Navigating the unforgiving terrain of Financial Markets
Some may perceive it as the road to riches, while others see it as a gamble on randomness. For centuries, large fortunes have been made and lost in a complex system that we nowadays call the ‘Financial Markets’. Numerous theories have appeared, attempting to bring order to the seemingly chaotic structure and yet, investors and traders alike are unable to come to a conclusion on a single, unified theory that would explain the behavior of markets in a way that allows extrapolation of prices in a simple, definitive and elegant manner.
For this reason, it is necessary to look at the financial system through a new lens, one devoid of subjectivity.
Let's consider the facts.
Retail Statistics
It has been a long established fact that retail traders lose about 80%-90% of the time, and end up blowing their account in the first few months of trading.
Deduction
From these statistics, we can derive coherent logic. If the markets are “random” or “unpredictable”, retail traders would have a 50/50 chance of winning.
Which brings the idea that there exists a hidden force, that micro-manages the markets across all timeframes. This force is then responsible for shifting the scales against the retail trader.
Such forces have been called “Smart Money”, “The Algorithm”, “Big Banks” and so on. They have existed for centuries, since the beginning of markets.
How can one tap into the hidden knowledge?
While the market consists of many hidden variables, the psychology of masses is roughly the same. Therefore by analyzing the crowd mentality, a behavioral model of how the average trader reacts to information can be derived.
Such a model can then be used to shift the probabilities in your favor, leveraging the 80% loss rate of the majority into a 80% win rate of the minority.
This is where the Hawk Liquidation Theory arises, a general psychological framework that explains the intricacies of what causes retail traders to take actions. Through the understanding of causes, the effect can be predicted with a high degree of accuracy at any point of the market state.