Why are markets more prone to false breakouts when it is heavily observed?

[padutrader]

my pro boys want it up, then it up.

who will they sell it to?

taking the market up anybody can do....it is the easy part

the tough part is to convince somebody to buy at highs.... so that the profit may be made

there are not many idiots to buy at highs ...which is exactly why that becomes the high.

 

[qlai]

My 2c on this is that one needs to distinguish BOs due to a catalyst vs. noise. I'm talking daily timeframe and higher. It's not that BOs are prone to fail, but it's that most of them break out due to noise and run out of fuel. Of course even when there's a catalyst, you may end up missing or chasing. So not easy no matter what.

 

[dozu888]

who will they sell it to?

taking the market up anybody can do....it is the easy part

the tough part is to convince somebody to buy at highs.... so that the profit may be made

there are not many idiots to buy at highs ...which is exactly why that becomes the high.

it's easier than you think... I'd say very easy to brain wash the public.. all the bubbles we've seen in the past.

DOW 40000 would only bring the P/E to about 30...

but, when my boys are ready to unload, they will use their media machine to convince people to buy... and the sheep will do what they are told.

 

[_eug_]

IMO initial breakouts fail because thats where profit taking takes place by the informed traders, the ones that got in early. Also the initial breakout kind of confirms that sellers have been exhausted and future move up can have some legs.

Buying initial breakouts you are just a sucker providing liquidity for others to get out at new highs.

Im not talking about 1 min charts here... Bigger picture.

 

[padutrader]

IMO initial breakouts fail

BOs cannot be taken in isolation.....what was the market recently doing?
was it trending?
was it in trading range?
if it was in the latter.... all BOs should be faded....

this takes a great deal of expertise......because they will not all fail from the same place.......
but then trading is never child's play

 

[Wheezooo]

"there are not many idiots to buy at highs"

How 'bout smart people? I can't imagine how many times I must have bought the high or sold the low of the day, and short the bottom and long the top, that was pretty much always.

 

[padutrader]

How 'bout smart people? I can't imagine how many times I must have bought the high or sold the low of the day, and short the bottom and long the top, that was pretty much always.

we must have drink together....some time some where
we have a lot in common.....
thank fully you used past sense...i hope

 

[wrbtrader]

You are wrong with your analysis. In simple terms, if everyone is using a particular successful strategy, the market will move in other direction because there is always an opposite side of trading. Those who lose and those who win. There has to be a balance. This is one reason why most successful traders don't share their strategy until they've made millions with it. The less crowded, the more successful the strategy will be.

The point was that everyone will not be using the same successful strategy which is why the theory that people throw around about "everyone" is extremely flawed.

Also, there is no balance. Thus, there's never an equal number of buyers to an equal number of sellers at the end of the day because there's always someone(s) out there holding more of the other.

wrbtrader

 

[comagnum]

What you are talking about is called the Heisenberg principle.

The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of non-speculative activity, the greater the significance of technical breakouts.

 

[Amatrue]

To suggest that a strategy offers MORE rather than less edge as it becomes more widely used, is akin to suggesting that it's possible for the average investor's return to exceed that of the index - which is clearly impossible.

What about 200 moving averages that holds support or resistance at key levels? They are widely used and do provide investor's with an edge