What’s It Mean to Win Trades by Anticipating the Anticipations of Others?

Remember this?

"too often, stop loss levels are defined by pain, not rational assessment of risk" Brett Steenbarger

And guess what happens when you combine the above with anticipating others' anticipations? You'll see in a minute.

First?
To anticipate the anticipations of others means to know the expectations, thoughts, or reactions people will have in any given trading situation.

You're recognising and anticipating how others might think or feel about certain movements in the market before they actually occur. Make sense?

Take Tuesday...
For context: over the last few sessions value's grinding higher. But with price moving in a wide range some people anticipating a stronger move higher find themselves paying too much.

What happens next?
If you pay too much for something, the price often goes lower than what you purchased. Correct?

But during the Asian session there's no:
• Hard and fast sell-off.
• Sign of stuck buyers jumping out of their losing long positions.

Instead:
It's a gentle slow-paced move lower.
It's the type of market behaviour where people feel comfortable holding and sitting out the draw-down. A large buyer even enters at a known relative value level.

But suddenly:
The large buyer quickly exits the entire position.

Buys 130+ lots at known relative value price. But sells it only minutes later.

Trading 135 lots at a time is no slouch. It's someone who's paid their dues  -  been in the game long enough to grow to that size.

Assumption? They probably know what they're doing. Right?
They're anticipating further downside. And sure enough the market sells off.

Market sells off but stabilises when Europe opens (16:00 onwards).

Where there's smoke there's fire.

During the move down tape reading observed 'stops defined by pain' triggered. But it's only a fraction of buyers who've bought at higher prices.

And in the chart above 👆 you see price stops going down which is when Europe starts trading.

Remember:
Value is moving higher so a move higher is likely. So despite experiencing a draw-down, some buyers anticipate the move higher to occur when London opens.

So what will they do?
They'll wait it out. Comforted by the fact currently the market's no longer going down.

And what else?
What's one-way people overcome their in-the-red positions?
They add to improve the average price. Correct?

Anticipating this what does the market do when London opens?
When London opens price moves up because it's how you make underwater buyers feel safe - safe enough to buy again. Make sense?

But what happens when you've added to your position and the market moves against you?

Unexpectedly you're staring down the barrel of a much greater loss than you really thought possible. Agree?

And when a large group of people face unexpected losses you soon see an aggressive price move as the domino effect of many stops triggered by pain hit the market.

Not only are these optimal trading opportunities, they're ideal for adding to your winners as shown below:

1st attempt short ended in a small loss. 2nd attempt shows adding to the position as stops defined by pain are triggered.

Your daily game plan anticipates the anticipations of others.

Before you even place a trade...

Your daily game plan articulates how you anticipate the anticipations of others. 

It goes beyond simply analysing what you observe in the market and predicting what might happen. That's what everyone else does. Right? Yet what do you know about doing what everyone else does? It doesn't work! Agree?

Winning at trading requires a different approach to what everyone else does.

When you understand the trading game you know it's about reading the room. You know what it takes for people to act one way, leading to an adverse event that moves price. Price movement you can profit from.

Related reading:

🔗 A Healthy Challenge Yes. But Trading a Struggle? No That’s Not the Way.

🔗 What Do You Think? Can You Think Along With an Industry-Trained Trader?