 15 min or 30 minute range breakout and the crowd piles on again.
Please remember there're always both sides of any trade. So, what kind of "crowd" you've on your mind? There's also a sentence "don't fight the market, it is always right". I'd say "crowd is always wrong, expcept situations when it's right"
I think "crowd" refers more to "crowd mentality" where people are buying or selling only because they believe everyone else is doing so. This more or less translates into momentum chasing or "train leaving the station" impulsiveness, which usually (at least from what I've seen) is proved wrong over time.
Division crowd vs smart money simply refers to the balance of those that have already bought (assuming we are talking long side) vs those that still represent potential buyers. The more this balance is tipped in favor of "already in", the closer reversal is. If "everybody" is already long, stock has nowhere to go but down - no more potential buyers. Nothing is black and white, there is no situation where entire crowd acts at the same moment. Part of it buys earlier and operates in small time frame, so it has a good chance to be right as it sells to the next crop of buyers. Part of it buys later and counts on longer hold so it's being left holding a bag. And there are all the shades inbetween. Crwod's action can cause large move but it's mostly smart money that unloads large position into that move scaling out while there is good volume to dump into. Hard to expect the crowd enmasse to sell into the move it (crowd) caused in the first place, although some elements of it will, and within their timeframe they (elements) will rather act as smart money, although from the point of view of those that bouhgt on very early stages those elements still will be a part of the crowd that joined the action on late stages and helped to create liquidity for the smart money to exit. Phew... too long sentence for the sunday morning
Yes the crowd is always wrong. The crowd here refers to 95% of the market. Those 95% lose their money to the other 5%.
Great hearing from you Threei! I once heard a great quote. "The market is moved by traders whose earlier orders were unable." Traders or investors chase prices until their commitment is so heavy that the equilibrium swings beyond value, creating a vacuum in the counter direction.