Whales are mammals that live in the ocean, or at entertainment parks! Just kidding... whales has become a term associated with market manipulators. Market manipulators will come into a market, buy a majority of the available positions or limit orders and drive up the price. Once the price has reached their target price, they will attempt to liquidate their position, albeit a large position which may take some time. Generally, this will cause the price to crash back down to it's inherently acceptable level.
This is different however from good market news coming out, or similar sources of price drivers. I like to think of a stock price in two different forms - the inherent value, and the market determined price. In an efficient market, prices will tend to move towards the inherent value. Good news for the company and complementary products will drive the inherent value up, and the stock price will adjust to reflect this. The market determined price is how over or undervalued a stock is compared to the inherent value.
When a whale enters a position, the price tends to follow a similar pattern. Demand for the stock will rise rapidly as positions are being bought. Price will skyrocket and other investors will notice, jumping on board. After a few minutes or hours, the amount of new investors will slow down creating a plateau or hump in the price. Investors lose confidence and begin to pull their position out of fear that a crash in the price is coming, ultimately causing said crash themselves.
A few weeks ago this happened with the omnicoin. In a single day, omnicoin rose nearly 400% in price. Just as quickly as it rose however, it came crashing back down. I was watching the price fluctuate hundreds of percentage points in minutes. Up to 350%, down to 280%, up to 370%, down to 260% gains. This was a perfect example of the market not knowing what it should be priced at, but whales and hype driving the price up and down.
Your goal as an investor is to recognize these patterns and profit from them. If you can time the entry of whales, you stand to make a good amount of money. If you can also recognize when the momentum is slowing and there are not as many new investors hopping on the band wagon, you can protect your gains. A lot of stock trading comes down to understanding human psychology.
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As always, this post is not investment advice and should not be used in any investment decisions. I am not a licensed adviser, but rather am providing my own views on the above material for discussion purposes. You should never base your investments off someone else, and instead should do your own research.
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