Market players

Market players are divided into two kinds, each with different “Business model”. They are- 1. Day timeframe players or DTP & 2. Other timeframe player or OTP.

DTP: Intraday players who don't carry forward their trades. It's very important to understand the business model of this group. They are just like dealers in other businesses & are responsible for the majority of the liquidity in the market. They have narrow margins but their heavy trading volumes over a short span of time may ensure them decent profits. Nowadays HFTs, Algos & scalpers predominate this segment. Consider them as local grocery shops who must keep selling their limited inventory to locals at lower margins.

This segment has to first build its inventory & then dispose it on same day! DTP may experience risk of not making money if their inventory isn’t cleared in time! Accumulated inventory may force them to announce sale at discounted prices. I suggest you to think of your own corollary to get the feel of such business profiles- the drivers for their profits & losses.

OTP: These are market players who carry their trades, at least overnight. It means they have more than a day to build its inventory as well as to dispose it off. The time horizons of this segment is too broad- ranging from just overnight trader to long term investors. JD calls them as “Time frames” (TF) & has divided them into 1. Short term (ST), 2. Intermediate term (ITM) & 3. Long term (LT) TFs.

For making it more fun, we can also call them as Intraday money, ST money, ITM money or LT money! Now take your time to imagine the “Business model” of all those players- their drivers of profit & losses. Think of the different levels of anxieties each of these TF must be experiencing when it comes to build & dispose of their respective inventories- who has enough time to manage the inventory? Who has more conviction towards longer term direction of market? These questions will make you adopt the idea of behavior of the above TFs esp. which Money is stickier? It means someone having ability to stick to their trade positions without getting panicked by minute to minute or day to day volatility. “Money players or personalities” can thus be placed on continuum of 'Weak' money to 'Sticky or Strong' money; & there is a subset of "'weaker" money among the weak money which include DTP & overnight ST money. Let me alarm you that, don’t get misled by the terms strong & weak money; especially those learners who have an attraction for terms such as smart money & dumb money; they are not synonymous terms!

As discussed earlier, different TF has different business model, hence different inventory proposition, different time horizons, hence different views of fair price or value, different targets to achieve, different views on opportunity etc. From the point of view of difference of opinion, it is very important to note that, the LT buyer don’t trade with LT seller; similarly, ITM buyer don’t trade with ITM seller, ST buyer don’t trade with ST sellers; rather each TF trades with its lower TF & most importantly with DTP, that’s why DTP is said to provide liquidity in market.

Irrespective of various TFs, again OTP are of two kinds- the one ‘initiating’ New trades for carrying forward in future; and other who are ‘exiting’ Old trades being carried forward from the past. Let’s call earlier group as New OTP and later as Old OTP money. And obviously other way to differentiate between OTPs is that they are divided into Buyers & Sellers. Now think about importance of knowing such distinction for market direction & conviction. Again, like in any sport which have some emotional or reactionary players, showing aggressive behavior while playing which may either help the game or destroy it; trading too has such players who reacts sharply to a news piece leading to sharp price movements, thus leaving anomalies in the market profile, which may either sustain or collapse on its own. Think of the kind of game involving such emotional traders, and ask yourself who are more emotional- weak or strong money? Do you think strong money too can be emotional? Just think about it.

Key to understanding various TFs is to embrace the idea of “business model” of each TF and their inventory management- i.e., magnitude of inventory to be managed, ‘fair price’ to be paid for it, total amount of money involved, amount of Time required to acquire & dispose the inventory, the ‘volume’ of inventory & transactions required etc. I suggest you to reach out to neighborhood apparel or medical stores & get to know the role of leverage in their business. Now, ask yourself- who would require more leverage- weak money or strong money? Just think about it. I already said that JD wants us to ‘think’!