Have you ever wondered why exactly the market made a sudden move? Or who took your money when support or resistance didn’t hold? Or why that Pivot Level didn’t hold, or did hold?

I would argue that no trader is going to answer “no” to these questions. It’s human nature to wonder “why” stuff happens. And when that stuff also caused us to lose money, we especially want to know why it happened, who did it, what their motives may have been, etc. But it’s exactly the wrong question to be asking, and is completely meaningless to any retail trader in particular.

We will never know who did what, or why. Unless we are friends with someone at a trade desk in a major institution and we can call them up and they will tell us exactly what position they just put on, we have exactly zero insight into the thinking of the market participants who actually move price. (Incidentally, we retails traders do not move price during regular trading hours,. We are just way too small. We are ants.)

Over and over again I see conversations and arguments regarding this type of thing all over the place, from social media to our own trading community in TRG. And I get it, it’s human curiosity at work. But we’ve got to curb that curiosity as it will lead us into all the wrong types of thinking and looking for answers to things that are irrelevant to us. As traders we simply need to trade what’s happening. I don’t care who is doing what. Why would I? I care that price is moving and that based on certain things in the market structure, I can see areas that make sense for price to react at. I will then consider taking a position where I can keep my risk manageable in case I’m wrong. Because “failure is always an option.”

Yesterday in fact there was a perfect textbook example of something we discuss constantly in TRG and ties in very nicely to one of our “bread & butter” setups every day. We were a little more than an hour into the regular session in ES, the Initial Balance had formed but had not yet been broken (and we know the statistics and probabilities around certain behaviors regarding that, and use them to our advantage). Price was pulling back to an area of potential interest (a “Potential Inflection Point” in TRG-speak) and all of a sudden there was intense selling. Hundreds, and hundreds, and hundreds of contracts started to slam the bid, and price went absolutely nowhere. When it got up to nearly 1000 contracts in a matter of seconds, I got long as I could see the buyers stepping up into this intense selling, and I knew I had a low-risk and asymmetric (much bigger potential reward, than risk) trade opportunity.

The trade worked great but that’s not actually my point. Who was doing all that selling? More importantly, who was buying it all? Well honestly – who cares?? Why on earth do I care if it’s Fidelity putting on a long position in ES to hedge a short in the SPY? Or if it’s Dave at the derivatives desk of J.P. Morgan? Or if it’s George Bloody Soros himself! It’s utterly meaningless and is just a huge distraction from what actually mattered in the moment.

Sellers were selling. Aggressively. At a particular place. At a particular time. Where the probability that we break one side of the Initial Balance was very high. With a particular “quality” to the low and the high of the session. And yet price could not move down even a single tick. Someone wanted to buy it all. Therefore I wanted to be on their side! Nothing more complex than that.

Obsessing over who is doing what and why is, in my observations, mostly a way for traders to avoid taking personal responsibility for their trading decisions and especially their losses. The conversation turns into “the Market Makers took my stop!!” instead of “I put my stop in a really obvious place that everyone expected it to be”. But that’s probably going to be a conversation for another day. 😉

Until next time, trade well!

Jonathan van Clute
Community Manager, Trading Research Group