Weak buyers and weak sellers, how do we identify them and why.

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cablemonster

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I have heard a few traders say sell into weak buyers or buy into weak sellers. So how do we identify weak buyers/sellers what should we look for?

I certainly dont have the answers I am very interested in a discussion.

I suppose we need to define weak buyers/sellers. Are these traders people who will puke out of a position easily if price goes sgainst them? Or are they weak in that they are in for a quick buck then out.

Now lets assume we have identified a key level where we will consider a short. The reason for the level is not relevant to this discussion.

So are these traders saying they would prefer to short at the level if weak buyers took the price up to the level as opposed to strong buyers.

Can we see it on a chart alone? If we see a steady gradual approach is that more indicative of strong buying? What if it moves sharply into the level is that an indication of weak buyers?

Market profile charts - could these show weak/strong buyers or just areas where the market has traded less/more.

Volume tools - such as marketdelta and DTs product. These could tell us how many buy market orders hit into the ask on the way up to the level.

For me personally if I am going to short a level I prefer to see price move up sharply rather than meet the level more steadily but my research is by no means complete.

Anyone care to throw in some ideas?
 

The Leopard

Experienced member
1,877 1,020
An interesting post that throws up quite a few good questions. Here are a few randomish thoughts:

I have heard a few traders say sell into weak buyers or buy into weak sellers. So how do we identify weak buyers/sellers what should we look for?

I certainly dont have the answers I am very interested in a discussion.

I suppose we need to define weak buyers/sellers. Are these traders people who will puke out of a position easily if price goes sgainst them? Or are they weak in that they are in for a quick buck then out.

I don't really buy this term "weak sellers / buyers", unless you're using it for purely descriptive purposes.


Take ES or something like that. Now the vast majority of the volume is done by institutions - traditional institutions, HFT firms, major individuals who trade very large and so have the characteristics of an institution and so on. At any point the other side is likely to be this lot (the same is true for people on your side). None of these can be described as weak. They'll all have deep pockets, they'll all know what they're doing.

So the idea of "weak" traders - under-capitalised, inexperienced, and so on - isn't really all that valid or useful in my opinion, because they account for such a small percentage of the market.


Now lets assume we have identified a key level where we will consider a short. The reason for the level is not relevant to this discussion.

So are these traders saying they would prefer to short at the level if weak buyers took the price up to the level as opposed to strong buyers.

I don't think it matters really. Again, we all use terms like bulls, bears, buyers, sellers. Again, this is OK for descriptive purposes. But at any point most traders aren't bulls or bears, they're traders. The same people that took it up in your example could very well be the people that take it down. They buy all the way, make money most of the way, close out (sell) and then go short. Obviously, this sends the market south, not just because of their shorting, but also because of their closing, and also because of their abscence of buying. Take ES again. Intraday, I don't think that most of the volume (accounted for most days from what I understand by the HFT firms) is bullish or bearish. Some days they might be, but mostly I imagine their programmes can switch around in an instant depending on the information they're receiving.

Can we see it on a chart alone? If we see a steady gradual approach is that more indicative of strong buying? What if it moves sharply into the level is that an indication of weak buyers?

Well, it could be lots of things. If the price races up, is that strong buying? Maybe. Or maybe it's not buying, maybe it's the absence of selling. "Strong" (if you like) bears standing aside and waiting for more favourable prices rather than "strong" bulls piling in.

Perhaps it's possible to gain some insights from the overall context of the chart. A sudden surge after a protracted, grinding uptrend could more likely represent capitulation than a random spike does - late bulls desperate to get some of the action, desperate sellers who have finally realised that they're not going to get a better chance to take in their shorts.

Again, maybe this scenario is more likely if it isn't the first surge, but the second or third or whatever. Anyway, these people are the last buyers. Once they are spent, who is left to buy?

The steady, gradual approach. I often see this in the US stocks I watch. Who knows what is behind it? Often it moves in a fairly well defined channel, and believe it or not I do quite well by just buying at the bottom of the channel. It drifts up all day and you basically just hold until the end of the day. But what causes it? Uncertainty with a slight imbalance, everybody wanting the same thing (lower prices so they can cover shorts, buy at a good price and so on) but not believing they'll get it (so the shorts have to cover where they can, the would-be longs have to get in where they can) so it never comes. Or maybe it's driven by big institutions just filling their orders in pieces as best they can.

Now, perhaps you can characterise this as strong, because often it's a fairly straight-forward and regular move all the way to the end. Or maybe it's uncertainty. Or agreement, of course. There's so many possibilities, everyone will have their own views, or their programmes will have their own approaches. I don't doubt that there are good scalpers and programmes who make money all the way up on both sides, long and short. In fact, that behaviour would obviously reinforce the market action we're seeing.


