Weak hands

[superfly]

Mr. Marcus

To understand your analysis "better", could you share your defenition of what you mean with the term "weak hands".

I roughly use the following:
1-relatively low risk tolerance and/or relative small time-frame. Even in the dominant direction you have these traders;
2-Taking position against current dominant direction;
3-Players playing the dominant direction baling out (to) early.

Regards
Superfly

 

[superfly]

Weak Hands According to Investopedia:
1. The intention of futures contract holders not to receive delivery of the underlying.

2. Retail traders in the forex market who abide by the conventional wisdom that when a pattern is broken, get out.


1. Futures contract holders with weak hands are generally considered to be small speculators without the financial resources associated with the delivery and storage.

2. For example, retail traders with weak hands would place a stop at the bottom of a double bottom or at the top of a double top and once the pattern is broken, they would automatically be stopped out. Conversely, dealer and institutional traders will exploit this behavior by staying in once the pattern is broken, forcing the weak hands out before allowing the price to change direction and the pattern to correct itself.

 

[superfly]

Working hypothesis
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When stocks are low in their cycle, shares move from weak hands to strong hands. Strong hands are accumulating shares; weak hands are still liquidating losing positions.

This suggests that the buy-sell cycle of strong hands (SH) leads that of weak-handed traders (WH), as shown in the chart below.


Cycle Low: After the market has declined, a new SH buying cycle begins while the news and fundamentals are still poor. WH selling continues.

Uptrend: Once WH begin to buy, the combined buying cycles of SH and WH create a new rising trend.

Cycle High: As the upward trend matures, SH begin to take profits while WH are still buying enthusiastically. The market's trend is strong and background fundamentals are positive. Late-cycle buyers are entering the market for the first time, and their eager buying offers SH plenty of takers for offered shares.

Downtrend: SH have unloaded the substantial portion of their shares, and the market begins to sag. WH become net sellers but find few buyers, and prices decline. SH sell their remaining shares or sell short, adding to the downward pressure. The combined selling cycles of both SH and WH produces a declining trend.

This analysis demonstrates two market types: 1) trending markets ; and 2) turbulent markets.

Trending markets occur when both SH and WH are in synch, when both groups are either net buyers or net sellers. Turbulent markets occur at cycle extremes when, as a result of offsetting cycles, SH and WH are at cross-purposes. The chart below shows both trending and turbulent markets.



Experienced traders know that the surest profits come during trending markets. Whether rising or falling, "the trend", as the old saw goes, "is your friend". Trading the trend is like paddling with the current.

Turbulent markets, on the other hand, are difficult even for wizened pros. These markets are like white water rapids. During these markets, the action of most individual stocks becomes choppy, while others trend upward and still others trend down. Navigating these waters successfully requires both skill and nerve, and capsizing is a real threat, especially for the novice trader.

There are four distinctive stages of the buy-sell cycle:



1.) Accumulation
shares move from weak hands to strong hands;

2.) Markup
price trends upward;

3.) Distribution
shares move from strong hands to weak hands;

4.) Liquidation (Markdown)
price trends downward.

 

[superfly]

.

Weak and Strong hands:~

Superfly,

In every profession there are experts and not so experts.

The experts know what they are doing all the time and precisely the reasons why.

These are the strong hands always.

The not so experts sometimes know and sometimes do not know or are apt to resort to guesswork, and so on, and these are the weak hands always

 

[superfly]

Quote:
Originally Posted by superfly
[...]2. For example, retail traders with weak hands would place a stop at the bottom of a double bottom or at the top of a double top and once the pattern is broken, they would automatically be stopped out. Conversely, dealer and institutional traders will exploit this behavior by staying in once the pattern is broken, forcing the weak hands out before allowing the price to change direction and the pattern to correct itself.
What a load of todger.

I know you're only quoting a third-party source SF, but just think it through.

If you were a pro and had the power to write a bunch of TA books about 'classic' chart patterns (and if you like, the psychological behaviour evident behind these patterns) and get the weak hands/numpties to believe it and then, when they place their stops just where you want them or behave just the way you want them to - what happens next?

The price/volume structure would change to make those chart patterns no longer self-fulfilling prophecies and they wouldn't occur - and the numpties obviously wouldn't trade them (if they didn't exist. (editor's note: Where the hell did numpties come from anyway?)

