In this article, I’m going to dwell upon the popular now strategy of searching for “big players”; as I think that this idea is gaining popularity by the day, adding more and more new details among its supporters. I sometimes get quite surprised at how in the trading world, a harmless THEORY (note, not the truths, but, exactly a theory, that is one’s personal point of view) can be enriched by details (either personal, of course), and finally, it is seen as the universal truths.
Well, it is the topic, to be discussed by psychologists; and we are speaking about trading, so, let’s try to find out, who those large players are and how they influence the market.
Well, compared to an ordinary individual trader, big market participants, like hedge funds or investment banks far more often get positive financial results from their trading decisions. It is explained by some facts, including:
So, you may think the best strategy is just to copy the trades of “Big Guys”. Moreover, there is a kind of fashion on the Internet, to try to identify the actions of big players, market makers, or whoever, to join them against the “stupid crowd” that is, poor, always entering trades in the wrong direction (simultaneously) and is suffering from losses.
And, ironically, such explanation is faultless; you really see in the chart what you are told of: here, the price went downwards, and there, it suddenly surged (a large player smartly entered, having used the crowd, yes). At the same time, they say nothing about the cases, when the price was moving in the same way, and then (after big players opened their positions), it went in the opposite direction (that is like the guys were not that big).
Basically, following the actions of big traders is finding out the price levels, they should be interested in and entering trades in the corresponding direction (buy or sell).
Knowing this information, traders are supposed to open a similar position, receiving a high probability of making profits, provided they observe money management. However, taking into account all the above, you are likely to have understood that everything is not so simple.
This method is popular due to a common mistake of beginners, who wrongly understand the concept of trading. I have already written somewhere that, at first, trading professionalism is associated with predicting the future: the cooler trader you are, the more accurately you can predict the next market’s move.
It is not bad, we all have always trained like this: if we don’t know anything, we ask someone who knows. For example, when we were little and couldn’t walk, adults “showed” us how to do it, and we learnt, following their example. Or, we couldn’t dance, joined a dance club, and were trained to do it. So, in the market, we do the same; we look for someone, who “knows better”, to follow their actions and train ourselves.
But, alas! Trading educational process is a little different, but it’s another cup of tea. The matter is that beginners are not confident in themselves and their trading skills, and so, they are subconsciously looking for something that will provide them with this confidence.
In our case, when they misunderstood the concept of trading in the financial markets, traders are seeking the confidence in where the price will move next. That is why, whatever they do, whichever strategy they use, or a price pattern they find, they will face losing trades, sooner or later; and they will again think, they’ve “found something wrong”.
Search for 100% working pattern is endless and senseless, because, any moment, anything can occur in the market; and no “Big Trader”, being a million times big, KNOWS NOTHING about where the price will move (for the reason, described in the previous sentence). Continue reading on LiteFinance.