Trading Psychology - Following The Herd

[Doomberg]

Ok so in my time trading the most useful thing i have learned is to predict when huge amounts of people are likely to buy or sell and then follow suit once it looks like i may of been right... Its funny because i have friends who are 100% fundamental traders and this used to be my angle, some of these guys say things like "look mate the charts mean less than nothing, no matter what you see at any time its just complete random and there are no tell tale signs under any circumstance, the only way to predict what may happen next is to trade fundamentals"

Over time i have learned this to be incorrect, its fair to say that the majority of traders will look at charts when placing a trade, especially when it comes to short term trading / day trading... of course news release etc has an effect on the price but if the share prices are heavily controlled by buyers and sellers then effectively what we see on our charts is literally human psychology in a graph, for example we may see something on the chart and think "hmm if the candle breaks this price i think it will probably jump up fast" so i often draw a line, and if i have seen it then its likely that their may be 1000's of others across the world who have also seen it, and low and behold when the price is breached the said price there is often is a jump, call it team work if we must but that may of been caused by 1000's of likeminded traders who all seen the same thing and acted around the same time.

Whats your views on this subject of following the herd when trading... how much of an influence do you think that this has on price movements?

 

[safvan]

It usually not the herd the moves the prices up initially in a stocks advance. It is the smart money which are hedge funds, mutual funds, pension funds etc.

Once they build up a large position in a stock, it moves the prices up. To get out the public or retail traders need to hold the baggage. This causes the stocks prices to plunge when there is no more stimulus for it to go up as the smart money dries up.

Following the smart money is important than following the herd.

Prices are reflected on the chart. One can usually look at weekly charts to get a better picture.

There is no right or wrong answer here. Fundamental shot takers earn money in their own way. Chartists earn money in their own way.

Larry Williams does not consider himself to be a chartist yet he earns a lot of money.

Dan zanger is a mix of fundamentals and chart patterns.

Its really subjective in this market. Everything is. Learn to work with what makes money for you and stick to that.

 

[scose-no-doubt]

Example.
According to Reuters, BP Plc has 18,867,820,000 shares outstanding and ave volume of 33,462,500 or 0.18% which isn't exactly a herd.

IMO unless the move is event driven, it's short term (and random) volatility.

But then what do I know? I dinny trade any mores!

 

[safvan]

Smaller the float the better the chances for massive price hikes. It takes lesser dollar volume to move the stock.

For best results you may want to focus on unheard of companies that are breaking out on their charts and have a float of less than 50 Million shares.

Remember float has nothing to do with stocks daily trading volume. Low float stocks can have high daily volume which results in massive price increases or decreases.