As “electronic locals” our traders spend up to 12 hours in front of their trading screens every day. During these demanding trading days they are inundated with information from a wide variety of sources – including the order entry platform, technical charts, Reuters, Bloomberg and squawk – which needs to be understood, interpreted and acted upon effectively. These tasks are performed with a constant awareness of their own emotional state and with the implementation of tried and tested emotion-management protocols. As a result, it is common for novice traders to overlook the fact that they are interacting with a plethora of other groups of participants in highly liquid financial markets. An understanding of who is participating at any point in time can give you a distinct edge.
By observing and interacting with the market using primarily the market depth, and taking advantage of expert guidance from experienced traders, our novice traders learn to read which group(s) of participants is in the market. They are able to discern, through repeated practice and exposure, who is buying (or selling), what their objective is likely to be, when they begin to exit their positions and, most importantly, where their pain threshold is if the market turns against them. By combining this difficult skill with the interpretation of similar clues that are manifested in both the charts (particularly Market Profile) and the fundamental data they develop a holistic understanding of participant activity.
If a trader can read who is participating, how and why, he is then able to position himself accordingly to take advantage of this information. For example, he may decide to piggy back the aggressive buying activity of a large, institutional participant as opposed to fading the weak selling of a naive trader. Most importantly, having identified the likely stop placement and/or position liquidation point of the existing participants, he should be able to profit from their misfortune as they run for the exit as and when the market moves against them. This deftness of trade execution, married to a lightning fast speed of effective decision making, is a proven way in which heavily involved electronic locals establish an edge over other participants. This skill forms a key component of Traderinputs’s Trading Floor Training programme and is one which you certainly won’t learn from a book or from other, “Get Rich Quick” courses.