KK
Very very good questions. You've forced me to think hard.
Thank you for that.
Mastermind007
When the market is rising or falling:
SELLER:
Is it not true that A seller sells for the following reasons:
1. To book profits (because he/she doubts the price may not rise any further).
2. Short sell – to buy lower and make a profit.
3. Adding more to his Short position. (And most often a short seller averages prices by adding to his loosing position).
And in all 3 scenarios he thinks/wishes, sooner or later, the prices would fall. Because, his indicators (technical or fundamental or both) say so or he speculates so.
Considering these points how is the seller in advantage if price continue to rise. And so, why would he sell if there were more buyers who are dominating the current situation.
BUYER:
Is it not true that a buyer buys for the following reasons:
1. Because his indicators indicate that the price would rise.
2. Book profit in case of short –expecting the price may not fall further.
3.Adding more to his Long position. (And, again, most often a buyer averages prices by adding to his loosing position).
Considering these points how is the buyer in advantage If prices continue to fall.
And so, why would he buy if there were more sellers who are dominating the current situation.
1. Not everyone who sells at profit assumes that price would not rise any further. I personally have exited in-profit positions so many times because I am rarely evaluating profit-per-trade per se. Over time, I've learnt and pieced together a system that helps me predefine targets and stop losses before a trade is taken. If price takes out the last target, I exit without hesitation. Here me obeying my own preset rules takes more precedence over the profit amount. Profit or Loss is only totaled at end of session.
One very important self-observation. If I ever look at a trade sheet that I used 2 days ago, all amounts and numbers look random to me but I never feel that way when I look at the sheet I am going to use today. Current sheet always makes perfect sense.
Just What am I trying to convey by this? That my exit criteria is not the actual profit number (or the percent) but the value of the trade that I derive at that point in time. If by exiting now, I am assured 80% profits versus potential of 120% by 3:29PM.
Over time, profit from a single trade loses importance in face of overall profit and time-value/risk for the remainder of profit also factors in.
2. You are right about one aspect of Short-selling but missing the very fine line that differentiates Buying from Selling. Before I execute a short sell, I'd also be speculating that prices will drop. Your assertion that "as a short-seller, I'd want prices to go down" sounds correct at first glance.
But, look at the scenario again and slice the sequence of events. Immediately after I've executed a short-sell, I am no longer a Seller. It would be waste of time to think like a seller and expect prices to go up. That aspect of my trade is over. I am now a buyer as a buyer I have to cover my open shorts sooner (rather than later). So, it is the buyer (within me; within you; .... ) that wants the prices to go down, not the seller.
3. Do you think scenario 3 is ever done by persons who understand how market functions? First short-sell can be a mistake (misread the trend,
buggy software, staring TV, whatever). Idea of adding position to loss making short is clear evidence that you are playing against the trend. While it can be a profitable strategy, that strategy is not for everyone. With each position add, you increase your stress.
If, when, there is a seller who is increasing the tick/offer price there is also a seller who is selling at the market/bid. Alternately, If there is a buyer who is decreasing the tick/bid price there is also a buyer who buys at the market/offer price. And in both cases they don’t want to miss the action.
So how is it that only the seller is increasing the price in an up market or a buyer is bringing down the price in a down market.
Seller who is selling at the Bid price is relinquishing his right as seller and allowing buyer to define the price of the trade. Seller who is holding onto a higher ASK price is not reading the market correctly and allowing other competitive sellers to gain buyers while he waits. In short, he is allowing buyer to gain control. I will not say that both are not sellers, both do have something they want to sell. In every completed trade, one has to think both as a buyer and as a seller and also understand where majorities are. Sometimes it is great to be with the herd. Sometimes, it is great to be standing on your own terms.
As for the buyer's emotion, you've answered it yourself. "He wants to be part of action" and so he agrees to the price decided by the seller and relinquishes his rights to negotiate.
