Sunday, November 7, 2010

Who is in Control?

The futures market operates in multiple timeframes. The scalper works for just a minute or a little more. He buys in anticipation of  - may be - a one point gain. His timeframe is one minute or less. The day trader,watching five minute charts is looking to make a few points carrying a position for some hours. The swing trader is watching 60 minute charts wishing to carry a position overnight planning to keep it for, maybe, two or three days. The position trader keeps a position for a few weeks looking to capture a significantly larger trend. Finally we have the institutional traders, who maintain a position for months or even years, and there time span is much more.

With so many different participants in the market it is likely that different perceptions of the market will exist. The scalper may capture a two-point decline which he thinks is a bear market. On the same day the day trader may capture an eight point rally where he feels he participated in a bull market. Finally we have the institutional trader who is looking at a much bigger picture and decides to enter the market because he feels that markets are likely to be higher after two years. So, which of these participants actually control the market?

Before we examine this question carefully we should understand that institutional traders have the largest amount of money. If most of these traders shared a common viewpoint then they are likely to control the market. Whent his happens, we see trending moves. Sometimes, in periods of uncertainty the institutions do not share a common viewpoint. This leads to a trading range. What may be a trading range for the institutions may be a trend in the lower time frames. When the market is in a trading range, the lower time frame traders are in control. When the market is in a clear, visible trend, the institutions are in control. In such cases, the lower time frame straders who go against the institutions are likely to be crushed.

Short term traders should think on these terms and ask themselves: who is currently in control of the market? They should go wth the people who are in control.

2 comments:

stoxtrends said...

Nice post

rajiv malik said...

obama's visit and obama factor will affect which specific sectors and stocks in the short term ?

if obama's visit is successful and positive should it not reflect in the markets tomorrow itself ? i thought market would rally and salute obama today itself but market proved me wrong.

can tomorrow be a rally day/all time high day ?