Market profile charts - could these show weak/strong buyers or just areas where the market has traded less/more.

Volume tools - such as marketdelta and DTs product. These could tell us how many buy market orders hit into the ask on the way up to the level.

I'm really not that keen on volume, because I don't find it to be a reliable help. That's just me, I don't doubt that there are people much better than me who find it invaluable.

For me personally if I am going to short a level I prefer to see price move up sharply rather than meet the level more steadily but my research is by no means complete.

Well, that does make sense to me, but it depends on the context. Although I do everything I can to avoid reversals in any case. You have to be careful though. Very frequently you'll see the race up, a decline, then a further test of the high, then the real reversal. Where I do go for them, I like to see this rather than joining in for the first attempt down. But one of the best things I ever did was to make a conscious effort to not trade reversals. I find it interesting to watch how they play out and speculate (as you are doing) on the action that's creating them, but for the most part it's purely out of interest.

Again, you have to be careful. Often it's spiking up fast for a reason. Generally where it's like this I prefer to see if there is a pause that will allow me to go long rather than try to stand in front of the trend, but it does all depend on the context. Like above, I'd be less likely to do that if it followed a protracted bull move, or a series of bull moves interspersed with bull spikes.


Anyone care to throw in some ideas?

Sorry that's a bit rambling, but it's late and I'm knackered.

The more time goes on, the simpler I try to make things. So now all I do basically is look for a place to get on the trend - a pause in a spike, a brief pullback, a breakout pullback in the direction of the trend, and so on. I mean, there's not a lot to that. It's mostly just waiting until it looks good, watching the context carefully, cutting risk as I can and holding for as long as I can when it goes my way. That's pretty much it and I find the more I focus on just that idea, the better my results have got. So generally I'm not speculating too much on motives and the people on the other side and who they are and whatnot. I just assume that they're big, and highly competent, but that it really doesn't matter.

Anyway, an interesting topic for a discussion.
 
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Brumby

Established member
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I have heard a few traders say sell into weak buyers or buy into weak sellers. So how do we identify weak buyers/sellers what should we look for?

I certainly dont have the answers I am very interested in a discussion.

I suppose we need to define weak buyers/sellers. Are these traders people who will puke out of a position easily if price goes sgainst them? Or are they weak in that they are in for a quick buck then out.

Now lets assume we have identified a key level where we will consider a short. The reason for the level is not relevant to this discussion.

So are these traders saying they would prefer to short at the level if weak buyers took the price up to the level as opposed to strong buyers.

Can we see it on a chart alone? If we see a steady gradual approach is that more indicative of strong buying? What if it moves sharply into the level is that an indication of weak buyers?

Market profile charts - could these show weak/strong buyers or just areas where the market has traded less/more.

Volume tools - such as marketdelta and DTs product. These could tell us how many buy market orders hit into the ask on the way up to the level.

For me personally if I am going to short a level I prefer to see price move up sharply rather than meet the level more steadily but my research is by no means complete.

Anyone care to throw in some ideas?

Like you, I have never seen an in-depth explanation on the concept of weak hands beyond a mention of it. My personal interpretation of it is that it's meaning is relative in that the market reflects a range of participants and within it at the top of the food chain are the "whales" that dominates. The bulk of my interpretation is based on what I have been taught by Tim Morge through his different teaching sessions. The major take away are :

1)Each market are typically dominated by a few whales. They may or may not act collectively depending on their vested interest prevailing at that time. They are the people to watch because they are the ones that will move the market and run the stops. Each whale has a unique trading style and if you know what to look for you can tell who is in play.

2)The whales are the one who will intentionally and likely run your stops. They will work their positions e.g. sell to depress prices to grab from weak hands to accumulate their position (buying wholesale). They will continue to work their position until they reach their accumulation target. I have actually seen one video that showed an actual case of how he ran the stops and how he grabs from the weak hands.

3)Structural stops are very important in preventing positions from being grabbed. Tim very often mentioned that he places his stops at least 2 swings away to prevent from being gunned.

4)Consolation is even whales on occasion get caught on the wrong side. As such, they only run stops under certain conditions.

In essence for us as traders we trade on the basis of a setup with an initial stop and potential target. It is not a case of having a weak or a strong hand but having regard to risk management and the overall RR. The main consideration will always be what is the acceptable risk and how likely our stop will be gunned.
 
C

cablemonster

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An interesting post that throws up quite a few good questions. Here are a few randomish thoughts:



Sorry that's a bit rambling, but it's late and I'm knackered.

