Have you ever been shaken out of a trade only to see the price move in your favor once you were out of the position? Did it seem like the institutions attached a camera to your computer to see where you entered and exited so they could trade against you? Obviously, this is not what happened but it is frustrating nonetheless.
What happened is that you likely thought and traded like a retail trader. Retail traders tend to buy stocks AFTER the price has risen and sell AFTER they have dropped. In essence, they have been chasing price and only catching it when the momentum exhausts.
Look at the following chart of EBay. You can see that the largest green candle happens to be associated with the highest volume in the move upward as well.
This is a case where the novice traders got greedy and chased price as it was rising. It is funny that people do this as we wouldn’t think of paying a markup for everyday things we purchase in life. Most of these same investors and traders seek out sales or bargains on everything from toothpaste to cars to furniture. But when they deal with the markets, that common sense becomes less common.
The professionals know that novices like to chase price and they will trap you or take advantage of your naiveté when you trade the way all of the other retail traders do. In BBBY, you can see the increase in volume as the novice trader’s jump into the stock as price breaks out to new highs.
The novices jumping into the markets are often signaled by a large candle in the direction of the trend accompanied with high volume. This is a regular occurrence and offers an opportunity for the institution.
This is a case where the novice traders got greedy and chased price as it was rising. It is funny that people do this as we wouldn’t think of paying a markup for everyday things we purchase in life. Most of these same investors and traders seek out sales or bargains on everything from toothpaste to cars to furniture. But when they deal with the markets, that common sense becomes less common.
The professionals know that novices like to chase price and they will trap you or take advantage of your naiveté when you trade the way all of the other retail traders do. In BBBY, you can see the increase in volume as the novice trader’s jump into the stock as price breaks out to new highs.
The novices jumping into the markets are often signaled by a large candle in the direction of the trend accompanied with high volume. This is a regular occurrence and offers an opportunity for the institution.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.
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