Who's buying the low and selling the high?

Discussion in 'Trading' started by tomahawk, Jun 4, 2011.

  1. Traders always say don't pick tops and bottoms, yet the people on the right side at these entries are revealed in hindsight to have been the smartest guys in the room. Or the luckiest.

    So who are they primarily, and are they smart or just lucky? Is it alot of pikers who got lucky this time, a different group each time since all who "gamble this way" will eventually fail? Or possibly hedge funds/ black boxes / big players getting filled on their last scales, building on earlier entries in key value zones?

    We all know big money drives (and turns) markets. And there's almost always an OBVIOUS reason (in real time) for why this level became S or R (not necessarily for why it was THE FINAL S or R in the timeframe considered).

    So I'm just trying to understand the whole smart money/ dumb money mix that goes on at highs and lows.
  2. I think that there is more luck than intelligence involved because obviously no one does this consistently. Why do I say "obviously"? Because if someone could do it consistently, that person would eventually become a trillionaire. Since there are no trillionaires walking around, I assume no one can do this consistently.
  3. If you can pick tops and bottoms , with a stop loss , you can make a lot of money intraday. There are way to trade tops and bottoms in foresight, there are no books on how to do it, no mentors, trading rooms etc

    Go figure it out, just cause you don't know does not mean a method does not .It simply means the masses do not know.period.

    Many years ago people thought it impossible to go to the moon.
  4. No individual trillionaires, but large trading desks on Wall Street take gobs of money out of the markets on a daily basis.

    This is sort of what I'm getting at. Big money drives markets and creates the H's & L's ... who else is riding their coattails and is it fair to call them dumb money ("more luck than intelligence") ?
  5. I know it can be done from observing other traders, I just don't know exactly how. I can do it about 3-4 times a week per instrument with a setup I have mastered, but there are people out there that can do it sequentially with every swing which perplexes me. I'm thinking they use some kind of leading indicator from other markets or something like that.

    Also, addressing the whole, "if you can do that you'd be a trillionaire " Once you get so big, obviously you are limited by liquidity so that argument is dumb.
  6. Check the volume done at the exact high and low. Almost always it is a very low number compared to the daily volume transacted. So by definition: a lucky bastard.
  7. Yeah, I know that liquidity would be an obstacle at some point, but one would still expect that, all things being equal, there would be a fund out there that was larger than all others by a significant amount, if they could do this consistently. Also, one would assume that the method for picking tops and bottoms so deftly would be extensible to most or all markets that make tops and bottoms, i.e. all markets, so that your liquidity pool would actually be most traded instruments. At the very least, you would be able to pick the tops and bottoms in highly correlated (either positively or negatively) markets.

    In other words, it's not a dumb argument if you take a minute to think about it.
  8. Yes, but no Wall Street banks valued on the order of trillions of dollars in market cap, which, if their trading operations were truly that spectacular, one would expect to see.

    Not being part of the Wall Street crowd, my goal in trading is to be "the smartest dumb money", but that doesn't entail any attempt at picking tops or bottoms, actually. It's about identifying specific events which indicate that a top or bottom is in the process of forming and then managing the trade from there. There are times when the top or bottom that's in place when I enter holds and times when it doesn't. I can't say that the times when it holds are any more profitable than the times when it doesn't. Sometimes the market needs to make another bottom or top before it really reverses. While that can be frustrating to watch, I've just grown used to it. While I haven't systematically been able to identify a signal that would tell me whether 1 or more bottoms or tops are necessary to complete a move, I also don't think it's necessary so long as you understand where to put your initial stop, i.e. you understand where, price-wise, it becomes unlikely that a bottom or top actually is in the process of forming. The dream of a "no heat" trading method, which is kind of what you are talking about, is really just a dream once you get beyond playing for more than a few ticks.

    I think it was Livermore who said that "the first and last 1/8ths are the most expensive". I definitely know he said that picking tops and bottoms is a sucker's game.
  9. NoDoji


    Irrational panic/exuberance leads to capitulation. Either longs sell on news anticipating further selling which leads to further selling, or shorts buy to cover on news anticipating further buying, which draws in more trend followers and drives price up, leading to more short covering and draws in more momentum trend-followers. The buying or selling runs to a price zone that is so patently ridiculous in terms of the fundamentals backing the price at that level that the demand or supply simply dries up, resulting in a reversion to a more "reasonable" price level.

    The problem with trying to pick tops/bottoms during these sorts of moves is that "ridiculous" is purely subjective. As long the imbalance in demand or supply continues, price will continue in its trajectory.

    In 2008/2009 we saw the deepest support levels breached, leading stocks that traded only months earlier in the $100's to drop as low as the $2's and $3's, some for good reason, but others dragged down with the sinking ship despite stable fundamentals.

    In the massive bull run since March 2009 lows, some of these stocks staged a partial recovery (LVS from a low near $1.40 to a high just above $55, though nowhere near the pre-crash high around $150) and some have stagnated near lows (DRYS from a low near $2.70 to around $4 now after a pre-crash price as high as $130). In either situation you could've averaged down into ruin trying to pick a bottom (though my neighbor down the street managed to get DRYS at THE low tick of $2.72 the day after I called to tell him the price was patently ridiculous and he should buy some).

    This leads me to agree that it's pure luck get positioned short near long term swing highs or long near major lows.

    Intraday, it's easier to pick tops and bottoms because you can draw trend lines/channels, note S/R levels in various time frames, quickly gauge the "maturity" of a trending run, watch volume increase as price begins purely running without normal retraces. You can "feel" capitulation-in-progress, can gamble a bit and sometimes find yourself positioned very close to the high or low of the day.

    What I've found, though, is it's way more gratifying to be positioned in the direction of a trend off a pullback and watch your P/L grow by the second when you're on the right side of a capitulation move.
  10. But is it just a lucky idiot piker, or some lucky commercial or local? And if it is one of these professionals and picking tops/bottoms is so wrong, how do they get away with or justify bucking conventional trading wisdom to play these bottoms and tops? You'd have to assume they've done it before and perhaps even as a general practice, and have lived to trade on.
    #10     Jun 4, 2011