A H&S wouldn't be a H&S if the pros just carried on taking out the weak shorts with their stops just a tad above the right shoulder. It wouldn't look like a H&S anymore - it would look like a flag/consolidation. Or maybe a reversal. But it definitely would not be a H&S.

Lord! There is so much tosh talked about this.

Sure the pros know what the weak hands are most likely to be doing, and they will capitalise on this knowledge - so would you. But for anyone to suggest it is as cut and dried as some make out is nonsense. The pros have to work at it too.

What the pros have to do it make it 'look like' a H&S before making their move. And when the weak hands come back to review their losing trades (those that bother) they'll wonder why they ever thought it was a H&S in the first place....
__________________
Tony

 

[superfly]

as far as your weak hand question the other day..if i tell you the correct deifnition then itll mean nothing to you....you have to go thru the thought process yourlself to start living it....it is the key to the markets understnading how weak hands make there decisions....so dont treat it lighly......to be a successful hunter you have to know the pattrens of the hunted...cheers mark j

 

[superfly]

QUOTE=frugi]To return to a more germane track (no not one by Kraftwerk) I have been asked to provide a "most pertinent definition" of a weak hand and I think this is a jolly good question given the frequent references to them and their strong counterpart I hope Mark may be willing to do us the honour of expanding (or indeed condensing given my irksome verbosity) on this topic later, but I thought I'd offer my unqualified 20 Korean won first (though I realise that I owe several elements of the below to Mark anyway).

Trading is a battle between strong and weak hands, or predators and prey. The weak tend to have poor risk management, be reactive, impulsive, impatient, inexperienced, unprofessional, eager to chase the market, comfortable with the illusion of safety in a crowd, employ sloppy entries and loose stops and the like. They are apt to be shaken out of postions that would ultimately be the correct ones while entering into positions that look enticing but turn out to be the wrong ones. They are the gamblers and the crowd, the fodder for the strong hands. Their actions make the job of the strong hands easier as they tend to be predictable and easily manipulated. They tend to have less capital, shaky discipline and a limited understanding of market dynamics. They are often serial hunters of the Grail and dishonest with themselves. They are fuel suppliers.

The strong are pretty much the opposite. Predators with deep pockets, eternal patience, professional conduct, very tight risk control, very high self-awareness, enter only when they perceive conditions offer an excellent opportunity, independent, logical thinkers. They understand the harsh realities of the market, empathise with the prey and capitalise as a result. They drink the fuel.

But this is perhaps to merely describe some of the many hackneyed differences between successful and unsuccessful traders. What we need is a concise definition of these groups of participants and I have failed to provide one. Anyone?

I'd also love to know the etymology and history of these terms. Who first said "I'm a strong hand and I'm a-gonna shake out this tiresome weak hand?" as he helped carve out a hammer with a judiciously dropped and lower-recovered 400 lot. They sound so apt. The strong versus the weak, while "hands" is presumably a metaphor for the holding of postions. A pro is a strong hand because he knows what he is doing and does it right consistently. He is also, in some respect perhaps, "in charge" of some elements of market dynamics? Have cash,.will herd, fish and test when it's cheap. A weak hand with 5k simply can't do this ... but can he be a minor strong hand by copying a big one?

Is it possible to be a weak hand on Monday and a strong hand on Tuesday depending on one's trades or is this a definition that cuts deeper than one's perception of today's market conditions? If the former, is it fair to generalise with these terms at all? *disappears down pointless semantic cul-de-sac*.[/QUOTE]
.

 

[superfly]

The differentiating factor between strong hands & weak hands is the difference in methodology;

Technical analysis & the like, driven to action by short-term price volatility represent the weak hands.
Methodologies that are unconcerned with short-term volatility, represent the strong hands.


jog on
d998

.

 

[superfly]

Ducati,

Strong hands may well hold through gyrations that would cause a weak hand to exit because the strong know that their position is not endangered by a certain temporary adverse move. But I disagree that there are no strong hands trading short term volatility as it is the lifeblood of many. They may of course regularly adapt their time horizon but you'll certainly find them scalping a minor fractal if conditions suit as well as holding for longer.

Differences will certainly be found in quality of methodology too, but not necessarily in the basic type of such. e.g the ones you mention hint at a TA/FA distinction which is not necessarily present.

