How important is it to understand the "other" side of your trade?

You often hear trading gurus talk about their motivation for a trade.

Part of their reasoning is to try to understand who is on the other side of your trade - the counterparty.

And they put a huge emphasis on this.

"I'm selling here b/c there were buyers who were underwater and now they're breakeven, so they'll be exiting."

Here's another example that Claude came up with:

"I'm long here because this just undercut the prior low and reversed — the breakdown sellers are now stuck offside, and their covering becomes the fuel for the squeeze higher."

When you start looking, you see this kind of thinking everywhere.

And it sounds smart.

But it's mostly BS.

You can always concoct some story about fictitious market players that you're outsmarting.

Just because you can imagine a pretend trader on the other end doesn't make it true.

Or useful in any way.

It might make you feel good, but it's not a good reason to take a trade.

In 25 years of trading, I've never spent any mental energy doing this.

How can you get more confident in your strategy to trade it with more size?

It's not going to be creating fantasy stories about other traders.

-Dave

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