Market Psychology and Targets

[forker]

Trying to understand human nature in context to market direction is a pointless task if I must be honest. I don't think of what others are trying to do when I trade but that's not to say others don't. It's just that such lines of thinking don't really have any advantage because it's like trying to determine the winner of a football match by studying the spectators. I'm not saying there is no merit in doing so, there probably is, however you really don't need to think on such ways.

If you want to understand where the market is going then you need to understand the drivers and the dynamics of the market.

 

[dbphoenix]

Thanks again, but this isn't going to drive me crazy. It's just a question. Why do you need to bring it back to trading or systems or "getting on with it"? I haven't asked how to trade successfully. If that's what I wanted I would ask you for help or start a journal and ask you to look in or take malaguti up on his offer.

Because of what you wrote in your first post:

I want to understand where in general the market is likely headed based on human nature and why. And then within that framework, apply TA or whatever else to fine tune entry in that larger move that I can understand.

If you're not interested in trading, you wouldn't be concerned about entry. If I got it wrong, perhaps someone else can benefit from what I've posted here.

Best of luck to you.

 

[malaguti]

Thanks again, but this isn't going to drive me crazy. It's just a question. Why do you need to bring it back to trading or systems or "getting on with it"? I haven't asked how to trade successfully. If that's what I wanted I would ask you for help or start a journal and ask you to look in or take malaguti up on his offer.

I'm asking about understanding something. Forget trading it. If it helps, assume I'm not interested in trading at all, purely an academic understanding of something, price movement and the psychology of the money. If you say that it can't be known, not even guessed at, not even got right more than wrong, or guessed at ahead of time - why the money thinks what it does - then that's fine. Maybe someone else can add something. Or maybe not.

Let me give you an example, a very very simple one
I've gone to buy apples today, because im looking to freshen the look of my kitchen table, the price is £1/bag
somebody else has gone to buy apples today because he's just been told by his doctor if he doesn't get some vitamin c he will die of scurvy
the market stall holder is selling them at a £1/bag because he bought them for 60p and he is interested in only making a profit

I bought my apples, and I'm happy, the vitamin deficient person also bought his and the market seller sells out today. he clearly thinks he could sell them higher tomorrow. therefore he rises his prices

so you know why, ive just told you..but am I going to be doing the same tomorrow? maybe, maybe not, but sure as hell there will be another person wanting to buy apples for another reason
so how can you, or I or anybody on the face of this earth possibly tell you why?
if its one or two people at a market, sure you can stand there all day and ask every one. but that doesn't really sound like a prospect in attempting to understand the psychology, wants or aspirations of every market participant buying or selling a stocks share

so pundits "wrapped in a word called experts" will generalise the reason why something has gone up or down. they generalize because like I said, how can they possibly know that tomorrow Im going to vitamin deficient? they cant know

now, lets say that due to unforeseen events the largest apple tree in existence dies. so now there is a shortage of apples. you might THINK that the price of apples will rise. but that's not really the case, because I can easily turn to lemons

 

[seekingTruth16]

Trying to understand human nature in context to market direction is a pointless task if I must be honest. I don't think of what others are trying to do when I trade but that's not to say others don't. It's just that such lines of thinking don't really have any advantage because it's like trying to determine the winner of a football match by studying the spectators. I'm not saying there is no merit in doing so, there probably is, however you really don't need to think on such ways.

If you want to understand where the market is going then you need to understand the drivers and the dynamics of the market.

Thanks forker, but it's not pointless to me, and it's what the thread is about. Whether it has any advantage or not, I will only know if I can get some sort of answer to it.

I am not saying you need to know to be profitable. So you're quite right there.

 

[seekingTruth16]

Because of what you wrote in your first post:

I want to understand where in general the market is likely headed based on human nature and why. And then within that framework, apply TA or whatever else to fine tune entry in that larger move that I can understand.

If you're not interested in trading, you wouldn't be concerned about entry. If I got it wrong, perhaps someone else can benefit from what I've posted here.

Best of luck to you.

Sorry then, I wasn't clear enough. The part that you have underlined is only relevant to me if I can get an answer to the part that comes before. I want to understand the why. If that can be understood, then and only then, do I want to consider TA,FA etc. So I need an answer to the why first.

I thought I had made it clear with
To be specific, I am not asking for systems, or entries or money management or discussion of fundamentals or TA. Not to say these aren't all vital ingredients, but I want to understand where in general the market is likely headed based on human nature and why. And then...

Thanks for your insight, and sorry the above wasn't clear enough.

