Contradictory Beliefs?

[ARTjoMS 10]

Hello,

 

there was one thing that I thought is quite intuitive and logical, but recently I have encountered seemingly contradictory opinions.. so I start this thread.

 

Not long time ago I started a thread where I touched a subject of false break outs and why they happen. I said something like

..I assumed it is partial profit taking from guy who did (participated) in the break out...

 

But on member answered that "maybe it is some short term people taking losses.", well I didn't give much of a credit for him, but now I am reading similar thing in a very respectable book. Author talks about 2B pattern (on type of false break out) and explains his reasoning why this pattern happens and also goes on to tell about stop orders.

 

I have thought/heard that e.g. in a bull market corrections happen because of profit taking. So ...if I buy ... prices move up (if I have enough money to move market), when I close my positions prices move down.

 

If I am short in a bull market and hit my stop loss - prices should move up not down, no?

 

What is going on here?

[MightyMouse 12]

Hello,

 

there was one thing that I thought is quite intuitive and logical, but recently I have encountered seemingly contradictory opinions.. so I start this thread.

 

Not long time ago I started a thread where I touched a subject of false break outs and why they happen. I said something like

..I assumed it is partial profit taking from guy who did (participated) in the break out...

 

But on member answered that "maybe it is some short term people taking losses.", well I didn't give much of a credit for him, but now I am reading similar thing in a very respectable book. Author talks about 2B pattern (on type of false break out) and explains his reasoning why this pattern happens and also goes on to tell about stop orders.

 

I have thought/heard that e.g. in a bull market corrections happen because of profit taking. So ...if I buy ... prices move up (if I have enough money to move market), when I close my positions prices move down.

 

If I am short in a bull market and hit my stop loss - prices should move up not down, no?

 

What is going on here?

 

Bull market corrections can occur because of profit taking. The likely cause for a correction is that there are far too many weak (long) traders who have entered the market at a late stage of the move. Weak traders are traders who do not have the ability to stay in a trade. These traders will sell quickly with any price move and therefore represent supply. Committed buyers who know what they are doing and want to buy more will not buy into supply. In fact, no one in their right mind would buy when supply exists. It is best to deal with supply at lower prices rather than at higher prices so price moves down until there is no more supply.

 

It could be that the early longs are taking profits and buying back lower, or it could be short term professionals have identified supply and are shorting to take advantage of the weak longs, or it could be longs who want to remove supply to buy lower and take short term shorts with limit bids to buy back as prices fall or some combination herein.

 

I am not sure you are confused.

[ARTjoMS 10]

It could be that the early longs are taking profits and buying back lower, or it could be short term professionals have identified supply and are shorting to take advantage of the weak longs, or it could be longs who want to remove supply to buy lower and take short term shorts with limit bids to buy back as prices fall or some combination herein.

 

Hey, OP contained only single question mark, but you don't say a word about guys who hit stop loss. ( however your replay gives me more confidence that I am on the right side )

 

What you said was nothing new, but still very nice explanation.

[Obsidian 10]

...If I am short in a bull market and hit my stop loss - prices should move up not down, no?...

 

since you are buying it back, you are helping the bulls when your stop loss is taken;)