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Here's an interesting insight from William D Gann in this book, Truth Of The Stock Tape.
What can we expect on Mondays? The markets are sepereated into two types of market participants. The sharks and the sheeps. I refer to the sharks as the professionals and the sheeps to the general public who buy or sell on based on news. The sheep are usually the late comers; buying after a rally or shorting after a decline.
In his book, Truth of The Stock Tape, Gann mentions that a market that has been strong all week and closes strong on Friday has a good chance to rally at the open on Monday. This is due to public buying and orders placed at the market based on the weekend news of a bullish market. Hence, the market will tend to rally for the first hour. However, as soon as the demand is supplied the professionals or sharks will start selling causing a market reaction. The key here is to wait for the dips after the first hour.
In a declining market that has been weak the entire week and closes weak on Friday, the market has a good chance to sell off in the first 30 -60 minutes of the trading session. After the public selling pressure is gone, the professionals will start buying causing a rally. Therefore the key is to buy after the reaction. |
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Analysis leads us in much the same way. Joel Pozen (tradingmentor.net) talks about this concept in this way:
*A rise in prices is not caused by increased buying, rather increased buying is caused by rising prices.
It is the retail trader's fear of missing out. As price rises the retail trader gets more and more anxious that he is missing the opportunity and rushes in . This is usually on good news. The professional trader, is however, poised to sell into the rush of euphoria. That is why retail traders tend to be buying tops and selling bottoms.
News events are money making opportunities for the Smart Money. So a weekend of good news after a week of rising prices would be as well.
Tom Williams,
Master the Markets, sums it up best:
"A professional trader isolates himself from the 'herd' and becomes a predator rather than a victim. He understands and recognizes the principles that drive the markets and refuses to be misled by good or bad news, tips, advice, brokers, or well-meaning friends.
When the market is being shaken-out on bad news, he is in there buying. When the 'herd' is buying and the news is good, he is looking to sell".