In order to get to grips with this trading stuff you have to believe there is a ‘Them’ and ‘Us’. ‘They’ by popular belief are ‘the market’ – which is effectively Goldman Sachs and the Federal Reserve, who both make up the Phat Controller, who manipulate the market so that ‘Us’ can’t make money trading too easily and ‘They’ make it all. ‘They’ are constantly waiting at every corner and turn to trip ‘Us’ up at all times!!
When I refer to ‘They’ I have in mind the major investment banks who are handling orders from large institutions. They have the ability and incentive to move markets to improve their large trade entry prices. So imagine they have a $bn instruction from a pension fund to buy say each Dow stock. Its within their ability and incentive to buy those stocks as cheaply as possible. They know how many (by volume) retail orders they have to overcome to move the market in the opposite direction and they also know how much volume they have to play with to drip feed their own orders in without driving the price up too quickly. They also know that if they can flush the stops of a few retail investors that is money moving from the boys to the men – bearing in mind they can see the retail orders and can read technical analysis
And then don’t forget the other ‘Them’ Those undisciplined punters who trade without a plan and money management. I reckon we take more from them than we’ll ever take from the institutions. We also take from a rising market trend. The real big winners are those who get out and take profits at the last peak before a major retracement. I knew a retired ex banker who could time the peaks as if by magic (something to do with banks share price action) but he never told how – he went on to lose a fortune on Woolworths believing their property assets would protect him in a market down turn. I conclude that getting into the market on a pullback or fall is easy but timing profit taking is the holy grail.