 

[seekingTruth16]

Let me give you an example, a very very simple one
I've gone to buy apples today, because im looking to freshen the look of my kitchen table, the price is £1/bag
somebody else has gone to buy apples today because he's just been told by his doctor if he doesn't get some vitamin c he will die of scurvy
the market stall holder is selling them at a £1/bag because he bought them for 60p and he is interested in only making a profit

I bought my apples, and I'm happy, the vitamin deficient person also bought his and the market seller sells out today. he clearly thinks he could sell them higher tomorrow. therefore he rises his prices

so you know why, ive just told you..but am I going to be doing the same tomorrow? maybe, maybe not, but sure as hell there will be another person wanting to buy apples for another reason
so how can you, or I or anybody on the face of this earth possibly tell you why?
if its one or two people at a market, sure you can stand there all day and ask every one. but that doesn't really sound like a prospect in attempting to understand the psychology, wants or aspirations of every market participant buying or selling a stocks share

so pundits "wrapped in a word called experts" will generalise the reason why something has gone up or down. they generalize because like I said, how can they possibly know that tomorrow Im going to vitamin deficient? they cant know

now, lets say that due to unforeseen events the largest apple tree in existence dies. so now there is a shortage of apples. you might THINK that the price of apples will rise. but that's not really the case, because I can easily turn to lemons

Good point. But what about the apple seller who is there every day. He has a plan, you've already said. He doesn't want to sell for lower than he bought. Wants a tidy profit, and he is in the market day after day. Not some random passerby who feels like an apple. So from your post, I would say, some people you can't ever really know why they bought or not, but the one who is there every day, you can tell something. And even better, he's one of those setting the price!

So isn't it then possible we might be able to find out some motives/plans of some key participants who come to the market again and again, and who have influence on the price? Is it such a silly idea?

 

[forker]

If your underlying point here is to better gauge targets then psychology isn't going to make you more accurate

 

[seekingTruth16]

If your underlying point here is to better gauge targets then psychology isn't going to make you more accurate

So based on the responses: knowledge of what the money/big players are doing or plan to do, is either completely unknowable, irrelevant to trading, or will have no helpful effect on guaging targets (stops?/direction?/future?), except for what dbPhoenix has explained as can be seen on a chart.

That seems odd to me. I would have thought in any competitive game that isn't only luck, it would be very important to understand the mind of other players.

 

[forker]

So based on the responses: knowledge of what the money/big players are doing or plan to do, is either completely unknowable, irrelevant to trading, or will have no helpful effect on guaging targets (stops?/direction?/future?), except for what is on a chart as provided by dbPhoenix.

That seems odd to me.

Everyone acts individually. If you want to determine direction then understand the drivers. If you want to determine stops then you need to understand risk. If you want to determine targets then what you need to understand depends on the type of trade. There is nothing odd about it - the market doesnt function on psychological factors. The only element where it plays a part is the influence on judgement.

 

[malaguti]

Good point. But what about the apple seller who is there every day. He has a plan, you've already said. He doesn't want to sell for lower than he bought. Wants a tidy profit, and he is in the market day after day. Not some random passerby who feels like an apple. So from your post, I would say, some people you can't ever really know why they bought or not, but the one who is there every day, you can tell something. And even better, he's one of those setting the price!

So isn't it then possible we might be able to find out some motives/plans of some key participants who come to the market again and again, and who have influence on the price? Is it such a silly idea?

the apple seller is there every day and he may set A price, he doesn't determine THE price. supply and demand does that.
I'm not interested in £1.20 per bag say, if my lemons are there to control scurvy and still make my table look nicer. I will buy lemons tomorrow and the seller is back to his £1 per bag

but you've just made the equation now larger..I have a why im buying at a price, the seller has a why he is selling at his price, but now what about the price he bought his apples from. so now we have a third entity into the whole chain of events and he may have his why's

so, which why are you looking for, and do you see potentially the complexity of what you are asking. which is why we generalise. because there isn't an answer to why. and by the time you've found the answer to why which is going to be so much further down the line, you've missed the new trend in rising prices of lemons, because you were focused on why apples were changing

 

[seekingTruth16]

Everyone acts individually. If you want to determine direction then understand the drivers. If you want to determine stops then you need to understand risk. If you want to determine targets then what you need to understand depends on the type of trade. There is nothing odd about it - the market doesnt function on psychological factors. The only element where it plays a part is the influence on judgement.

I respectfully disagree. I know for sure that not everyone acts individually. I also believe there is evidence of psychological factors, booms, bubbles, crashes, tulipmania.

 

[forker]

I respectfully disagree. I know for sure that not everyone acts individually. I also believe there is evidence of psychological factors, booms, bubbles, crashes, tulipmania.

Good luck with that.

 

[Fugazsy]

the individual psychology is difficult to predict, mass psychology is not, someone said masses are stupid..

