The Definition of Weak Hands
Traders and investors who lack confidence in their methods or the means to implement them are sometimes referred to as having “weak hands.” Additionally, it describes a futures trader who has no intention of ever taking or giving delivery of the underlying item or index.
Strong hands, sometimes known as “diamond hands,” may be contrasted with weak hands.
Understanding Weak Hands
Typically, the phrase “weak hands” refers to an investor or trader who, out of fear, swiftly exits positions in response to nearly any news or event that they perceive to be negative, resulting in actual losses and below-average returns on investment (ROI). They often follow a set of guidelines that make their trading behaviors predictable and are readily “shaken out” by typical price gyrations in the market. The ultimate consequence is that they purchase at high prices and sell at low prices, which is a definite way to lose money.
A trader (forex, stock, fixed income, futures, or any other class) who views the market from the perspective of a speculator, and more likely a tiny speculator, as opposed to an investor is referred to as having “weak hands.” Typically, they will join and leave positions with the goal of reversing such holdings in response to minute price changes. This often occurs when a trader lacks the confidence or resources to maintain their holdings. The phrase “weak hands” may also refer to a futures trader who does not plan to accept or give delivery of the underlying asset, which is a less common meaning. This automatically classifies them as a trader.
Weak hands behave predictably in all markets. This might include purchasing right away after an upward market break from a technical pattern on the charts or selling right away following an upside market break. In order to profit from this tendency, dealers and institutional traders will purchase when weak hands sell and sell when weak hands buy. As a result, the weak hands are forced out before the market begins to move in the correct direction.
The Sentiment Factor
Buying or selling at the very worst moment is the largest difficulty for investors and traders. For instance, the news is at its worst when a bear market approaches its finish. Losses for investors who hung on throughout the market decline are at their highest, and dread takes over as the dominant emotion in people’s thoughts. However, values are probably undervalued and charts may highlight technical factors that favor purchasing rather than selling.
At this juncture, bearish sentiment is at an extreme, and weak hands can only perceive dread. Strong hands, who are often well-financed, on the other hand, perceive the chance. Because they have the means to deal with the drawdown, they are certain that they can purchase even if the price drops more.
A more typical instance of weak hands occurs when the stock of a strong firm with good fundamentals and chart patterns declines in sympathy with the stock of a linked company that releases negative results or other business news, since significant bear markets are quite rare. Weak hands sell right away, but the stock swiftly recovers. That stock had never been fundamentally flawed in the first place. Thus, the price decline presented a purchasing opportunity.