Real Reasons Behind Market Patterns
- Thread starter cornix
- Start date
There is a fundamental misunderstanding very evident among technical analysts. mass psychology does not move markets anymore than fans at a baseball game determine the outcome. Mass psychology is a myth perpetrated by the market machine to extract maximum amounts of money from the highest number of people possible-- this is how the market machine survives.
With that said, CAPITAL flows are the only thing that controls market direction. The masses do not control CAPITAL flow in any given financial product. CAPITAL flows can be controlled by one or a group of BIG MONEY PLAYERS, not the mass psychology taught by uninformed and naive technical analysts and pattern watchers.
One hedge fund, on a whim, decides to dump their holdings of XYZ and they are the big fish in that pond-- price will plunge regardless of what the bullish or bearish sentiment of the masses invested in the product.
BY saying that patterns are predictive or even provide an edge is the same as saying you know who the big players are and CAN READ THEIR MINDS.
This isn't difficult and is the first step to understanding how markets really work. surf
With that said, CAPITAL flows are the only thing that controls market direction. The masses do not control CAPITAL flow in any given financial product. CAPITAL flows can be controlled by one or a group of BIG MONEY PLAYERS, not the mass psychology taught by uninformed and naive technical analysts and pattern watchers.
One hedge fund, on a whim, decides to dump their holdings of XYZ and they are the big fish in that pond-- price will plunge regardless of what the bullish or bearish sentiment of the masses invested in the product.
BY saying that patterns are predictive or even provide an edge is the same as saying you know who the big players are and CAN READ THEIR MINDS.
This isn't difficult and is the first step to understanding how markets really work. surf
Greetings C,
In my opinion from the individuals perspective, excellence and peak performance in any activity is both a carefully and deliberately constructed blend of technique with mindset. And any superior performer, in most any field of endeavor, who has ever reached the upper echelons of their craft will bare witness to this truth.
In other words; you can learn exactly how to swing like Tiger Woods does on the green, “his technique”, but if you don’t also acquire the same type of similarly effective mental techniques, the ones that he is using when he performs his task on the green, your results will more often than not consistently fall short of the mark.
I can guarantee you, how Tiger is thinking, and what Tiger is thinking about while he is executing, is in most cases light years away from what is going on, and through the mind of the average duffer. This is also true with trading. How the trading professional is thinking, and what he is thinking about while he is executing, is light years away from what is going through the mind of the average trader. That is why he is a professional, he thinks differently. Excellence and consistency will remain mysterious and elusive until one comes to this critical understanding. My point is: You can’t “get there” from Technical Analysis {TA} alone!
This is not to say that technical analysis is not important, because that is absolutely not the case. You need TA to identify the patterns, define your risk, and to determine when you take profits. But that’s just about it! If one believes in some omniscient TA magic and wizardry, this can only lead to continuous cycles of frustration, pain, and mounting fears. You will be caught “In the TA Cycle”, the Black Hole of trading, from which most never return. And, slightly modifying the truth in what Surf just said: BY saying that INDIVIDUAL patterns are predictive or even provide an edge is the same as saying you know who the big players are and CAN READ THEIR MINDS.
Yes, TA is important. But in my opinion it is no where near as important as Mental Analysis {MA}. When push comes to shove, TA is essentially just Arithmetic and Math generously sprinkled with pattern games. And for most of the people involved in trading, considering their former technical and professional backgrounds, that’s the easy stuff to master. However, its been my experience that the MA could take years or even decades to first recognize, then understand, and then to master. Been there; “in the TA Cycle”, done that cycle more times than I’m proud to say. Yeah…because of my stanchly held belief in the all powerful omniscience of TA, I too was once bull headed and deeply “in the TA cycle”.
If you believe as I do that, trading is both an Art and a Science, the Science half being the TA, and the Art half being the MA, then any efforts to reduce the TA half of the spectrum down to its base elements, and singularly apply these to the trading task, will always consistently fall short of the mark. This is because you’ve only dealt with half of the trading problem. And to be sure,…..the easier half!
I believe this is the primary reason why so many traders on ET and around the world consistently fail to cross the “threshold of consistency” with their trading results. They spend 98% of their working time preoccupied with only the Technical Analysis side of the equation, while in most cases, either totally discounting or totally ignoring the more important Mental Analysis side. They have failed to realize that excellence and peak performance in any activity is both a blend of technique with mindset.
The reasons behind market patterns may be fascinating, fun, and interesting ideas to discuss and ponder as is being done in this thread. No harm in this at all. I am all for having, and participating in these types of discussions. But one should know and understand that these “reasons” are neither required nor essential to profitable trading. This is because, as has been stated many times before; “You don’t need to know what is going to happen next to make money”.
Just my opinion.
KDASFTG
In my opinion from the individuals perspective, excellence and peak performance in any activity is both a carefully and deliberately constructed blend of technique with mindset. And any superior performer, in most any field of endeavor, who has ever reached the upper echelons of their craft will bare witness to this truth.
In other words; you can learn exactly how to swing like Tiger Woods does on the green, “his technique”, but if you don’t also acquire the same type of similarly effective mental techniques, the ones that he is using when he performs his task on the green, your results will more often than not consistently fall short of the mark.