In trading you can predict the psychology of the masses with technicality, a pattern is not just used as geometric figure by the experts, it is used to determine where traders got in, out, still in, who is in positive who is negative and who is on the side line hoping to get in, in brief you can feel the pain, the joy, the greed, the hope, relative strength, proper market conditions and so on and on.

if there is a strong break out of a range then a pause, it is likely it will continues in the original direction but not always, a trader need to consider the speed of the first leg (the willingness of the break out traders), the nature of the pause (the willingness and the strength of the counter traders) and the nature of the market condition (the overall sentiment of the instrument).

 

[Signalcalc]

One factor that you have to consider is that some of the big players deliberately attempt to hide their intentions by making use of dark pools and other techniques. Their intentions are presumably to make money whether that be at a state level or at an institutional level, however, state level actors are also in it for political gain as well as economic.

I'm going to make a guess here that state level actors also obscure their activities by subcontracting the effort of moving the markets across central and large banks.

Therefore for state level actors you can only make guesses about their true intentions.

In order to determine the motives of the major players you would probably have to identify what category of major player you are talking about first.

I think the real market makers just hide their activities, everyone else is a hanger on in an attempt to capitalise on price movement.

 

[wallstreetwarrior87]

So based on the responses: knowledge of what the money/big players are doing or plan to do, is either completely unknowable, irrelevant to trading, or will have no helpful effect on guaging targets (stops?/direction?/future?), except for what dbPhoenix has explained as can be seen on a chart.

That seems odd to me. I would have thought in any competitive game that isn't only luck, it would be very important to understand the mind of other players.

Using your name -
The truth you are seeking is out there! To what degree you can understand it, or derive value from it is another matter!

I posted this on 30th September
"Mark up day - 19000 YM and 2200 ES looks the plan (last week of October maybe)

Massive bear trap the last 3 weeks, but volatility greater than normal, hence bigger gyrations,hence the longer time needed, but the game plan is still the same:

Business was not done at the highs in August, so this is still to be achieved.

As always trade your own game plan!"

http://www.trade2win.com/boards/indices/120172-anyone-scalping-ftse-futures-9595.html#post2817658

Timing was a bit out, due to election emotions altering the usual context for this type of move.

Can this be seen? Yes! Is it of value? That will only ever be up to the individual.

Can you spot a bear trap? Do you understand why It was needed? Do you think this can be done deliberately? Are banks and institutions the only big players? Why would any "collective" party need this?

This is DEEP stuff, only worth going into if you have time and an open mind - if not take the advice of others and develop a style/method to suit you, and play the probability game. There is nothing at all wrong with this route, it is up to you!

I would only ever make a post if the game plan was clear, and the points of importance are highlighted, if not there is no value to making longer term calls. But these types of plays happen on all time frames, so have a look, and see what you can work out:whistling

G/L with what ever you decide.

 

[wallstreetwarrior87]

the individual psychology is difficult to predict, mass psychology is not, someone said masses are stupid..

:clap::clap::clap::clap::clap:

 

[wallstreetwarrior87]

Ok lets have a look at DP's Chart.

Sometimes its more important to look at what has not happened!

The key areas on this chart are 4 and 5 and 6 - but the key being that understanding what happened at 4 and 5 will give you the heads up that 6 WILL occur!

Ok what about now?

We have had 2200 and 19000 on the other US markets, and this is no way near climatic action up here, so 5000 juicy Lucy looks the plan (all in advance of course)

Ask yourself the question, who wants to sell here? Where is a target? They will just get churned over, until they become a believer, but then it will be too late. Santa will have delivered all his goodies, and Joe public will demand a refund in Jan 2017

Back in Jan it is then!

 

[dbphoenix]

Ok lets have a look at DP's Chart.

Sometimes its more important to look at what has not happened!

The key areas on this chart are 4 and 5 and 6 - but the key being that understanding what happened at 4 and 5 will give you the heads up that 6 WILL occur!

Not really. 4 and 5 might not have happened at all. Price might have reversed at 3 and travelled back to 2. Or it might have pulled back and ridden the median for a few days/weeks. It might not ever have tested 2 at all. And the retracement at 6 need never have occurred.

The most important questions are (1) at what level or point are buyers declining to pay the ask and (2) at what level or point are buyers finding value and entering the market to buy, therefore the significance of 1 and 2 and, later, 3.

Whether or not price will reach the upper limit of the range again, much less break through it, is unknowable. Auction Market Theory suggests that it will at least reach the upper limit of the range. However, given that The Money began lightening their positions during the end of last week, and today, the trader should at least be alert to the possibility that price might not make it.

