You must have heard that trading is a game of probabilities. Let's understand why are things so random when technically the patterns which failed and succeeded looked exactly the SAME!
A trade setup is a specific set of conditions or circumstances that a trader believes will lead to a profitable trade.
These conditions may include technical analysis indicators, such as price patterns or momentum indicators, fundamental analysis factors, or the motion of the moon and sun as well (Pun intended)
Let’s stick to only technical price action for this one!
Continuation patterns say Mark Minervini VCP or C&H patterns are formed as a result of actions of buyers and sellers. Hence, the patterns are the result and participants are the cause
Read that again...
PATTERNS are the RESULT , PARTICIPANTS are the CAUSE
You must have heard/read tweets and many such experts saying the stock ABC is near its support of Rs 300 and it is bound to bounce from there….
What does it mean?
Is it just a line which they have drawn?
Consider the movement of ABC across months
Every time the price was around 300 buyers rushed in …and gave SUPPORT. The reasons for their buying is something which is never visible on the chart
There are short term, intraday, swing, long term, small, big and institutional investors present at all points of time in all liquid stocks
Is there any guarantee that every time the stock is near 300 the same set of buyers with huge psychological and financial power come in?
NO, not at all!!
We may be 100% convinced that the stock has reached its support BUT what if the Traders/Institutions who had previously brought in chunks of the stocks at 300 are not present or not contributing at the moment?
And when that happens, the support breaks!!
The setup which was perfect FAILED!
But it was always RANDOM to begin with…Our minds and eyes see only what we want them to see
So now you know why the outcome of any trade is random and there is no point in fighting and predicting the next moves!
Comments