Does the market react to traders or do traders react to the market?
It is one of those questions you can never quite figure the answer to. What came first, the chicken or the egg?
In my opinion, it is a bit of both. On one hand, the market plots the sentiment of traders. It is fascinating that over some time you can plot the opinions of millions of people into a partially predictable pattern. In turn, the market influences the decisions of those same traders into the future ad infinitum.
See, chicken and egg!
As participants in this massive economy, we are stuck in a perpetual cyclical movement of money from one player's pocket to the next depending on how effective or lucky enough you are to catch the wave of the smart money.
I say smart money because, as most traders have experienced, market sentiment doesn't always influence the trend as it should.
The common term you hear is 'priced in'!
However, the reality is that smart money loves to liquidate trader's positions especially those who love to play around with stop losses.
Stop hunting, anyone?
In addition, we all get a standard set of tools and learning material that feeds this economy with individuals that think, react, and read the market the same way in perpetuity.
I remember the first time I got into trading the FOREX market and at first, it seemed so basic. Draw some lines, check the moving averages, maybe throw up the Fibonacci because 'the sequence is found in nature', place a trade and put up a stop loss and take profit.
That worked for a while until I realized stop hunting was a thing, so I stopped placing them and got margin-called. Thinking I had learned from that experience, I went back in with the concept of SMMM (Smart Money Market Makers) which was the purest concept of the market.
The idea that the markets are influenced by big banks and hedge funds and their footprints can be identified on a chart. The idea that riding on their backs was better than positioning against them and was ultimately the smartest move.
Think about the head and shoulders, the M's & W's, and the long candle wicks that liquidate positions of traders who still place stop losses around areas of support and resistance.
I guess what I am leading up to is, are the financial markets just a construct?
Think about that.