Second Wave Anticipation - Part II

Random Trading

Publish date: Sun, 10 Aug 2014, 01:29 PM

Chart : Example of Second wave anticipation, PDZ chart as of August 7 2014 (source: ChartNexus)

The concept of Second Wave anticipation theory is base on my hypothesis on the behavior of stock operator and first movers. My hypothesis goes like this:

- During the flattish phase, the operator or some would like to call them insiders, were accumulating the shares of the underlying counter. They might just accumulate 500,000 shares or 1 Million shares up to few million shares a day without attracting any attention. This phase could last for months until they were able to accumulate enough shares.

- There could be 2 scenarios when the operator decided to start the 1st Wave. First is that they have collected enough shares and is time for them to 'advertise'. This is to generate enough volume to attract the attention of fellow traders and investors. Second scenario is that they were unable to accumulate enough shares by passively queuing at the buyer side due to most of the seller at this level has been absorbed by them. Thus there is a need to mopped up the shares at the higher price level and in the process flush out more seller ('long term' shareholders that trap by high entry price that hope to get a way out) so they can accumulate more.

- The consolidating phase after the peak of 1st Wave is the time for the operator to further accumulate shares that sold by sellers that jump in at the peak of 1st Wave and decide to cut loss and 'move on'. I found a lot of investors like to sell their shares when the share price become flattish with minimal volume. Their view is that the stock has no more story and is time to close position and move on. But this is exactly the time for the operator accumulating their shares and position themselves for the next wave.

- 2nd Wave came soon after most of the sellers at the consolidating phase has been absorbed by the operator. There could be numbers of cycle of Wave-consolidate-Wave depends on the appetite of the operator and the ability of the operator to offload their shares.

- The profit taken phase of the operator is likely to came in 2 forms. First will be an ultimate Wave that contain absolute massive volume that caused by an influx of huge bulk of new buyers that allows the operator to offload enough shares to walk away with significant profit. Second form will see the shares trading at rectangular range bound phase that no longer see new Wave with higher peak and higher consolidate phase.

Chart : Example of rectangular phase (source: ChartNexus)

You can never ride on the 1st Wave unless you are the insider. Clearly I'm not thus I only aiming to join from the 2nd Wave. We certainly can't afford to accumulate all the flattish share price's stock in hope to ride the 1st Wave, can we?

Profit taking for outsiders like us is when the new Wave's peak is not higher than the previous Wave's peak or the price fall below the previous consolidating phase.

Sound interesting?

DISCLAIMER : The concept mentioned above is just a dumb hypothesis and certainly untested. It might as well be a fiction. It is by no mean represent the stock operators' behavior or saying that stock operator even exist for that matter. You are advised not to take it too seriously and is just for fun sharing. As I said , it is just a fiction.

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