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Hidden traders: Trade where other traders were wrong

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“If I could reverse all my trades I would be profitable”

How many times have you read that from frustrated traders?

Of course, the saying is over-simplified, completely untrue, and ignoring the most important part of the trade (the exit), but it does give you a hint at a technique that could help you get an edge in your trading.

Trading where other traders were wrong

Trading is a faceless profession, you can’t see who you are buying or selling to.

There is no handshake, a pleasant goodbye or chest bumps at trade execution.

To a retail trader, it is an electronic signal, a number, a click and a transaction that heads of to trade heaven (or, like so many of all traders trades, hell).

Trading is often compared to poker, and the mental process and risk management can be similar, but even in poker you can look for visual clues. “Tells”.

Trader "tells"

Tells can give you a hint if your bet has a greater winning chance than from pure chance based on if a player is involuntarily revealing their intention.

This day and age we don't have people to take hints from when trading. Finding "tells" in trading requires a different skill, to look deep into pricing charts, the visual representation of traders emotion.

Now I'll prefix this with saying it is infinitely easier to do this in hindsight, but the tells are there if you can train your eyes to look for them.

The simplest rule of markets is buyers buy from seller, and sellers sell to buyers. Forex markets, stock markets or fruit markets, it is all the same.

If you want to buy, you need to look for a seller to buy from. Even better, a desperate seller eager to let you buy at a cheap price.

It is this concept that the trading theory of "polarity change" is spawned.

A polarity change is when buyer become sellers, and sellers become buys at the same price area. When support becomes resistance, or resistance support.

In visual terms, it looks like this:

Polarity change

What used to be support, marked with green arrows, becomes resistance later on, marked with red arrows.

Buyers that held the price up become sellers later on when their positions suffer. To close a losing buy trade, you need to sell the same amount, so those losing buy trades initial sell trades as they exit around their entry price.

Hidden traders

There is nothing new in the above, it is taught in most technical analysis 101 courses and books, but there are other tells as well.

Hidden traders are those that have attempted to stop moves mid stream but have failed and are now looking at getting out.

Again a chart:

Hidden traders

Here you can see price moved up sharply, topped out and found two points of resistance as it folded over (only the second one marked). Neither of these seemed to reverse at previous resistance, so how could we have known some possible support areas?

In the sharp move up, you can see marked with a red arrow a big candle with a long upper wick. This is a high volume candle with strong selling despite the bar ending in a bullish fashion.

Sellers tried to halt the move, failed, and were left holding positions they wanted out of.

"But what about the move down not long after, wouldn't they have got out?"

Some yes. But think about it, you place a trade with a belief it was moving lower, price blows through those levels but quickly returns and you are in a small profit.

The smart trader would have been gone long ago (or has a trade size so small they are asleep by now). The rest, would be dealing with overly warm and fuzzy feelings their trade was right after all.

They are probably mid-tweet to tell everyone about it.

It is those traders that will get out later once price moves against them for a longer period (ironically, this trade ended up forming a triple top and moved down substantially).

The tell that sellers were around to buy off were there, they just didn't stick out as a high pivot or a double top like a traditional polarity trade would.

Instead you need to look 'inside' the move to try to read the story of what traders were doing. To find the "tell" of the move.

Other tells of traders

There are many others tells I know of, and many many more I don't, but here is a list of a few others.

  • Congestion areas, areas of indicision or balance, can often contain traders ready to trade either side of a move
  • A series of five or more candles that move in one direction but never close above previous highs/lows. You will see this is a series of long wicks, price looks like it is moving in a direction, yet price can never close to a new highs or lows.
  • Previous highs or lows that are briefly broken but returned to. Don't assume because a previous high or low that has been strong before is automatically void because it is broken once. The market memory can be long.

I will explore these in more details in future articles.

While retail traders may not have access to order flow, if you can look past the forest to the trees, price action can still tell you where traders might still be.

Happy trading.