Can You Really Time a Top or Bottom?
A lot of day traders and guru's would have you believe that it is easy to spot a top or bottom. The true answer to this is of course, "no one really knows". If you understand how liquidity is provided then you know that it is the people providing the liquidity that ultimately determines whether or not your position gets paid out or not. Contrary to popular belief these entities do not like paying out traders on their positions. Rather they like making money providing the liquidity to you which is how it happens the vast majority of time.
So you ask yourself, "how is it that some of the legendary traders make their money". While there is many answers to this question the easiest answer falls into three different categories.
1) Luck. This is a big element in any trading strategy. You have to be lucky enough to be offset by enough positions that it does not matter to the larger liquidity providers if you make a little bit of money because they are making much more. This has a lot to do with sentiment. In other words if everyone thinks that something is going to happen then it might be a good idea to go against the herd with the liquidity providers. You have heard me talk about this many times before.
Is it easy to know when this opportunity is available?
No it is not. Once you read the COT stats and other data that says most people are positioned one way it is generally too late.
2) They don't mind being wrong a lot more times than they are right in order to make a lot of money. This is very hard for anyone to do. Balancing risk so that you end up making money at the end of the year even though your account is in drawdown goes against your survival instinct. It takes many years of conditioning to be able to do this and statistics state that most never learn how to do this. When you have a pile of money you don't mind losing some every now and then like Buffet, Soros, Druckenmiller and other legends. If you lose a few million in six of every ten positions but then end up making a few hundred million when you are right then you can do this.
Can you?
Probably not. They are few and far between.
3) They can buy or sell at levels that are far better than you will ever receive. If it sounds unfair, it is. You don't command enough capital to make those kinds of deals and that is the way the markets work. If you have deep pockets you will always get a better deal than the average person. That is how Walmart buys and a host of other companies that can buy far more cheaply than you ever will be able to. This by itself gives them a huge edge over you. Deals are struck where the liquidity providers and the people buying these open market positions make money. Both win so there is little to no risk. This is what the dark pools are all about and no there is no system that can see them. You might just as well call it a Black market because that is what it is. An underground liquidity pool that allows the biggest players to get in and out without the rest of the world knowing what they are doing.
Fair?
No of course not. Do you have access to this? No you don't. However once again this is par for being a big player.
So where do you have an advantage?
In short you don't. However where you might be a little better is your flexibility to get in and out of a position where it takes them days or weeks you can enter in milliseconds or minutes.
You can see my position below. I figured that this is the lower range of the new volume range established a couple of years ago. If I feel that the liquidity providers want to keep the sideways range between here and 80 then this is where I try my entry. Not using a lot of leverage or risk because I am going against the trend. However if I believe the largest entity being the central banks want oil in this range then I don't have to worry so much around someone running me out before I get a chance to capitalize. Could it go a lot lower? Sure. Sometimes it does. However your risk at this level becomes substantially less if you believe that this is where price will reverse. Cheers!
So you ask yourself, "how is it that some of the legendary traders make their money". While there is many answers to this question the easiest answer falls into three different categories.
1) Luck. This is a big element in any trading strategy. You have to be lucky enough to be offset by enough positions that it does not matter to the larger liquidity providers if you make a little bit of money because they are making much more. This has a lot to do with sentiment. In other words if everyone thinks that something is going to happen then it might be a good idea to go against the herd with the liquidity providers. You have heard me talk about this many times before.
Is it easy to know when this opportunity is available?
No it is not. Once you read the COT stats and other data that says most people are positioned one way it is generally too late.
2) They don't mind being wrong a lot more times than they are right in order to make a lot of money. This is very hard for anyone to do. Balancing risk so that you end up making money at the end of the year even though your account is in drawdown goes against your survival instinct. It takes many years of conditioning to be able to do this and statistics state that most never learn how to do this. When you have a pile of money you don't mind losing some every now and then like Buffet, Soros, Druckenmiller and other legends. If you lose a few million in six of every ten positions but then end up making a few hundred million when you are right then you can do this.
Can you?
Probably not. They are few and far between.
3) They can buy or sell at levels that are far better than you will ever receive. If it sounds unfair, it is. You don't command enough capital to make those kinds of deals and that is the way the markets work. If you have deep pockets you will always get a better deal than the average person. That is how Walmart buys and a host of other companies that can buy far more cheaply than you ever will be able to. This by itself gives them a huge edge over you. Deals are struck where the liquidity providers and the people buying these open market positions make money. Both win so there is little to no risk. This is what the dark pools are all about and no there is no system that can see them. You might just as well call it a Black market because that is what it is. An underground liquidity pool that allows the biggest players to get in and out without the rest of the world knowing what they are doing.
Fair?
No of course not. Do you have access to this? No you don't. However once again this is par for being a big player.
So where do you have an advantage?
In short you don't. However where you might be a little better is your flexibility to get in and out of a position where it takes them days or weeks you can enter in milliseconds or minutes.
You can see my position below. I figured that this is the lower range of the new volume range established a couple of years ago. If I feel that the liquidity providers want to keep the sideways range between here and 80 then this is where I try my entry. Not using a lot of leverage or risk because I am going against the trend. However if I believe the largest entity being the central banks want oil in this range then I don't have to worry so much around someone running me out before I get a chance to capitalize. Could it go a lot lower? Sure. Sometimes it does. However your risk at this level becomes substantially less if you believe that this is where price will reverse. Cheers!
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