the government will buy....
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Why are markets more prone to false breakouts when it is heavily observed?
- Thread starter Amatrue
- Start date
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
IF "buy the 200-day MA at support" provides an edge, it certainly doesn't derive from the pattern being widely followed. That's conceptually impossible. An "edge" is by definition an advantage over other market participants. Especially in this age of hyper-availability of information, backtesting tools, algorithms and AI programs, etc. if other market participants know about the advantage, and can eliminate it, they will do so. They're not just going to willingly give you free money for nothing in return.
How do you maintain an enduring edge over other participants? It has to be by some combo of the following:
1. A pattern that nobody else has seen or found - this can be viable for short periods of time, but in the long run somebody else will find the same pattern and deploy arbitrarily large amounts of capital until the edge is gone.
2. Other participants fail to close the edge for structural reasons - e.g. due to legal regulations, capital controls, restrictive investment mandates, inability to compete with your low cost structure, technology, infrastructure, or research capabilities (not likely true for a retail trader, lol) or the volume of capital which can be profitably deployed is too small to be worthwhile (often true for retail edges).
3. Other participants fail to exploit the edge due to psychological or behavioral finance factors - such as behaving irrationally due to fear and greed, which by definition applies during bubbles, capitulation panics, stop-run spikes and so forth.
As you can see, none of these factors are enhanced by widespread knowledge of a given edge - just the opposite.
%%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
That;
+ so many of the stock market+ mutual funds millionaires/401k = buy/hold for decades.One example of a ''false breakout'' is someone is trying to use a 5 minute charts, good for an action addict, not so much for profits. BIG difference between some derivatives + stock market past 200 +years which not a zero sum game @ all .
Strangely, I remember Don Bright DayTrading Co also, not liking 5 minute candles; too long he noted LOL-true........................................................................................................
trading breakouts in stocks is ok but trading breakouts in forex is a low reward