It all has to do with supply and demand. It only looks like the noobs sell at the bottom or buy at the top because one of the characteristics of the noob is that they are part of the very last supply or demand and nothing is left after them. So all the sellers have sold there position so the only way is up because there are only buyers from that point on. And vice versa for the top, there are only sellers left because the buyers are dried up. The max is greed and fear reaching their extreme. FOMO, for the buyers on the top and Max pain for the sellers at the bottom.
can anyone explain the psychology behind noobs selling at exact bottom?
- Thread starter mute9003
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[#1] a huge number of reasons;
support + resisatnce\ 50dma sell/
daytrades + different time chart/
different time frames/ different profit targets.
- [-666]-Frankly you are barking up the wrong tree;
meaning/just looking @ TQQQ + sqqq\ hourly chart$ people are seling + buying all over the place , no-where near '' sell all at once'' Did not trade sqqq \today not enough trends.
777]Better get something besides just '' charts '' , not that simple, even if it helps a lot
888] Back to swing trading trends/investing, metals business, + some daytrading.............................
"maximum pain is dictated by the actual trend regardless of where they entered and how much they lost?" probably, but also the larger time frame.
"is it certain amount of time passing or lack of green bars or the speed of downtrend ?"
all of the above. I think velocity is what freaks a lot out because someone much bigger and possibly more informed, is moving the price. Also a lot of traders use time as an exit criterion. If it does not behave within a certain amount of time, then exit and wait for another trade, versus waiting and wanting it to do what is SHOULD have done a long time ago.
Max Pain is really a combination of:
1) most uncomfortable unrealized loss
2) fear that it will become worse and what you don't know and how it *might* impact price.
3) desire to end the discomfort about the uncertainty of what the future holds.
To get over it, a few things that can help.
1) don't watch so closely to avoid the noise. (See book How I made 2 million dollars in the stock market, circa early 1900s. a quick read).
2) use allocations. So no matter what the outcome, your account is protected because you used only a PLANNED percentage of the assets
3) Account for the pain that might happen and put that in the plan.
Keep working at it. Good observations and reasonable questions for a beginner.
"is it certain amount of time passing or lack of green bars or the speed of downtrend ?"
all of the above. I think velocity is what freaks a lot out because someone much bigger and possibly more informed, is moving the price. Also a lot of traders use time as an exit criterion. If it does not behave within a certain amount of time, then exit and wait for another trade, versus waiting and wanting it to do what is SHOULD have done a long time ago.
Max Pain is really a combination of:
1) most uncomfortable unrealized loss
2) fear that it will become worse and what you don't know and how it *might* impact price.
3) desire to end the discomfort about the uncertainty of what the future holds.
To get over it, a few things that can help.
1) don't watch so closely to avoid the noise. (See book How I made 2 million dollars in the stock market, circa early 1900s. a quick read).
2) use allocations. So no matter what the outcome, your account is protected because you used only a PLANNED percentage of the assets
3) Account for the pain that might happen and put that in the plan.
Keep working at it. Good observations and reasonable questions for a beginner.
First of all, noobs don’t sell all at the once, that’s a myth. There is not one single chart pattern which will reveal the market reversals for you, although there can be some clues (which are always easier to spot after the fact).
Secondly, your original question (at the beginning of the thread) is very open ended. Regarding the psychology behind it, it is the irrationality as @Sprout mentioned in the other thread. Familiarise yourself with Prospect Theory https://en.wikipedia.org/wiki/Prospect_theory so you can understand that successful traders need to condition themselves to trade against their own biology.
In terms of realistic expectations, if people become professional tennis players, they practice for years, they have to beat the all the local players and then raise through the ranks all the way to becoming pros. However, when it comes to trading, people immediately start trading against the pros, and yet they expect to become profitable by taking money from the pros. That’s not going to happen (at least not on consistent basis). Can you start seeing how the odds are stacked against you?
And what do the noobs do? They start focusing on discovering the holy grail of technical edges at the expense of treating trading as a business. They buy at the wrong time and then they hold onto their losses, reframing it that a paper loss is not a loss, some start averaging down and things like that because they don’t manage risk, until they’re forced out of the marked with huge loss.
Sometimes they sell at the market bottoms, but often it can be anywhere on the way down. The crowd is often wrong, that’s all, nobody can predict anything with 100% accuracy, there is no amount of time passing or lack of green bars or the speed of the downtrend, just certain price and volume patterns that indicate a potential end of downtrend (which is often very subjective). Instead, you should avoid picking tops and bottoms (because the recognition is too subjective) and rather wait for the reversal to be confirmed and then trade the first pullback.
You need to approach trading as a very serious and ruthless business, and let the market decide where the top/bottom will be, and you need to be prepared for any scenario whether or not it fits your original view of where the market should go.
You won’t master the market through technical analysis, although lots of people will tell you otherwise. Yes, you need some technical edge, but most of your edges will come from mastering yourself so you ‘re no longer part of the herd mentality. Unfortunately, it is easier said than done.
A good book to start with is “Trade your way to financial freedom” by Dr. van Tharp.
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You would be a naive noob yourself to ask, "Oh why do all these noobs get out at the bottom?" because it shows that you've never traded the bear market. If you had, you would know that what took over a month to rise in a bull market can be torn down in a single day in a vicious bear market. It would send chills down anyone's spine if they're not careful. What do you call that? That's right, bone chilling FEAR.
Everyone here pretends as if they're immune from these violent selloffs, but you would be surprised if you knew just how many of these same posters who talk tough have disappeared after 2000 and 2008, as well as 2022 bear markets.
