I have heard a few traders say sell into weak buyers or buy into weak sellers. So how do we identify weak buyers/sellers what should we look for?
I certainly dont have the answers I am very interested in a discussion.
I suppose we need to define weak buyers/sellers. Are these traders people who will puke out of a position easily if price goes sgainst them? Or are they weak in that they are in for a quick buck then out.
I don't really buy this term "weak sellers / buyers", unless you're using it for purely descriptive purposes.
Take ES or something like that. Now the vast majority of the volume is done by institutions - traditional institutions, HFT firms, major individuals who trade very large and so have the characteristics of an institution and so on. At any point the other side is likely to be this lot (the same is true for people on your side). None of these can be described as weak. They'll all have deep pockets, they'll all know what they're doing.
So the idea of "weak" traders - under-capitalised, inexperienced, and so on - isn't really all that valid or useful in my opinion, because they account for such a small percentage of the market.
Now lets assume we have identified a key level where we will consider a short. The reason for the level is not relevant to this discussion.
So are these traders saying they would prefer to short at the level if weak buyers took the price up to the level as opposed to strong buyers.
I don't think it matters really. Again, we all use terms like bulls, bears, buyers, sellers. Again, this is OK for descriptive purposes. But at any point most traders aren't bulls or bears, they're traders. The same people that took it up in your example could very well be the people that take it down. They buy all the way, make money most of the way, close out (sell) and then go short. Obviously, this sends the market south, not just because of their shorting, but also because of their closing, and also because of their abscence of buying. Take ES again. Intraday, I don't think that most of the volume (accounted for most days from what I understand by the HFT firms) is bullish or bearish. Some days they might be, but mostly I imagine their programmes can switch around in an instant depending on the information they're receiving.
Can we see it on a chart alone? If we see a steady gradual approach is that more indicative of strong buying? What if it moves sharply into the level is that an indication of weak buyers?
Well, it could be lots of things. If the price races up, is that strong buying? Maybe. Or maybe it's not buying, maybe it's the absence of selling. "Strong" (if you like) bears standing aside and waiting for more favourable prices rather than "strong" bulls piling in.
Perhaps it's possible to gain some insights from the overall context of the chart. A sudden surge after a protracted, grinding uptrend could more likely represent capitulation than a random spike does - late bulls desperate to get some of the action, desperate sellers who have finally realised that they're not going to get a better chance to take in their shorts.
Again, maybe this scenario is more likely if it isn't the first surge, but the second or third or whatever. Anyway, these people are the last buyers. Once they are spent, who is left to buy?
The steady, gradual approach. I often see this in the US stocks I watch. Who knows what is behind it? Often it moves in a fairly well defined channel, and believe it or not I do quite well by just buying at the bottom of the channel. It drifts up all day and you basically just hold until the end of the day. But what causes it? Uncertainty with a slight imbalance, everybody wanting the same thing (lower prices so they can cover shorts, buy at a good price and so on) but not believing they'll get it (so the shorts have to cover where they can, the would-be longs have to get in where they can) so it never comes. Or maybe it's driven by big institutions just filling their orders in pieces as best they can.
Now, perhaps you can characterise this as strong, because often it's a fairly straight-forward and regular move all the way to the end. Or maybe it's uncertainty. Or agreement, of course. There's so many possibilities, everyone will have their own views, or their programmes will have their own approaches. I don't doubt that there are good scalpers and programmes who make money all the way up on both sides, long and short. In fact, that behaviour would obviously reinforce the market action we're seeing.
Market profile charts - could these show weak/strong buyers or just areas where the market has traded less/more.
Volume tools - such as marketdelta and DTs product. These could tell us how many buy market orders hit into the ask on the way up to the level.
I'm really not that keen on volume, because I don't find it to be a reliable help. That's just me, I don't doubt that there are people much better than me who find it invaluable.
For me personally if I am going to short a level I prefer to see price move up sharply rather than meet the level more steadily but my research is by no means complete.
Well, that does make sense to me, but it depends on the context. Although I do everything I can to avoid reversals in any case. You have to be careful though. Very frequently you'll see the race up, a decline, then a further test of the high, then the real reversal. Where I do go for them, I like to see this rather than joining in for the first attempt down. But one of the best things I ever did was to make a conscious effort to not trade reversals. I find it interesting to watch how they play out and speculate (as you are doing) on the action that's creating them, but for the most part it's purely out of interest.
Again, you have to be careful. Often it's spiking up fast for a reason. Generally where it's like this I prefer to see if there is a pause that will allow me to go long rather than try to stand in front of the trend, but it does all depend on the context. Like above, I'd be less likely to do that if it followed a protracted bull move, or a series of bull moves interspersed with bull spikes.
Anyone care to throw in some ideas?
