Weak hands etc

I use some methods from the chart to get an idea who the weak hands are. Try to correlate waves with it. But sometimes like yesterday when the market was down and just suddenly went straight up from a "false" breakout it seems to go beyond ordinary forces behind supply/demand. Could be news, option expiry or larger timeframes i guess.

What´s your thoughts about this?

 

Weak hands are determined by volume/open interest that has later gone underwater?

 

Okay, you owe me a new keyboard. This one is covered with oatmeal!

 

Maybe. Emotions VS volume..
In for example the last part of a downtrend it might not take as much volume to cause pressure down..

 

I always tried to do this kind of thing also but the fact of the matter is, there is no such thing as "strong hands" and "weak hands". There is only money flowing in and out of the market.

The only advantage we have as smaller traders vs. the big money is that we can dance in and out of the market effortlessly, without moving it (unless you trade illiquid instruments or micro caps or something stupid).

So, what you need is an indication of how the big money is allocated, what short-term traders are thinking and an idea of what the newsflow is and how it's going to impact orderflow. A small amount of insight into what the actual weak hands (There aren't many of these in the market anyway, you have to realize if you are permanently a weak hand you will be weeded out of the market, thus you must assume that your competition is mostly comprised of those that survived (thus the best)) are doing also helps.

So as I mentioned biggest advantage is that big money is like a cruise liner while we are a speedboat. Know where the big money is and try to anticipate when it will start turning. Imagine the catalyst necessary to make it turn. How sure must the market be that there is a problem before it will sell off, or what will it take to start squeezing shorts? Is there enough money on the sidelines to take out major support now? Is there enough money in the market to break major resistance now?

I'll share what I've got on the subject of figuring out the location and direction of money if someone here posts a metric I didn't know about yet. I can say that a lot of money is long now (obviously) and that it is still long so there has really been no shakeout that I can see on the recent weakness. If anything people have been buying the dip with reckless abandon. Expect the market to go lower.

To be honest, the whole idea of trying to find the stupid participant makes you the idiot. There are a lot of stupid people in the market but they don't represent a lot of buying power. Just get on the other side of the herd as soon as it starts turning but don't go against a running herd.

 

I.e. finding graveyards (where did people make mistakes). However the problem with things like that is it can always be interpreted two ways (volume that is).

Is price going up on no volume because size traders can't take a decent offer/going down because size traders can't hit a decent bid or are there just not that many buyers/sellers and are "they" moving down price to sucker in the last sheep?

I find that in the first part of the downtrend it also takes not as much volume to take it down, because in the first leg down basically nobody knows if it will be a retracement or the start of a downtrend hence there will be relatively bids and relatively a lot of supply. It's in the middle where the meat is.

 

Very interesting! I was going to get some chocolate but this is like candy to me.
Maybe we can say that one emotion is behind all movements? Fear? I am not sure but i think and have seen that it somehow follows Fib levels and that it has been proven by some mathematical psychologist.

 

Well it depends on how you define emotion and I'm not a huge fan of technicals although I do use S/R, pivot points and VWAP for entries.

But why would you look for emotion when you can so much easier look at where the money is? If you assume that emotional traders are flawed then you must assume that pretty much everything to do with emotionals is subjective thus impossible to interpret especially on a price chart.

How do you KNOW that a sharp drop is a panic selloff? And if you know, how do you know whether the panic could get worse? If you believe the market is irrational (which you must if you believe emotions are in play) how can you predict anything? Since when is irrationality predictable?

This emotion stuff is really only interesting if your data on the market is a lot better than it is and you have a lot better data on market sentiment than polls (there are hedge funds that scan blogs and news sites for sentiment keywords for example, that is good data).

In the end trading results come from nothing more than the quality of your underlying data and how well you execute trades (i.e. buy support sell resistance on time).

So the question really is, do you have enough data on market emotion that gives you (even a slight) edge? Everybody can see AAII sentiment for example... (besides I think it's rigged and/or non-representative)

 

Yes we want to know where the money is. As you write alot have bought and can sell. But when will most of them most likely sell so that force becomes greater than the up one?