Here’s an interesting quote in New Market Wizards by Bill Lipschutz…it sounds like he’s talking about what you talked about in the course of a psychology/sentiment shift when stops are hit. I really wish they’d release the audio version of this book.
Schwager: How is large size an advantage?
Lipschutz: If a big buyer comes in and pushes the market 4 percent, that’s an advantage.
He doesn’t have to get out of the position all at once. Foreign exchange is a very psychological markets. You’re assuming that the market is going to move back to equilibrium very quickly – more quickly that he can cover his position. That’s not necessarily the case. If you move the market 4 percent, for example, you’re probably going to change the market psychology for the next few days.
Yes! That is exactly what he is talking about. He is talking about the sent/psych shift after a big move happens or stops get tripped, where the move can continue on for a bit.
When you can learn the underlying principles in the mastery course, and keep them juggling in your head, then you can go read any book or article and get 100x more out of it than you previously did. That is because your mindset and beliefs change. You now understand the key market principles. You develop a very strong trading philosophy that you can approach any book or piece of information.
Then when you do this, you will be able to have revelations and discover secrets from the books and pieces of information that other people cannot see. You will discover a whole new world opening up to you that was previously hidden because perhaps you did not have the necessary mindset, beliefs, or trading knowledge. This new world will open up because you know the key principles and can relate to them and play out the scenarios in your head and see the volatility movements in your head. You are developing, nurturing and expanding your interpretation advantage, which is one of the greatest edges of all time. I have applied this interpretation advantage to create the mastery course, and in all my blog posts, and email responses.
A lot of the information I interpret, I am sure many other people read it, but very few see what I see. Very few get as much out of the information as I do. Very few people have the market philosophy and beliefs that I have. Not that mines are the best or anything. I just found certain principles and beliefs that worked for me, and many of them will probably work for you. Once you understand the key market principles and develop a powerful trading philosophy, then you will have an interpretation advantage for life. No one can take it away from you.
As Dr. Van Tharp said:
You don’t trade the markets; you only trade your beliefs about the markets.
Therefore, if you adopt better market beliefs by getting rid of and replacing poor market beliefs, your trading results will change. As your beliefs (and necessary actions) change, so do your trading profits.
That being said for the Bill Lipschutz quote, I am not exactly sure any big market player comes in and pushes the market 4% just to potentially cause a sent/psych shift. Pushing a currency 4% is kind of a large operation, which is like hundreds of pips. That would be very risky if they didn’t get the sent/psych shift correct as they could lose 1-4% on a multi billion dollar position if they are wrong and need to liquidate. It is possible that back in the days of the 1980’s and 1990’s, that it happened more often than it does now. I don’t think Soros pushed the market 4% on too many occasions. Maybe only a few times in his career. Or perhaps none at all.
What Soros discovered was that, even though he was one of the biggest hedge funds for a decade or two, he was still a small player compared to all the news/sent/fund/macro order flow and money out there. He never came right out and said that, because Soros likes to explain his theories in complicated ways.
But as Colm O’Shea said in Hedge Fund Market Wizards:
One reason I like macro so much is because I am a small fish swimming in a sea of real money.
My personal preference is to only use pure sent/psych shifts for smaller movements (30-200 pips or so). Then the other variations of the sent/psych shifts occur with knowledge of the liquidity model and the most important market players: the news/sent/fund/macro players.