T H E-M E G A-T R A D E R

One reason for the uniqueness of markets is that each market tends to have the
same group of players trading them day in and day out. It’s the summation of
all these traders’ uniqueness that moves a market the way it does. To make it
clearer, think of all the people who regularly trade cocoa as one mega person.
He will have a different uniqueness than the mega trader of cotton. It is this
style of the mega trader that gives each market its own feel. If all the traders
who trade cocoa started trading cotton instead, I bet cotton would soon start
having the same patterns as cocoa. It’s just a theory of mine.
I know from experience that markets have different ways of moving
along a trend. When trading the stock indices (Figure 6.1) for example, if
the market is having a strong day, it tends to have quick run-ups, takes
a breather by dipping a bit and then continues on its way, only to have
another small fast dip as it overextends itself once again and the pattern
keeps repeating. In crude oil (Figure 6.2), I’ve noticed a slightly different
pattern on a strong trending day, and that is that instead of dipping when
it stops going up the market tends to trade sideways until the trend line
catches up to the market, and then it will rally again. Yes, there are many
times when it dips, but compared to the S&Ps, it has been more common
to see these sideways retracements.
Both these patterns happen as the day traders take their profits after
a quick gain and look for a better buying opportunity. After a quick dip or
sideways move, they come back in for more and drive the market up again.
They make their few ticks, are happy, and then sell. I’m not sure why one
market shows a different pattern than another, but I’m aware it happens.
You only learn this by watching the market move day in and day out. Once
you are an experienced trader, you will get a feel for when it’s ready for its
dip and advancement. When I worked on the floor, I was usually able to tell
just by the sound of the crowd what was about to happen.

FIGURE 6.1 5-Minute S&P

Source: © TradeStation Technologies 1999. All rights reserved.

FIGURE 6.2 5-Minute Crude Oil
Source: © TradeStation Technologies 1999. All rights reserved.