Ok, so you find a day trade that meets your plan. You take it. It reaches your target. You cash out for a profit. But did you ever wonder who is buying that stock from you?

The answer is simple – another trader possibly chasing the same day trade or another trader that is looking at the same trade on a higher time frame. In either case, depending on the technical pattern there will be a loser. The market works this way.  You need a loser for every winner and you don’t have to feel bad, if you are the winner.

Imagine this. You are long a stock ABCD for a momentum trade (scalp) and you are trading off the 2-minute chart. Your plan will tell you to sell into resistance at the first sign of a pullback, but that resistance can also be the trigger for a slightly larger time frame (say the 15-min chart). Suppose there is a trend trader interested in buying that stock from you above that resistance area. It might happen that the trend trader that took the trade on the 15-min chart is willing to sell into the next day trading resistance area and at the price point that might interest a swing trader.

Also, keep in mind that technical traders use different tools to signal entries such as:

All these tools and more are used on different time frames that determine when traders jump into a trade. All these factors create and accelerate momentum.

Conclusion

If the setup points to a very strong signal, long or short, the probability that other traders will participate is high and momentum may be generated. If the signal is not very strong, and liquidity is relatively low, the trader is probably alone against a market maker or other professional. The key to a successful trade is to have all the time frames synchronized and pointing in the same direction.

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Related Reading …

Read another story by Anka Metcalf here:

Swing Traders Guide To A Successful Trade
Trading: Evaluate Before You Pull The Trigger by Anka Metcalf