And we are getting to a seriously heavy and interesting market theory and practice.
Remember that chart from yesterday? Here it is again.
With this we are to see how we can pick up on market tops and bottoms and make profit.
But here we have two options. We can go with either hedgers or with speculators. And, as usual, as a regular hero we have the difficult choice fall on OUR shoulders. As if we didn’t have enough going on already.
So. We need to look at both of the positions. Speculative position indicates the direction of the trend and commercial position indicated the reversals. In case hedgers keep on increasing the long positions and speculators increase their short position we are going to see market bottom pretty fast. On the contrary if both of the parties keep on adding their positions we can see a market top.
And yes, it is hard to determine when you might see these sentiment extreme points, so some of traders prefer to do nothing until they have the exact point in sight.
Here the most important thing to remember is this: every market top and bottom is accompanied by a sentiment extreme, but not every sentiment extreme is going to result in a market top and bottom.
I told you we have reached the heavy point!