I can guarantee you, how Tiger is thinking, and what Tiger is thinking about while he is executing, is in most cases light years away from what is going on, and through the mind of the average duffer. This is also true with trading. How the trading professional is thinking, and what he is thinking about while he is executing, is light years away from what is going through the mind of the average trader. That is why he is a professional, he thinks differently. Excellence and consistency will remain mysterious and elusive until one comes to this critical understanding. My point is: You can’t “get there” from Technical Analysis {TA} alone!
This is not to say that technical analysis is not important, because that is absolutely not the case. You need TA to identify the patterns, define your risk, and to determine when you take profits. But that’s just about it! If one believes in some omniscient TA magic and wizardry, this can only lead to continuous cycles of frustration, pain, and mounting fears. You will be caught “In the TA Cycle”, the Black Hole of trading, from which most never return. And, slightly modifying the truth in what Surf just said: BY saying that INDIVIDUAL patterns are predictive or even provide an edge is the same as saying you know who the big players are and CAN READ THEIR MINDS.
Yes, TA is important. But in my opinion it is no where near as important as Mental Analysis {MA}. When push comes to shove, TA is essentially just Arithmetic and Math generously sprinkled with pattern games. And for most of the people involved in trading, considering their former technical and professional backgrounds, that’s the easy stuff to master. However, its been my experience that the MA could take years or even decades to first recognize, then understand, and then to master. Been there; “in the TA Cycle”, done that cycle more times than I’m proud to say. Yeah…because of my stanchly held belief in the all powerful omniscience of TA, I too was once bull headed and deeply “in the TA cycle”.
If you believe as I do that, trading is both an Art and a Science, the Science half being the TA, and the Art half being the MA, then any efforts to reduce the TA half of the spectrum down to its base elements, and singularly apply these to the trading task, will always consistently fall short of the mark. This is because you’ve only dealt with half of the trading problem. And to be sure,…..the easier half!
I believe this is the primary reason why so many traders on ET and around the world consistently fail to cross the “threshold of consistency” with their trading results. They spend 98% of their working time preoccupied with only the Technical Analysis side of the equation, while in most cases, either totally discounting or totally ignoring the more important Mental Analysis side. They have failed to realize that excellence and peak performance in any activity is both a blend of technique with mindset.
The reasons behind market patterns may be fascinating, fun, and interesting ideas to discuss and ponder as is being done in this thread. No harm in this at all. I am all for having, and participating in these types of discussions. But one should know and understand that these “reasons” are neither required nor essential to profitable trading. This is because, as has been stated many times before; “You don’t need to know what is going to happen next to make money”.
Just my opinion.
KDASFTG
ta s/r areas can be thought of as groups of armies. the army marching up will likely encounter a battle at the resistance point, which army will win is an unknown, if you are short at 25 res and the next supp army is 20,you have a stop above 25 and are hoping that it will drop to 20, ta just keeps you from buying and selling the mid range, this area reduces your edge,could go back to 25 or drop to 20,better to buy at 20 and lose at 19 or sell at 25 and lose at 26 than trade the middle, in that way its helpful
army at 87 25-88 5 failed to stop bulls,smaller army at 90 5 92 25 hasnt been engaged yet, last 15 minutes dvol seller outnumber uvol buyers, simple inner market analysis that cant be seen without ta, how you trade it is all mental as KDASFTG was saying
every sunday the nfl teams have a man upstairs taking pictures sending them down looking at offensive and defensive formations, keeping stats on the strong and weak areas of each, this is ta..what the coach does with that info is similar to trading..this excercise applies to a countless number of tasks
every sunday the nfl teams have a man upstairs taking pictures sending them down looking at offensive and defensive formations, keeping stats on the strong and weak areas of each, this is ta..what the coach does with that info is similar to trading..this excercise applies to a countless number of tasks
Attachments
Last edited:
Good points;actually with tek analysis defined as ''the study of price + volume'';; any body but a dimwit studys TA.
Even the clown that only looks @ his retirement fund once every year or 2 years,,.pays attertion to TA[price + volume,] unless he is a dimwit. Not a prediction nor am i exspecting every one honest enough to admit they look @ or study price + volume.
Pattern=Plenty of people panic sell.Art Cashin said ''panic sellers lose''
The patterns (or price footprints) are the result of the battles that occur at value zones, as ammo described. The patterns are the result of the beliefs of all the market participants (asset managers, iBanks, hedgers, individual investors and traders, whomever). If a single hedge fund has the power to move price significantly and has a strong belief about where there's value, then it can move price, resulting in a price swing. There are certain lines in the sand which, when crossed, attract attention because past performance has indicated that if X happens, Y follows more often than not. Those market participants who understand that know that a) you don't have know what's going to happen next to make money and b) if you trade the crossing of lines in the sand that result in a particular favorable excursion more often than not, the odds are in your favor.
You talk in absolutes as if you've been at this for more than a couple years. And they wonder why feminism is dead.
George Soros at least more than once claimed that top money managers have very well expressed mass mentality as well. Which means they are very often in the same trades at the same time.
In theory it means that because mass psychology is much more primitive and predictable than individual psychology, one can somewhat accurately read it.
Very interesting observations, KDA. Thanks a lot!
Actually, I wasn't going to only limit this thread to technical patterns, so your words about MA fit perfectly and if you don't mind explaining, it would be of great interest to know more details on what exactly you mean by this term (MA).