You would be a naive noob yourself to ask, "Oh why do all these noobs get out at the bottom?" because it shows that you've never traded the bear market. If you had, you would know that what took over a month to rise in a bull market can be torn down in a single day in a vicious bear market. It would send chills down anyone's spine if they're not careful. What do you call that? That's right, bone chilling FEAR.
Everyone here pretends as if they're immune from these violent selloffs, but you would be surprised if you knew just how many of these same posters who talk tough have disappeared after 2000 and 2008, as well as 2022 bear markets.
I traded in bear market.
Not successfully. It was very tough. Especially when you start at the peak of bull market when you could literally buy anything and go to sleep and wake up with 10-15k profits(dpw). I didnt know what to expect in bear market. And lost all the profits and then some.
By the time i figured out what bear market is i had almost no account left.
Then there is that transition time from one market to another thats also a pain in the ass to trade.
Im obviously still here after going through the meat grinder
There are alot less trading gurus on youtube in the bear market. Many of those accounts got real quiet few months into it.
Im not gonna pretend that this is easy. Shit is probably the hardest thing ive done. Mostly because i have to do alot of work on myself. Including self sabotage,
But my work sucks and barely pays. So i figured i can struggle there or i can struggle here with alot more potential
Im not gonna pretend that this is easy. Shit is probably the hardest thing ive done. Mostly because i have to do alot of work on myself. Including self sabotage,
But my work sucks and barely pays. So i figured i can struggle there or i can struggle here with alot more potential
Similar to 'bringing a knife to a gunfight', noobs are generally emotionally reactive and most participate in the market to get their emotional needs met.
By design, the market seeks to facilitate an increase in the volume of transactions. Like the normal distribution of a bell curve 'fair value' is the mode - the price level of which most transactions occur. Until new information comes into the market which propagates asymmetrically, price will oscillate and the event phenomenon of 'CCC' Congestion, Convergence & Centering will occur.
Some algos will go to sidelines, some will position directionally to either side, some will play the spread, some will widen their spread, others will aggressively markup/down attempting to trigger other algos into adverse selection. All anticipating the event of a breakout success or fail - most breakouts fail. Most price action intraday is mean reverting.
As the iconic Wall St Cheat Sheet illustrates, there is an emotional cycle that is available to experience.
Most aspiring traders never escape the emotional roller coaster. It requires real work to train yourself to be rationally dominant and emotionally unreactive.
As for Max Pain, go to the CME website, it's defined as the price that most options expire worthless. Generally, that strike price acts like gravity.
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You're working on self-sabotage and that's a very good thing. Most people are not even aware that they're self-sabotaging.
If your work barely pays, then you’re even under more pressure than the average trader, so don’t make the mistake of chasing money on the smaller timeframes. The market does not care about anyone’s circumstances, and therefore you need to play very strong defence otherwise others will take the money from you, guaranteed.
If you want to trade stocks, then perhaps start with the weekly charts, and during the weekends mark up the HH, HL, LH, LL, draw support and resistance, trendlines, price patterns, etc. The biggest institutions (due to their size and longer-term holding periods) base their decisions mainly on the weekly charts because they cannot make their decisions based on daily charts otherwise they’d move the market.So don’t worry, you won’t miss out on anything, plus the weekly charts will provide you with some context.
Once you identify the trend, levels of interest (where you can expect buyers/sellers to step in) and price patterns on the weekly charts, then you can zoom in to the daily charts for entry timing purpose. Don’t worry that most people/books refer to daily charts all the time, they’re just regurgitating the same stuff over and over again. Become an independent thinker and experiment with different things that make conceptually sense.
Just stay away from intraday trading, and that way you should become a better trader if you master the higher timeframes because higher timeframes always take precedence. In intraday trading any psychological weaknesses and issues are magnified. Also be aware that intraday traders need higher win rate than in position traders because they’re limited by time and the travel range during that day.
Don't be a risk guy, don't have any interest in risk because you don't need to have any interest in it, you need to play strong defense all the time and not take any risk, and trade only low-risk setups. The only interest you need to have in risk is how to control it. Apart from money management, the biggest risk control is entry at the lowest common denominator. (I know that I'm constantly repeating risk control, it's because my English is verbose, but most importantly it's because one simply cannot become a good trader unless one becomes a good risk manager)
Traders have tendencies to let losses run, and so the most important thing you must manage as a trader is the size and frequency of your losses. Control of your emotions, be able to pull the trigger or hit the ejection button, there can't be any emotional involvement. Stick to your trading plan because all trades are just numbers, not personal possessions. Traders also have tendencies to take profits early, and one way to alleviate the urge to take profits is to bank partial profits and scale out with the reminder.
Divide your trading capital say into 10 parts, and allocate a maximum specific dollar amount to each trading position (i.e., if you have $10,000 equity, split it to allow maximum 10 positions of maximum allocation of $1,000 per positions). This way, if the stock goes to zero, then the maximum you’ll lose is 10% of your total capital. Once you get better and understand sector/industry correlations and adjusting size to the stock’s volatility (wider stops, smaller size) and things like that, then you can increase the allocation of your capital to bigger portions, and start using your capital more efficiently. But right now, protect whatever small capital you’re left with, or you’ll lose it.
Never take more than a small percentage loss of your total trading capital on any specific trade (the usual rule is 1%.) Remember that the stock can gap against you, that’s why you should consider some of the above to limit your capital exposure.
Instead of asking how much I can win, always ask yourself “How much can I lose?”
The other thing I think a lot of the TA folks forget is that - at the point where someone sold in a falling market - that there was no "bottom". It was still falling. I see people all the time say "well it was stupid to sell there as it was putting in a bottom". That can only be seen in hindsight after the subsequent rise.