Monday, April 12, 2010
To Contrary Belief
What are the masses doing is the question, I try and ask myself every time I trade ,what is human nature?
Price is determined by a constant battle back and and forth between the bulls and the bears thus price is determined by the market players .The playground becomes a constant sandpit of emotions ,fear ,greed ,hope ,desperation, a gene pool of emotion and human psychology .
I can go on and on about human nature and its significance to trading,every trader is subject to ,or a better description,a "slave" to it , all boiling down to the big question ,am I on the right side of the fence? Or do I need to jump ship.
The reason I am writing this post is to record my thought patterns for Thursdays trade on the EUR/USD , I am sure that many of you ,who are trading , have read reports or have been following the news on Greece and its contribution to the decline in the value of the EUR.
From My analysis on Thursday as seen from my trade posted of the Euro,it was in a strong decline ,market sentiment was very negative ,various posts that I read were all in favor of shorting the EUR for possible further decline in value against the Green back.
The EUR was approaching a strong support level on the weekly charts, now the hardest part in trading is positioning yourself on the side opposite side to mass psychology , and I am not saying that every time you trade you must short when the market is strongly bullish ,but sometimes you got to keep in mind ,what are the BIG BOYS thinking ,as apposed to everyone else, and as we all know ,there is no infinite pool of liquidity flowing into the market ,thus if everyone is long in a certain position , we wont all be making money ,be sure that for every winning position there is a losing position just on the other side , or in the opposite cubicle to you ,your friend Robs account is basically being transferred into your account as you are trading , I like to think that I am on the winning side most of the time just to keep a confident psychology ....positive reinforcement .
Back to positioning yourself on the opposite side , now the question I asked myself ,how many traders were positioned short on the Euro ,one answer , plenty ,and what happened to the EUR it bounced and rocketed up.A lot of traders jumped ship.or maybe they are still holding position thinking exactly the same as us now .....stay positioned opposite to what the masses are doing ,all I know is,on that trade I made money and I positioned myself to what the masses were "NOT" doing.
“A crowd never reasons, but follows its emotions; it accepts without proof what is suggested
or asserted.”“Buy when everyone else is selling and hold until everyone else is buying. This is more than
a catchy slogan . It is the very essence of successful investment”
John Paul Getty - How to be Rich
You should see from the above that if we can spot an emotional crowd and position ourselves
in the opposite direction we can make great profits. Its not of course enough just to
understand this, we need specific tools that can help us identify and act on these moves.
This is where education in understanding the markets as well as equipping yourelf with the right tools to essentially capitalize on mass hysteria
This will help you not only identify an emotional crowd but will also help you act
upon these situations for big profits.
Price is determined by a constant battle back and and forth between the bulls and the bears thus price is determined by the market players .The playground becomes a constant sandpit of emotions ,fear ,greed ,hope ,desperation, a gene pool of emotion and human psychology .
I can go on and on about human nature and its significance to trading,every trader is subject to ,or a better description,a "slave" to it , all boiling down to the big question ,am I on the right side of the fence? Or do I need to jump ship.
The reason I am writing this post is to record my thought patterns for Thursdays trade on the EUR/USD , I am sure that many of you ,who are trading , have read reports or have been following the news on Greece and its contribution to the decline in the value of the EUR.
From My analysis on Thursday as seen from my trade posted of the Euro,it was in a strong decline ,market sentiment was very negative ,various posts that I read were all in favor of shorting the EUR for possible further decline in value against the Green back.
The EUR was approaching a strong support level on the weekly charts, now the hardest part in trading is positioning yourself on the side opposite side to mass psychology , and I am not saying that every time you trade you must short when the market is strongly bullish ,but sometimes you got to keep in mind ,what are the BIG BOYS thinking ,as apposed to everyone else, and as we all know ,there is no infinite pool of liquidity flowing into the market ,thus if everyone is long in a certain position , we wont all be making money ,be sure that for every winning position there is a losing position just on the other side , or in the opposite cubicle to you ,your friend Robs account is basically being transferred into your account as you are trading , I like to think that I am on the winning side most of the time just to keep a confident psychology ....positive reinforcement .
Back to positioning yourself on the opposite side , now the question I asked myself ,how many traders were positioned short on the Euro ,one answer , plenty ,and what happened to the EUR it bounced and rocketed up.A lot of traders jumped ship.or maybe they are still holding position thinking exactly the same as us now .....stay positioned opposite to what the masses are doing ,all I know is,on that trade I made money and I positioned myself to what the masses were "NOT" doing.
“A crowd never reasons, but follows its emotions; it accepts without proof what is suggested
or asserted.”“Buy when everyone else is selling and hold until everyone else is buying. This is more than
a catchy slogan . It is the very essence of successful investment”
John Paul Getty - How to be Rich
You should see from the above that if we can spot an emotional crowd and position ourselves
in the opposite direction we can make great profits. Its not of course enough just to
understand this, we need specific tools that can help us identify and act on these moves.
This is where education in understanding the markets as well as equipping yourelf with the right tools to essentially capitalize on mass hysteria
This will help you not only identify an emotional crowd but will also help you act
upon these situations for big profits.
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