During the past two weeks, we have seen the market sentiment change three times from extreme bullish to bearish. Normally we don’t see the herd (average Joe traders) switch trading directions this quickly.

Over the past 10 years, I’ve found that the average time for the herd to reach an extreme bullish or bearish bias is between four and six weeks. It is this herd mentality that makes for some excellent trend trading opportunities. But with the quantitative easing, a more thinly traded market, and lack of trading participants (i.e., a smaller herd), it seems that everyone is ready to change directions at the drop of a hat.

The old school traders/investors who don’t use real-time data or charts, and who dabbled in stock and options trades here and there, have mostly exited the trading arena because they are frustrated or have lost too much money. This group accounted for a decent chuck of liquidity in the market and was also the slowest of the herd to change directions.

Today’s smaller herd is much more aggressive and quicker to act on market gyrations. I think this is because the only people left in the market are those who make a living pulling money from the market and those who feel they are really close to mastering the stock market.

It is these individuals who are using trading platforms with real-time data, charts and scanners to help get a pulse on the market so they can change directions when the big boys do. And I think this is the reason why the market is able to turn on a dime one week to another.

The easy prey (novice and delayed data traders) are few and far between, and the fight to take money from other educated traders seems to be getting a little more interesting to say the least.

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