way back till 2014,market trades were not supervised by algorithams or say softwares,a technical trader would easily track a sucessful break out,many technical indicators would help, i used to use bolinger bands,macd combining with candel stick patterns and ofcourse open interest and p/c ratios in futures segement.All this data helped a lot for retail investors using technical analysis.
Now technology has taken over markets,big players like funds and brokerages having proprietary trading are widely using algorithms,on a normal day 95% of trading is done by softwraes,everything is programmed,Funny part is these programs target technical investors,il try to explain with a example below
say am technical trader and waiting for same break out,i found exide industries breaking 200 intraday (its trading below 200 from past few years),for a technical person its a sureshot buy,and without any further delay i go long on it,as the softwares also display huge green candles with spurt in volumes,so i close the day by accumulating some lots,now all my trades are tracked and it opens gap down next morning with continuos falling till 185 levels intraday,and you wonder how it happend as there were huge volumes with increase in OI.ultimately i realize that it was a false breakout am stuck,so i rush to squareoff and remember i was not only one who went long technically,this rush will further push the scrip down..making all retail longs wash out.
now the challenge is how to identify the real longs? which technical indicator to follow? the answer for this is in fact none.All trades are captured and no way to escape.many of you have felt that as soon as you go long on some scrip it immediately comes down(only 10% chances that you are on right direction)
let me give live example,hope you people remember the BREXIT day,markets opened less than 2% down and all global markets were cracking,all technical indicators showed sell,and nifty broke long term resistance and spurted down,it lead to many technical shorts,now big players manipulated the market and with no volumes nifty cleraed all its early losses.This is only one among many instances.
shall try to explain in next post how zero cost brokerages are taking advantage of these trades using softwares.stay tuned.