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the crowd hears news, many times it will react in a fairly predictable mannerand that is to overreact to the news. Market makers know this and play crowd behavior with the virtuosity of a philharmonic conductor. The Direct Access Electronic Trader can take advantage of crowd overreaction by reacting intelligently. You need to know that crowd behavior differs from individual behavior because while there is safety and anonymity in a crowd, individual decisions carry personal accountability. You can capitalize on mass psychology as long as you realize what is happening. Very often the time to buy stocks is when they have settled to about equilibrium after everyone else is tired of selling them. For example, when what is perceived to be bad news comes out, the market makers very often quote the opening price of stock much lower in order to buy the stock that the masses belch up out of fear. A rational view of the facts may determine that the stock should open 3 points lower. The market makers, however, will deliberately overreact and downtick the stock 5 points. The market makers, having many market sell orders in hand, will buy these shares at bargain basement prices on the opening and try to resell the stock they have purchased from the masses at the higher rational prices as soon as the market adjusts to reality. Baron Rothschild used to say that the time to buy was when blood is running in the streets. The time to sell is when you feel that you "gotta own 'em." |
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Where Do I Find My Signals? |
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I am often asked about where a trader acquires market information triggering buy and sell signals. I answer that my personal trading decisions come from the momentum I spot on the various market quotation tickers, especially Nasdaq. This tape watching is so dominant a factor in selecting potential trading opportunities that I have developed a tracking program that monitors and sorts all Nasdaq stocks based upon criteria that I personally deem important. Your trading system should have a selective sorting program that sorts according to any |
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