Think of the dialectic between the smart money and the dumb money. When does the smart money come in? When the dumb money has pushed the market too far in one direction (because the dumb money came in late on the move in that direction). The smart money is the first group in in the opposite direction. That's how they make higher returns than everyone else. My goal is to be in as soon as I see the signs that they are in. In a market like the ES, the price discrepancy between my entry price and the entry price of the last of the smart money (there is a hierarchy even amongst the smart money) is assumed to be 1 tick. If they are the first ones in, that implies a time element, i.e. they act immediately once the perception that future returns in the new direction will be abnormally large. Since at any given time, the smart money forms a relatively coherent group, that means they cause a large move in a small amount of time as they all enter in the newly preferred direction. Obviously, I'm speaking on generalities and concepts, but I've quantified all of this. Incidentally, and I have posted this idea before, the "smart money" is a group which I believe is in constant flux. They are the traders and funds which make huge returns because their strategy is completely aligned with the market during a specific period of time, but never reach those heights again, or rarely do. Their performance eventually regresses to either the mean or below the mean, as a new "type" of market emerges and a new "smart money" group emerges along with it. I think that empirical data showing that funds tend to outperform for a while and then underperform bears out this hypothesis. Also incidentally, it is my considered opinion that the people that are sometimes referred to as "smart money" who have achieved longevity actually act more like my ideal of the "smartest dumb money". There may be an ultra-small group amongst the "smart money" which also achieves longevity. These would be the most legendary of all traders and funds.
BS about old and new smart money.The currency markets have the same smart money from time immemorial , their reasons for buying selling currencies never change.
Interest rate expectations ,economic outlook (affects interest rate expectations) and political changes (affects interest rate expectations).uncertainty about interest rate expectations. Just to prove the point , notice how the large moves on euro/usd happened after fed announcement and before last ecb meeting , where a rate cut was on the cards.Look at underlying price behaviour prior to the ecb meeting.
No one's reasons for buying or selling ever change. That doesn't mean anything. If a person or a group could remain the smart money long enough, they'd corner the market in whatever they trade. Since market corners are actually extremely rare (so rare that the only modern-day example of an attempt is from the 1970's), it strongly implies my point is correct, i.e. that membership in the "smart money" group of any given moment is actually always in flux. The people you are referring to are probably closer to "the smartest dumb money" at any given time. Frankly, I do think that's the group that is the smartest over the long haul, but in the short run, their returns will lag the "smart money" because the "smart money" gets in first at the turns. The problem is that, as I said, no one (or, one in a million) can get in first at the turns consistently. Since we are in the Psychology forum, I will add this thought. The "smart money" is the egotistical money and, for a while, they seem to impose the will of their ego on the market. The "smartest dumb money" is ego-less and only wants to follow the lead of whoever is the "smart money" at the time. Eventually, because the market is always evolving, the "smart money" loses its edge, but, because of its oversized ego, it can't adapt and becomes either part of the "dumb money" or leaves trading. If it can adapt and become part of the "smartest dumb money", then it can attain all of the advantages of being in that group.
Recent Euro action for example. We made a swing low, bounced back up, then back down and stopped exactly at the same level. What could it mean? Obviously that some serious buying is happening at exactly this level and if they buy here, probably not to take a few ticks and get out (it takes huge size to stop price like that in EURUSD). All in a day that generally goes up during the whole EU trading session so far. So odds are in our favour, all we need is give it a try... Basically ALL action visible on the chart of any liquid market is institutional activity, because retail constitute so negligible amount of total volume that are hardly reflected at all. And institutions know their stuff... and we, little parasites know that they know...
Yup, in the end currency markets are up to interest rates/macro picture. The top fun in town is the battle of two turds as I call it aka EURUSD.
Yes, but the "smart money" was already positioned before those moves attracted the notice of everyone else. That's the essence of "catching a turn". By the time everyone else is thinking "Wow, this move could be big", the "smart money" is looking for an exit and an opportunity to go the other way. They don't get attached to a direction.
======== Thanks; markets can be tough. I am still trying to completely figure out the post that called LBR a book peddler[not that i object to that.............LOL And then he ,mentioned thedifference between apple and airline markets Both of those can be tough markets, easy to lose money in them both. Partial disclosure i like apples and airline food.