The Definition of Strong Hand
A colloquial expression, “strong hands,” may refer to powerful or well-heeled investors or futures traders who want to seize possession of the underlying asset at a contract’s expiry. Strong hands, in this sense, are ones that can manage the market’s movement as well as the difficulties and expenses of physical delivery. Because of this, these participants are also sometimes referred to as “smart money.”
With the development of Bitcoin “HODLers” and so-called meme stocks, which create online and social media communities, the phrase “strong hands” has acquired a new meaning. Strong hands, commonly referred to as “diamond hands,” in this context refers to the determination to maintain long positions despite declining markets or pessimistic attitude.
Strong hands and weak hands may be compared in any scenario.
Understanding Strong Hands
Key individuals with strong hands have the ability to influence the market or weather temporary setbacks. As a result, they are often banks or financial institutions. Although strong hands occur in all markets, futures trading plays a unique role in this phenomenon.
Almost all futures contracts are terminated before they expire. Strong hands might be well-funded investors who engage in speculation, but they could also be futures traders who maintain positions until the contract’s expiry. These are the folks whose businesses need them to purchase or sell commodities. Only around 2 percent of all deals made on the futures market are kept until expiry. This group is seen as powerful since they can’t be dislodged from their positions.
The Following Factors
In every market, a wealthy speculator may have significant influence. For instance, if 90% of traders holding positions in crude oil futures are long, then 1% of traders are short. Since every buy transaction necessitates a sell transaction, the 10% who are on the opposing side of 90% of traders in that market might be thought of as having powerful hands. This is feasible since the 90% might consist of a large number of small investors. This has to be a far better funded organization, able to take on bigger positions, in order for the 10% to take the opposite side of all those transactions.
In this scenario, not all traders inside the top 10 percent are successful. Additionally, not all of the traders in the 90 percent are weak. However, the example demonstrates how prices may wind up in ever-stronger hands as they change. This may then be utilized to assist traders in looking for price reversals. A bullish or bearish extreme is produced when a large number of traders focus their trading on one side of the market. The trend reverses because no one is left to maintain its present trajectory. In the aforementioned scenario, the market is at a bullish extreme and is vulnerable to reversal since 90% of traders are long.
When sentiment indicators are very optimistic or negative in the financial markets, this often suggests that strong hands are taking the opposite side of those bets, which might result in a price reversal. Poor judgments do not help speculators obtain or maintain their wealth.
Strong Hands in Online Finance Communities
Online groups like the Reddit community r/wallstreetbets, which became the face of the amazing upward rise of severely shorted firms like Gamestop and AMC Entertainment, had a boom in growth in 2020 and 2021. The forum, which has more than 10.8 million members and is compared to a mix between 4chan and the Bloomberg terminal, has hundreds of thousands of active users at any one moment.
On these forums, the phrases “strong hands” and “diamond hands” have evolved to refer to those who hang onto a stock despite losses, difficulty, and volatility because they are sure that the price will rise. The emoji for the sentence is:💎🤲, which combines the hands-and-diamonds symbol. The forum was flooded with requests for people to have “diamond hands” as GameStop and AMC stock prices fluctuated dramatically.
Another internet phrase, HODL, which stands for “hold over dump,” refers to buy-and-hold trading methods for bitcoin and other cryptocurrencies. The term “HODL” (pronounced “hoddle”) first appeared in a post to the Bitcoin Talk Forum in 2013.
From less than $15 in January 2013, the price of bitcoin soared to a peak of almost $1,100 in the beginning of December 2013. According to CoinDesk’s bitcoin price index, the price of bitcoin dropped 39% on December 18 to $438 from $716, potentially in reaction to news of a Chinese crackdown.
GameKyuubi wrote “I AM HODLING” at 10:03 a.m. UTC on December 18, a drunken, slurred, typo-filled tirade about his terrible trading abilities and resolve to just hold his bitcoin no matter what from that point on.