A trading thought experiment
- Thread starter axeman
- Start date
This is a question of market psychology.
Im thinking of a theoretically pure market where everyone
is on level ground. MM's cant gap the market.
There are no brakes.
A purely, theoretically free market, unlike what we really have.
A LARGE group of players, free to bid and off.
Then a GIANT fish with unlimited capital steps in, selling short
like crazy until half the value is lost.
Then buys it all back, driving prices straight back up
at yet another incredible rate.
Again....focus on market psychology.
For example....I could hypothesis the following.
1)As the market started to plummet, the momentum traders
would jump in too, further accelerating the fall.
2) At some point, these short term players would cover,
and then the bottom pickers would step in for their scalp,
causing an upward burst.
3) It quickly fades as your selling overtakes, and the market plummets
past the lower point.
4) This would continue for many cycles and each time the
bottom pickers would get destroyed. The value players
would get destroyed too.
5) Everyone would be stunned, until the point that a lot of
people would be in sooooo much pain from their losses they
could barely trade from the pure SHOCK of what was happening.
6) Then you hit the 50% mark, and start buying back like crazy,
7) The players that have been burned so badly so quickly
sit there stunned as you buy back tons of contracts for very cheap.
8) Many are convinced this puppy was just gonna keep going
and continue to sell to you.
By the time people REGAIN their belief that the market really
is climbing this time and it is not simply another HORRIFIC
mini bear market rally, you have already made a killing.
You close out your position at a huge profit.
Hows THAT sound?
Just a hypothesis. I dont believe this. Im completely
not convinced either way.
But think back to the time when you were learning to trade.
Typically, you get greedy and sell your winners too quickly for
a profit. You hold on to your losers and pray.
Think about that dynamic in this context. I think this
fear/greed dynamic COULD make you a LOT of money
in this scenario.
Ok...so what do YOU think?
peace
axeman
Im thinking of a theoretically pure market where everyone
is on level ground. MM's cant gap the market.
There are no brakes.
A purely, theoretically free market, unlike what we really have.
A LARGE group of players, free to bid and off.
Then a GIANT fish with unlimited capital steps in, selling short
like crazy until half the value is lost.
Then buys it all back, driving prices straight back up
at yet another incredible rate.
Again....focus on market psychology.
For example....I could hypothesis the following.
1)As the market started to plummet, the momentum traders
would jump in too, further accelerating the fall.
2) At some point, these short term players would cover,
and then the bottom pickers would step in for their scalp,
causing an upward burst.
3) It quickly fades as your selling overtakes, and the market plummets
past the lower point.
4) This would continue for many cycles and each time the
bottom pickers would get destroyed. The value players
would get destroyed too.
5) Everyone would be stunned, until the point that a lot of
people would be in sooooo much pain from their losses they
could barely trade from the pure SHOCK of what was happening.
6) Then you hit the 50% mark, and start buying back like crazy,
7) The players that have been burned so badly so quickly
sit there stunned as you buy back tons of contracts for very cheap.
8) Many are convinced this puppy was just gonna keep going
and continue to sell to you.
By the time people REGAIN their belief that the market really
is climbing this time and it is not simply another HORRIFIC
mini bear market rally, you have already made a killing.
You close out your position at a huge profit.
Hows THAT sound?
Just a hypothesis. I dont believe this. Im completely
not convinced either way.
But think back to the time when you were learning to trade.
Typically, you get greedy and sell your winners too quickly for
a profit. You hold on to your losers and pray.
Think about that dynamic in this context. I think this
fear/greed dynamic COULD make you a LOT of money
in this scenario.
Ok...so what do YOU think?
peace
axeman