Hi traders!
First side of this topic you can find here
We've started talking about behavior of "big buys" or "smart money" (institutional) players. Basic assumption is the following - they rarely come to the market and buy all they want.
They try to patiently accumulate, act near hot spots.
Yet, there is particular situation when smart money players start acting like a "crowd" (they bring big volumes and do it very urgently)
It is called "Flight to safety" (or "flight to quality" in some sources)
Flight to safety
It can occur when something catastrophic and unexpected happens. For example, war or terrorist attack, large bancrupcy, financial crisis and so on.
There are lots of examples when market reacts too rapidly and too emotionally.
For example - housing bubble crash in 2008 (known as "World Financial Crisis"), Asian crisis, "Dot-com bubble" crash e t.c.
If "flight to safety" is in play, all short term trading techniques (for example - pivot points, channels or trend lines, divergencies and others) may work against short-term trader because traditional market logics doesn't work in such circumstances.
During 4th quarter of 2008 I was short-seller and I've seen with my own eyes that all short-term trading systems was broken. Market was simply breaking level after level and falling down without any rest.
Look at this chart:
Attachment 1092
It is AUDUSD, one of probably most volatile currency pairs for that period.
You may notice that selling pressure is enormous - market needs slightest trigger to start falling. In these circumstances traditional short-term logics will not work, especially if you work counter-trend.
Now look what happened with the price of gold:
Attachment 1093
All major indices, currencies and commodities were in down-trend, and Gold market only showed strength.
This is classical pattern of collective behavior called "Flight to safety"
Investors extract money from assets considered as "risky" and put them in "safe" assets.
Housing bubble of 2007-2008 was called "Global financial crisis", but from time to time, less global bubbles blow up, and money is being transfered from commodities or stocks to treasury bonds with guaranteed income, though it (income) is very small. But investors are driven by fear and simply want to save their money and purchase these assets not for yields.
If you guess, that something similar happens on this market - be aware.
Traditional market logics will not work here - market will make enourmous "squeezes" in the the destination of the trend. Though, you can just hold your position and enjoy profits.
But be also aware that such type of market conditions is relatively rare one, so don't reinvent the wheel - use your approach until something big will happen.
That's why sometimes it's useful to know what's going on in the world.
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Originally Posted by cozard007
