Imagine that there were 100 people participating in a guessing game of only 3 probabilities. The richest and smartest amongst them played the banker, the rest of the 99 were just players.
The 99 players had to board a huge machine that the banker had control over. The players had to guess which direction the banker would move the machine -- either UP, DOWN, or STILL. To make the guessing easier for the players, the banker gave them one hint, and the rest was up to them.
Each of the players had only to pay $50 to join the game for a grand prize of $1,000 each if they guessed correctly. After analysing and weighing the odds, they were all convinced it was a pretty good deal. The hint went this: "There is a duck in the middle of a pond floating peacefully. An alligator is coming silently from behind it. How do you think the duck would react?" said the banker. The players were laughing inside their hearts, thinking: What a straightforward hint! Everyone was busy writing down their answers on pieces of paper provided to them earlier. "OK! Time's up. Please raise your answers so that I can see them clearly," instructed the banker. They all displayed their answers joyfully -- 80 of them chose UP, 15 of them chose STILL and only 4 chose DOWN.
The banker looked at their answers and gathered that in order to win, he had to move the machine down, so that 95 of them would lose, and only 4 would win. And so he moved the machine DOWN. The 80 of them who chose UP became furious because they found the answer ridiculous. They stood up voicing their objections: "Even the stupidest duck would fly for its life!" The other 15 joined the opposition: "Weren't you trying to fool us with a plastic duck? Why would a duck dive into the water knowing very well it would never out swim an alligator?" The banker answered smilingly: "I quite agree with all of your theories and analyses, but unfortunately, the duck was at the moment unaware of the approaching alligator, and so happened to dive into the water to catch its meal: A fish."
Moral of the Story:
The market's predator have learned, understand and now know very clearly the habits and weakness of their ever-naive. They are just like a fisherman who knows exactly where he can find his fish, the various baits he should use for different type of fish and the best time to fish by observing the tides to ensure a fruitful trip full of catch. No matter how many times he goes back to the same place with the same bait, the same load of fish fall into his net.
The Market Makers play the role of the Bankers and especially true for markets such as covered warrants and retail forex.
The market sharks are also waiting at major technical charting points, turning points or levels and they have all the resources and expertise to know the charts better than anyone here and we are so naive to think that we can beat the market sharks at their game. So just open your eyes wide and understand why sometime market moves unexpectedly in the opposite direction - The Sharks are in Action!
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