How do you make money on the market crowd
By Your Crypto Boss on The Capital
Have you ever thought about where in the market would be the money that you want to earn?
If the market had a constant balance between sellers and buyers, the price would stand still or move in a very narrow range. This is often the case in those markets where the object of purchase and sale is the real product: price movements occur there too, but they are always caused by some real facts (deficit or increasing demand for the product generates a rise in price, a decrease in demand leads to a fall).
In speculative markets, where the aim of participants is not to buy or sell an asset but to make a profit, the volatility is much higher, and one of the important reasons for price movements is the psychology of the crowd — mass-market participants. Therefore, let’s talk about the principles of market crowd behavior. To begin with, we need to understand that the market has a majority (the same crowd), and a minority (market makers, then MM). There is a certain mass of money in the market, which goes from some participants to others; traders, who earn, do it at the expense of losses of other market participants. There is no other way — if you brought 10K to the market and brought 11K, it means that 1K you took from other market participants. The ones who sold the assets cheaply or bought them expensively.
This model shows that the majority can never be in the plus, as there is no one to pay for the “banquet”: the minority money is not enough to earn the majority. Everything happens exactly the opposite — the minority earns from the crowd. So the key to success is to join this minority.
A minority of this consists of big players, market makers, insiders. Some of their volumes can move the market in the right direction, others see imbalances in liquidity and the stop zone, others know what we can only guess about. If they combine their efforts, they can do absolutely anything with the market. Fortunately, their interests do not always coincide, so the market does not have 100% manageability and predictability.
We can’t move the market with our volumes of a couple hundred thousand dollars, and we have no insides — unfortunately, Trump didn’t tell me a week ago that he was going to give the back of the trade war with China on Monday :). (And some people knew about it, and last Saturday the price of Bitcoin fell from 11800 to 11300 in just a couple of minutes).
So you have to understand the crowd’s behavior and move against it. So, to be on MM’s side.
The fear index is working well here. I’m now systematizing and analyzing its properties as an indicator (I want to set the degree of advance or delay, as well as how it works at extreme values within a few days), the results will be published later. But it’s already clear that at values below 20 we should buy and sell above 70. The area of values 35–50% — flat.
Obviously, not to reverse-buying with a high fear index is as bad an idea as selling with a low one.
Stop-losses are a separate story. In which situations they should be put, and in which they are contraindicated — I wrote earlier. Now the question is where to put it.
Once I read the analytics — the density of stops behind extremums (local lows and highs) is several times higher than at all other levels. The same is true for stops behind significant support/resistance levels.
MM sees these stop zones, and of course, the price goes there in 90% of cases. And in this case, the stops are a way to move money from majority to minority.
How do you practically use it? Don’t put your stops where everyone puts them. And to use the stop zones for profit taking or for placing limit orders for purchases.
In the same research there was another interesting point — the more the price is at some level, the more deals will be opened at this level. This shows that the frequency of crowd entry into the market is on average the same, and some significant levels are not taken into account — people want to enter the market and they enter it, no matter what level happens.
So, the price will hang below 9 K for a week — the crowd will open a large number of positions there, and mostly down. And it will be very disappointing with what will happen later.
I will speak separately about the technical analysis. I will not attribute the idea to myself, I read it on some channel, but I agree with the idea.
It was said that the crowd, governed by the technical analysis and emotions, can go anywhere.
Well-known figures of technical analysis can be seen by everyone. And their actions are built according to these figures. Sometimes it works (when the direction coincides with MM plans). But in all other cases, and especially at turning points, the market will never go where the majority is going. Therefore, it will not be extra to study and understand TA. But it’s necessary to be guided when making trading decisions not in the first and not even in second place.
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