Financial Articles

The psychology of participants within an up trend

Psychology of participants within an up trend as an edge is necessary to compete in the mercenary game, that means knowing your opponents. During phases of the trend the trader have to ask himself: where is the winner? where is the loser? How can I join the winner? To answer these questions accurately the trader has to look at the market in trade execution perspective. I classify my opponents in three categories: Whole sale entrants (early traders), Retail entrants (late traders), Counter trend entrants (Reversal traders, scalpers).

The risks ran by counter trend entrants

  • Bias : This would result a trader to re-enter counter trend, the mind does alert a trader that what it perceives is counter trend. If that is the case there is a greater probability for the trader to get angry at himself leading to self destruct.
  • High loss rate associated with counter trades.
  • Loss of focus: this can happen when a trader misses a great with trend setup, when this occurs the trader gets to have options either to watch after the stop or reverse trade (effectively transforming him to become the late trader).
  • Quick session limit burst: Calling it a day because of limit burst is difficult.

The risks ran by retail entrants 

  • Protection stop size.
  • Extended time required for the position to be profitable.

The risks ran by whole sale entrants

  • Being too early : this occurs when a trader enters before entry bar.
  • Stop run : occurrence that became popular as market manipulation.

I believe there is a winner in all these categories of opponents which begs the question: who makes the most money? According to my experience counter trades lose a lot, late trades break even a lot, early trades make money a lot.

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In the screen shot above the red circles represent areas where counter trend traders are looking to take entries. The white circles represent wholesale price areas that professional institutions are looking to take with trend trades at. Late traders enter after these parties in any move.

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Keeping this information in the mind while trading is useful, when attacking it is good to be in the side with the muscle, entering early with with-trend traders allows breathing room and flexibility with early break even. You would need that kind of flexibility at times when the pullback becomes more extended.

In real time it is horrible to take counter trades without the intention of scalping few pips effectively exiting quick. Most people who like to relax are unable to deal with quick bias change, therefore, cannot scalp counter trades.

This is merely how I see my markets, if you would like to share a word please comment below.

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