The more time goes on, the simpler I try to make things. So now all I do basically is look for a place to get on the trend - a pause in a spike, a brief pullback, a breakout pullback in the direction of the trend, and so on. I mean, there's not a lot to that. It's mostly just waiting until it looks good, watching the context carefully, cutting risk as I can and holding for as long as I can when it goes my way. That's pretty much it and I find the more I focus on just that idea, the better my results have got. So generally I'm not speculating too much on motives and the people on the other side and who they are and whatnot. I just assume that they're big, and highly competent, but that it really doesn't matter.

Anyway, an interesting topic for a discussion.

I kinda agree with your point about an instrument like the ES, all the players who are able to move the market are well capitalised so it's not like they are weak in any way, it's not like they are going to puke out easily. What you say about 'maybe it's not buying but the absence of selling' also strikes a chord. Say if we look at the profile and we can see the way ahead is through an area where price has not hung around, or a 'liquidity gap' so to speak, it is clear to me it will not take as much volume hitting into the ask to move price up to the level as if there was no 'gap'.

I take your point about trading reversals and the bulk of my 'set ups' are with the flow in the overall context of the market.

Let's consider the situation where price has been consolidating for some time and then price spikes out to our level, I would not consider that a great fading opportunity as there is likely to be a quite a bit of order flow built up. By that I mean all the participants who participated in the consolidation are likely considering their hand if they have not acted already.

there is a lot to be said for what others wrote on a recent thread about subconcious learning and situational awareness.

all interesting stuff.:D
 
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The Leopard

Experienced member
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This all makes a nice change. (y)

Everything I write is just my opinion of course, and I'm fully aware that it might be wrong. That said:

I kinda agree with your point about an instrument like the ES, all the players who are able to move the market are well capitalised so it's not like they are weak in any way. What you say about 'maybe it's not buying but the absence of selling' also strikes a chord. Say if we look at the profile and we can see the way ahead is through an area where price has not hung around, or a 'liquidity gap' so to speak, it is clear to me it will not take as much volume hitting into the ask to move price up to the level as if there was no 'gap'.

I take your point about trading reversals and the bulk of my 'set ups' are with the flow in the overall context of the market.

Let's consider the situation where price has been consolidating for some time and then price spikes out to our level, I would not consider that a great fading opportunity as there is likely to be a quite a bit of order flow built up. By that I mean all the participants who participated in the consolidation are likely considering their hand if they have not acted already.

So this is something that would in general make sense to me. The longer the range goes on for, the more this would seem to apply. In the first place, you've got longer for some underlying change to take effect - some fundamental change will filter through.

Then you've got the market element you allude to. All the while that consolidation is going on, you'll have people looking for the breakout. Orders should be accumulating, and when they get hit on one side or the other things take off. The guys on the wrong side will quickly cover, driving it further in the direction of the breakout.

All I'd say is again to be careful. What if it is simply a function of the market, and there's nothing more behind it? So let's say it break out long. Those buy orders above the range have been filled. The guys betting that the range would hold, or the breakout would be south, will cover quickly, so their buying has turbo-charged the move, but now it's gone. Where does the follow through come from?

You often see the breakout pull back situation, where price does what I have just described, drifts back down to the top of the range(ish) and then takes off for the real move.

So in general, I prefer to wait to see if we get that rather than relying on the possibility of follow-through buying after the initial breakout. Obviously I miss some great moves, but I miss a lot of the fake breakouts (much of which could be stop hunting, who knows), and slow and steady suits me better.


all interesting stuff.:D

It is indeed. I also think it's very helpful to ponder things in this way. I'm not sure it even necessarily matters whether your conclusions are right or not, it's just good to keep focussed on what the market actually is - a load of people and computers placing orders - rather than getting caught up in the ladder or your chart or whatever.
 

Hakuna Matata

Well-known member
357 209
Strong buyer: someone that want's to buy
Weak buyer: someone that has to buy.

Size doesn't come in to it IMO. What is is that old Warren said... "be fearful when others are greedy, greedy when others are fearful"?

Think about it in all other aspect of life: when a shop is going in to administration, you can get some real bargains in an "everything must go" sale. When people have to sell their houses ASAP they will often accept a price way below what they could expect otherwise. When you haven't been laid in 6 months you'll jump on the next heffer that will let you have a go*.

Some great trades can be found when a portion of the mkt has got it's back to the wall, and positions are bing transferred from whoever is presently weak to whoever is presently strong. If this all sounds a bit too esoteric, think about a stop run: a situation where people in a certain position are having their beans squeezed to the extend that they can't take the pain any more, puke their position, and price temporarily lifts/falls because the volume of incoming orders outweights the natural liquidity in the market. Fading these can be great, great trades.

All IMHO.

*unless you're married, in which case

a) get used to it
or
b) get an au pair
 
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Hakuna Matata

Well-known member
357 209
p.s.