Welcome back, by the way.

.

 

[ducati998]

Since it seemingly has it's own thread;
Hello, and thank's Frugi

Weak hands are holders of financial instruments that base their buying and selling decisions based on Market Price

MrMarcus made comment regarding *the market is always right*
This is the philosophical construct of Efficient Market Theory.
Market Price is the final arbiter of right and wrong, profit & loss.

Therefore, by definition, if you adhere to EMT, and believe that Market Price represents the reality, then you are the weak hand

Conversely, if you dismiss Market Price as inaccurate, whimsical, irrational, driven by psychological factors of sentiment etc, and instead calculate your buy and sell decisions on a metric based on other than the market price, you enter the realm of strong hands

Therefore, strong & weak hands are defined by their respective reactions to price volatility.

jog on
d998

 

[Priceman]

Is it the fact that the strong hands have a price in mind where they will buy and sell and they stick to that and the weak hands don't really know what will happen and get in and out at totally the wrong points or price ?

More questions than answers there I think for me !

 

[superfly]

playfull

Brand image can be reinforced by brand communications such as packaging, advertising, promotion, customer service, word-of-mouth and other aspects of the brand experience.

Brand images are usually evoked by asking consumers the first words/images that come to their mind when a certain brand is mentioned (sometimes called "top of mind"). When responses are highly variable, non-forthcoming, or refer to non-image attributes such as cost, it is an indicator of a weak brand image.
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Market image can be reinforced by communications such as advertising, promotion, word-of-mouth and other aspects of the market experience.

Market images are usually evoked by asking traders the first words/images that come to their mind when current market direction is mentioned (sometimes called "top of mind"). When responses are highly variable, non-forthcoming, or refer to non-image attributes such as cost, and risk it is an indicator of a weak hand.

 

[ammo]

sometimes the strong hands battle with each other as in now when the volume is low and theres not much paper . the spus had 4 point range ,for 3 hr. period,last three days ,they are moving back and forth with largebid verses large offer small hands be weary

 

[TheBramble]

At the bottom of any cycle in any sphere of business, not just in trading, holdings pass from weak hands to strong hands. At the top of any cycle in any sphere of business, not just in trading, holdings pass from strong hands to weak hands.

Whether you choose to call net long-term investors strong hands and short-term speculators weak hands is unimportant. What matters is whether you know where you are in the current cycle of whatever is it you are holding/wanting to hold.

Regardless of your adherence to the fundamentals or the technicals and regardless of your view on EFM, it is IMHO not the issue of reactions to volatility (which are short-term in nature and cluster wonderfully), but the ability to recognise which stage in the cycle you are in for the instrument/asset of choice. If you possess that ability, you are a strong hand. If you do not, you are a weak hand.

 

[ducati998]

Strong or weak hands really refers to the methodology employed as risk management
If your risk management is based upon price action delivered by the market then in all but one exception you will be the weak hand

Speculators, or traders, as opposed to investor's are in aggregate governed via their risk management methodologies to enter, or exit trades based on price fluctuations.
Investors, while cognizent of the price, are not governed by price fluctuations as regards risk management.

Leverage amplifies and magnifies the reaction of price fluctuations on leveraged securities, CFD's & Futures contracts. Thus the more highly leveraged the position, the tighter the risk management, the weaker the ability to hold [this applies to common stock held with high margin loans from Brokers]

The exception to this, are of course Options contracts when you are long Puts or Calls.
Risk management is already in evidence, with losses capped at premium paid
Thus, price fluctuations against the position can be viewed with equanimity.
Thus holders of speculative positions can by definition become strong hands.

jog on
d998

 

[superfly]

weak hands have no economic viable advantage

 

[superfly]

weakest hands

will buy into the top of (over)exhausted risen prices
and sell into the bottom of (over)exhausted fallen prices

 

[charliechan]

it means different things to different people.

its always a matter of perspective.

how long is a piece of string?

discuss....

i have spoken.

 

[charliechan]

weak hands have no economic viable advantage

exactly.

the only viable economic advantage they have is survival.

sun tzu once wrote: we must make ourselves invincible in defence to ensure long term survival.

am i invincible with a wide stop?

is a stop my only defence?

?? ??

 

[passive]

look in the mirror? I do.