The diffusion model
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    The diffusion model

    Hi traders!

    Today I want to talk a bit about concept that is widely used in marketing but is undervalued in trading. It is called «the diffusion model» and first thing that comes to mind is technology. When new technology comes to the market, first there are «innovators» who bring it or use it in the very early phase. Then «early majority» participates, then «late majority», and, finally, laggards.

    In every trend on financial markets either long-term or short-term, everything goes the same way. Here is a diagram showing how diffusion model works in numbers:

    diffusion.jpg

    You see that there are some calculations that allow us to estimate – what group is the least risky to be in? But also if we are trading financial markets, we don’t need «early adopters» to step in a trend (it’s not a unknown technology – everybody knows how to step in a trend). We can combine «early adopters» group and «early majority».

    When any new trend occurs on the market regardless of its length, everything works in the same way.

    Look how we can mark possible zones of participation:

    diffusion2.jpg

    You see that the least risky group to be involved in is early majority. In this you are working against «innovators short» (that are, in fact, laggards) and with new money coming to the market. «Early majority» phases allow us to efficiently manage risk, because you know already who is in control and play on the strong side. Yet, it's not always easy to figure out - what phase is on?

    But if you think inside of this frame, you automatically address your self a question - "If I do this trade, what are the odds that I will be the laggard?"

    Being laggard is equal to lose money. Being in other phases, you can earn money if you are understand what group you are working inside.

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    Last edited by Value trader; 09-23-2013 at 08:16 PM.

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    Rookie rinaji's Avatar
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    Good information, good topic ...
    All traders would want to be in the earliest place to get an advantage, but it is difficult in forex because it is close to the risk. But being laggards is a thing that most high risk, one reason is the technical indicators signal that impressed laggards. But it may be many other reasons, mainly related to psychological factors.

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    There are several ways the market is being formed and still maintained. The issue to me is a little bit confusing, but i am still taking the whole trading to be a scenario of the truth, but not actually a sole determinant as many may have said it. Also, the main thing that makes traders to thing laggard is the manner of trading approach, if you do it well, assurance can not be far from you, except some certain needs be.

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    these are really valuable information ,this is the first time i hear about the diffusion models and i think it is a good way to interpret market behavior,there are many models and pattens by which the market moves and if we could be able to identify these models it will be a very great help for us in acquiring better trading signals.

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    Quote Originally Posted by Value trader View Post
    Hi traders!

    Today I want to talk a bit about concept that is widely used in marketing but is undervalued in trading. It is called «the diffusion model» and first thing that comes to mind is technology. When new technology comes to the market, first there are «innovators» who bring it or use it in the very early phase. Then «early majority» participates, then «late majority», and, finally, laggards.

    In every trend on financial markets either long-term or short-term, everything goes the same way. Here is a diagram showing how diffusion model works in numbers:

    diffusion.jpg

    You see that there are some calculations that allow us to estimate – what group is the least risky to be in? But also if we are trading financial markets, we don’t need «early adopters» to step in a trend (it’s not a unknown technology – everybody knows how to step in a trend). We can combine «early adopters» group and «early majority».

    When any new trend occurs on the market regardless of its length, everything works in the same way.

    Look how we can mark possible zones of participation:

    diffusion2.jpg

    You see that the least risky group to be involved in is early majority. In this you are working against «innovators short» (that are, in fact, laggards) and with new money coming to the market. «Early majority» phases allow us to efficiently manage risk, because you know already who is in control and play on the strong side. Yet, it's not always easy to figure out - what phase is on?

    But if you think inside of this frame, you automatically address your self a question - "If I do this trade, what are the odds that I will be the laggard?"

    Being laggard is equal to lose money. Being in other phases, you can earn money if you are understand what group you are working inside.
    I have been spend a few years but I never heard about laggards and motivators before. Seriously I'm interested with this. Btw I still don't understand about the percentages in the first attachment (difussion.jpg). How the percentages can be applied in trading? Does it will show about the probability of next movement from market?
    So far I only know that motivators is opposite of laggards. That's all that I know. Still need more explanantion.

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    Registered user opan's Avatar
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    nice and thanks for giving information extremely useful in my opinion, and the most important thing is we need to know where we put ourselves against a difficulty, because of the difficulties that we face do not we dissolve itself in trouble due to the soluble kesultan means we continue to fall into the wrong

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    This is indeed a good information tools for me, I am able to gather idea on it. Many things we need to learn on forex to become a good trader and thus I am trying to learn forex trade as I am very willing to sustain in this market with profit. By this time I started trade with what I know. I generally use TP, SL and put order at the top/bottom of any market status. I need to enhance more elements in my trading and thus I am trying to learn it.

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    Quote Originally Posted by thenight View Post
    I have been spend a few years but I never heard about laggards and motivators before. Seriously I'm interested with this. Btw I still don't understand about the percentages in the first attachment (difussion.jpg). How the percentages can be applied in trading? Does it will show about the probability of next movement from market?
    So far I only know that motivators is opposite of laggards. That's all that I know. Still need more explanantion.
    First of all, there are innovators not motivators :)

    Numbers will not help you (it's not about probability at all :) ), they reflect patterns in human psychology. If you take the whole number of market participants (speculators) involved in a trend, you will probably see significant growth as trend emerges. Those numbers show approximate percentage of participation

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    Quote Originally Posted by thenight View Post
    I have been spend a few years but I never heard about laggards and motivators before. Seriously I'm interested with this. Btw I still don't understand about the percentages in the first attachment (difussion.jpg). How the percentages can be applied in trading? Does it will show about the probability of next movement from market?
    So far I only know that motivators is opposite of laggards. That's all that I know. Still need more explanantion.
    First of all, there are innovators not motivators :)

    Numbers will not help you (it's not about probability at all :) ), they reflect patterns in human psychology. If you take the whole number of market participants (speculators) involved in a trend, you will probably see significant growth as trend emerges. Those numbers show approximate percentage of participation

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    Nice and thanks for giving information extremely useful for me, and the most important thing is we needed to know that where we put ourselves against a difficulty, because of the difficulties that we face do not we dissolve itself in trouble due to the soluble means we continue to fall into the wrong, First of all, there are innovators not motivators, Numbers will not help you it's not about probability at all, they reflect patterns in human psychology. If you take the whole number of market participants involved in a trend, you will probably see significant growth as trend emerges. Those numbers show approximate percentage of participation, thanks for the posts

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