Hindsight is necessary if one is to do any sort of preparation at all. Hindsight is also necessary if one is going to use indicators, as they cannot exist without it. However, it is important when preparing not to allow oneself into the "hindsight trading" trap, e.g., "if only I had bought there or sold some other place". The tactics which one employs are determined by back testing and forward testing, not couldawouldashoulda.

The best trades are found at the extremes because that's where The Money trades and that's where the inexperienced trader is least sure of himself. Anything that happens between the extremes is simply information.

 

[wallstreetwarrior87]

Not really. 4 and 5 might not have happened at all. Price might have reversed at 3 and travelled back to 2. Or it might have pulled back and ridden the median for a few days/weeks. It might not ever have tested 2 at all. And the retracement at 6 need never have occurred.

The most important questions are (1) at what level or point are buyers declining to pay the ask and (2) at what level or point are buyers finding value and entering the market to buy, therefore the significance of 1 and 2 and, later, 3.

Whether or not price will reach the upper limit of the range again, much less break through it, is unknowable. Auction Market Theory suggests that it will at least reach the upper limit of the range. However, given that The Money began lightening their positions during the end of last week, and today, the trader should at least be alert to the possibility that price might not make it.

Hindsight is necessary if one is to do any sort of preparation at all. Hindsight is also necessary if one is going to use indicators, as they cannot exist without it. However, it is important when preparing not to allow oneself into the "hindsight trading" trap, e.g., "if only I had bought there or sold some other place". The tactics which one employs are determined by back testing and forward testing, not couldawouldashoulda.

The best trades are found at the extremes because that's where The Money trades and that's where the inexperienced trader is least sure of himself. Anything that happens between the extremes is simply information.

I have underlined the above comment - The information is vital to the retail trader - they can not do battle at the extremes with any worthwhile size as they will get dumped as no one messes with the Zoltans (tongue in cheek reference to the major players) , as they see size interfere - but they are the bigger players hence a battle commences, big players will only allow smaller size to get on board at that point in time! But not great for small traders whom use stops - so there is one trader on this board whom this suits to a tea (he knows who he is)

The OP has asked if there are any signs based on what has happened to help him/her to make a trade decision as to where we go next. Ie can the chart tell where the key players are involved, and where price is highly likely to go next. Can you understand the mindsets of other traders?

Numbers 4, 5 and 6 will tell you with high probability where the market will be in 2/3 months time. So for example after 6 - do we want to look for any shorts? (other than short term trades), as if you do you are going to get turned over as there is no realistic areas to trade into at this point in time.

The point Im making is that we dont want to mark on areas and say "look it stopped here, turned here etc". I want to know what that means for the future! But of course that is not possible is it????? Not 100%, but lets say 88% of the time (ultimate destination accuracy), then there are many ways to exploit this information.

So based on the NQ chart in real time - is there any information on the chart that can help you "see" where we go next (say next 3 weeks) - can you get in the heads of the majority and work out what they will do before they even do? Will you play?

By the way I agree that the best information is at extremes - but for different reasons - There is no point in entering at extremes if we have no comprehension of where the price is likely to go.

Once the extreme shows the hand of the big player, that's the give away, and that's how it is possible to make a call for what happens in the future. They then have to play all sorts of games to throw traders of the scent, but money talks.

At point 6 on your chart - the game plan was given away, the big players HAD TO DEFEND -why????? They still hold shed loads of longs -they NEED to off load this -where can and will this most likely be done? This wasn't done at 4 and 5 that's why its (those 2 reference points) vital! Point 3, was the 1st point of distribution, but only looks relevant in hindsight as there was no way to tell there would be no more buyers at 4 - if there was, then price would have pushed right through, then marking area 3 would have no logic behind it

There is no need for lines (if they add value of course use them) - see what happens when price is offered and not taken, add this too what has gone previous, and then we have a formula in place.

Anyway enough on this, it be a long journey to take, but it is possible so Seeking Truth its up to you (just ask who, what, why, when, how, where, and you'll be fine)


BTW DP there is no disrespect intended in the post, I admire the work you have delivered to the boards. I just want to show others that there is another way that is possible, whether it suits them is another matter. Wykoff was great at deciphering at what had gone on, and where, but I have not seen anything from him about what it actually means and ultimately where price will go in the future and how, based on his observations. If you have any links into any work of projection - I would love to read them. Thanks

Back in Jan to wipe the egg of my face

 

[dbphoenix]

All of this, however, involves prediction, and prediction is unnecessary. One need only trade what's in front of him. Once he gets into prediction, the ego becomes a factor, and with the ego, emotions. This is particularly true if he views trading as a "battle", in which case the desire and even need to be right interferes with one's perception of reality.

If one wants to pursue this further, there is a virtual catalog of biases which may prompt a spark of recognition and perhaps eventual growth. Just google "cognitive bias".