The Consensus View I think most of us would agree it is valuable to understand the consensus view of positioning in the markets we trade. Whether you are a intraday trader, intermediate term trader or long term trader knowing what the herd thinks can present some interesting profit opportunities. I believe most of the market analysis is done by a few and spread to the masses. Mostly a decision made on underlying fundamentals or a belief of what the fundamentals are. Who are the few who spread the analysis to the masses? Most people will accept without a lot of thought what the "experts" say is going to happen. The snowball effect takes place and few are willing to speak of a different view. I have made a goal to get a better handle on what the masses are saying and thinking about the markets I trade. I use this information to position against the view most of the time or just to understand what might happen when data hits and markets trade emotionally for a session or so. Most of the time I just watch the market and come up with an opinion on what the consensus view is based on very limited information. I trade mostly in the currency markets. I would like to know how the larger traders, institutions, hedge funds decide how to "generally" position in a market based on the consensus view. For instance, if "such and such" thinks the EURUSD is going ot 1.6000 by the end of 2007....who is such and such? Maybe it is easier for stocks and index futures, but for many tradables I am not sure where to look. My question is how do traders, isolated and with little resources other than what is on the web, discern what the consensus view is for the market they participate in? I think forums like ET might be a great place to help traders come up with what the herd is thinking based on comments in a thread like this. I was hoping traders might use this thread to glean information, filter out what is of no use, and come to a feeling for what the consensus view really is in the trenches I was thinking some simple, plain english, discussion would be good for most of us, but for those of you who are more knowledgeable on economics and fundamentals, well then have at it. Just simple comments are valuable. For instance, "I mostly trade AAPL and I think it is going up this year because of the iPhone"....or something like, " I am bearish the British Pound because there is no way a "Pound is worth twice as much as the dollar"....or "real inflation is in food and energy, I am buying calls on wheat and soybeans"....... Maybe you subscribe to a publication, read at a website, know an analyst from the big house, etc.
There is a chapter on Consensus or Group think in the book "HedgeHogging" imo is very good. The only other thought I could offer re consensus, while reading is to discern the authors intent, his motive, what is he really saying and to whom. On the flip side, ya got your consensus, then you have your contrarians, then you have your contracontrarians.
With all due respect, i don't really understand how you should trade based on this consensus... Like, when you are bearish the GBPUSD for instance, then you only act in downtrends? It could be an idea, but i think it is fairly hard to know what the mass is thinking, because it's actually what you are thinking and attributing it to the masses. Even when trading fundamentals, and this can be proven, you have patterns.... I am not a fundamental trader, but i know some and they look for patterns. They don't go "Ok, such and such economic indicator came out like this so this must mean that such and such should go like this, and so on" They usually go for the kill when some clear fundamental setups occur that have worked through time and again... But they always couple it with technicals. Example: Last unemployment report came out. New jobs was positive, but unemployment rate was negative. Dollar strengthens but they waited for it to run out of steam to sell it, because it was all in the unemployment rate. So yea, you can say ... Because the masses thought it was good news for the dollar they bought it..... But you never reallly know for sure what it was that made them buy ....
The real consensus view is reflected in price... because that shows the consensus of all participants who have acted upon it at that time. The big players always act before the "consensus view" becomes the cool, trendy belief. Why not just react to setups regardless of what you think other Joes think?
Just what I was about to say! The market understands better than any trader on earth. Indicators, predictions, gurus and everything else that thinks it knows better than the market, are little more then Don Quixotes... They find more profit selling their advice to unsuspecting newbie traders. People who think they know better than the market are like a Pee Wee football league team, taking on an NFL all-star team. After the score exceeds 200 to 3, maybe they will finally get it... That is why I am always amused at the constant effort of options traders to find "undervalued" options. The market is not stupid. It knows almost all and sees almost all. The ability of market instruments to factor in the expectations, news, world events, traders, investors, interest rates, supply&demand, etc. is breathtaking. It works. As you said: PRICE
I trade stocks and always try to avoid what the broad market is doing and what the consensus is about it. There is usually so much independent volatility on a stock-by-stock basis that looking at the broad picture is usually more distracting than anything. And when stuff hits the fan in the broad market, its still more about price value on an individual basis for me than anything else.
I believe that market prices are determined by fundamentals most of the time. The problem, from the trader's perspective, is which fundamentals are moving things right now? It changes all the time. There can also be divergences from fundamental value, but as JM Keynes pointed out, "the market can stay irrational longer than you can stay solvent". I prefer technical analysis because I can program my computer to trade while I do more intersting things like read, take walks, or nap. Rather than trying to figure out the consensus, I prefer to live with the uncertainty. [rwk]