Brandon Wendell, CMT
Brandon Wendell
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 climbs to daily highs near 1.1820
EUR/USD now picks up pace and advances to the area of daily peaks north of the 1.1800 barrier at the end of the week. The pair’s decent move higher comes against the backdrop of a generalised lack of direction in the FX galaxy and the mild offered stance in the US Dollar.
GBP/USD trims losses, retests 1.3460
After briefly challenging its key 200-day SMA near 1.3440, GBP/USD now manages to regain some balance and revisit the 1.3460 zone on Friday. Cable’s pullback comes as the selling pressure on the Greenback gathers traction, reigniting some recovery in the risk-linked space.
Japanese Yen gives back half of early gains against USD ahead of US PPI data
The Japanese Yen (JPY) surrenders half of its early gains against the US Dollar (USD) during the European trading session on Friday. The USD/JPY pair rebounds to near 155.90 as the JPY falls back, but is still 0.15% down.
Editors’ Picks
EUR/USD: Fed calm, ECB steady, but the Dollar still leads Premium
EUR/USD is still struggling to find real traction. The pair has tried to stabilise, but momentum keeps fading, leaving the door open to further weakness.
Gold: Falling US yields, geopolitics help XAU/USD hold ground Premium
Gold (XAU/USD) gained traction and climbed above $5,200, ending the fourth consecutive week in positive territory. The next round of US-Iran talks and crucial macroeconomic data releases from the US will be watched closely by market participants in the short term.
GBP/USD: Will Pound Sterling defend key 1.3450 support ahead of US jobs data? Premium
The Pound Sterling (GBP) entered a bearish consolidation phase against the US Dollar (USD), after having tested critical support near the 1.3450 level on several occasions.
Bitcoin: Another month of losses, and it’s been five
Bitcoin (BTC) price is stabilizing around $68,000 at the time of writing on Friday, but the Crypto King is poised to close February on a fragile footing, marking its fifth consecutive month of losses since October and a rare start to the year with back-to-back monthly corrections.
US Dollar: At a crossroads; Fed steady, tariffs in flux Premium
The US Dollar’s (USD) upward momentum from the previous week seems to have encountered a tough nut to crack in the 98.00 region, as measured by the US Dollar Index (DXY).
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