Dear Mods,

Why was the other thread deleted? I'm pretty certain that this thread was borne out of our collective conscience trying up even up the balance between lulz and trading chat. Now the lul has gone, why should we bother making an effort in this thread?

Just something to think about.

Bisous x
 
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Hakuna Matata

Well-known member
357 209
@Brumby - I've heard good things about Tim Morge, but the whole pitchfork thing puts me off. Care to share your experience, maybe in another thread?
 

barjon

Legendary member
10,705 1,809
mmm, interesting.

On the equity front take the scenario where an institution has placed a very large buy order with his broker. That broker is going to be judged on how well he meets the price the institution has in mind or, maybe, bettering average price if the stock is moving. I suppose you could call him a "strong hand" because he knows the scale of his buying is likely to move the market. He is also likely to be in competition with other strong hands whose institutional clients have taken a similar view. His job is to winkle out enough sellers at a "reasonable" price and he must work the order to do so. Those sellers are "weak hands" only in the sense that they want to sell, for whatever reason that may be. If he does his job well there should not be an explosion in price. If he does his job badly then sellers disappear and he has to chase them out with ever higher bids resulting in more explosive movement.

Or is all that just my vivid imagination :)
 
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C

cablemonster

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This all makes a nice change. (y)

Everything I write is just my opinion of course, and I'm fully aware that it might be wrong. That said:



It is indeed. I also think it's very helpful to ponder things in this way. I'm not sure it even necessarily matters whether your conclusions are right or not, it's just good to keep focussed on what the market actually is - a load of people and computers placing orders - rather than getting caught up in the ladder or your chart or whatever.

I too prefer to wait for pullback to the range and a lot of the time you will miss a good move, its a better way for handling the risk imo. If you take the 1st breakout she can be a fakeout as you rightly point out, we want confirmation that we are done with the range, of course with a bluff there can be a double bluff and so on.
 
C

cablemonster

0 0
Strong buyer: someone that want's to buy
Weak buyer: someone that has to buy.

Size doesn't come in to it IMO. What is is that old Warren said... "be fearful when others are greedy, greedy when others are fearful"?

Think about it in all other aspect of life: when a shop is going in to administration, you can get some real bargains in an "everything must go" sale. When people have to sell their houses ASAP they will often accept a price way below what they could expect otherwise. When you haven't been laid in 6 months you'll jump on the next heffer that will let you have a go*.

Some great trades can be found when a portion of the mkt has got it's back to the wall, and positions are bing transferred from whoever is presently weak to whoever is presently strong. If this all sounds a bit too esoteric, think about a stop run: a situation where people in a certain position are having their beans squeezed to the extend that they can't take the pain any more, puke their position, and price temporarily lifts/falls because the volume of incoming orders outweights the natural liquidity in the market. Fading these can be great, great trades.

All IMHO.

*unless you're married, in which case

a) get used to it
or
b) get an au pair

good chat Hakuna I like your insight. :p
 
C

cablemonster

0 0
p.s.

Dear Mods,

Why was the other thread deleted? I'm pretty certain that this thread was borne out of our collective conscience trying up even up the balance between lulz and trading chat. Now the lul has gone, why should we bother making an effort in this thread?

Just something to think about.

Bisous x

spot on mate, when lulz gets deleted it makes me want to take the lulz elsewhere, within the lulz can be some great nuggets. my post about the damp seat should be reinstated.:cheesy:
 
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cablemonster

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Strong buyer: someone that want's to buy
Weak buyer: someone that has to buy.

so how do we go about finding people who have to buy or have to sell? I guess these will include people who have to initiate a position i.e. at expiries/fixes etc but also people who have to close because they cant take any more heat.
 

Hakuna Matata

Well-known member
357 209
so how do we go about finding people who have to buy or have to sell? I guess these will include people who have to initiate a position i.e. at expiries/fixes etc but also people who have to close because they cant take any more heat.

On a retail/local level, I can think of few examples where traders putting on positions for fixes/extensions/window dressing can be taken advantage of. Put it this way: if you've heard about it, all the front running has been done. There are exceptions to the rule of course (for instance where a companies are promoted or relegated from an equity index), but in general it's pretty hard to trade.

On the other hand, trading against people puking their position is well within the grasps of your Joe Local.
 

Shakone

Senior member
2,458 665
so how do we go about finding people who have to buy or have to sell? I guess these will include people who have to initiate a position i.e. at expiries/fixes etc but also people who have to close because they cant take any more heat.

Well this also includes those who derelict all duty of exiting to their stop. I'm not saying you shouldn't have a stop, but when the market does go there, you now have to exit, so you are weak, your hand is forced.
 
 
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