What are weak hands?

The phrase “weak hands” is often used to characterize traders and investors who are not confident in their ideas or do not have the necessary funds to implement them. In addition, it describes a futures trader who has no intention of receiving or delivering the index or underlying commodity.

Understanding Weak Hands

The phrase “weak hands” usually describes a trader or investor who, out of fear, immediately liquidates holdings on almost any news or event that they deem to be negative. This leads to realized losses and less-than-ideal returns on investment (ROI). They often follow a set of guidelines that make their trading behavior predictable and are readily “shaken out” by typical price fluctuations in the market. Consequently, they ultimately purchase at highs and sell at lows, a definite way to lose money.

A trader (forex, stock, fixed income, futures, or any other class) who views the market more like a speculator—and probably a minor one at that—than an investor is sometimes referred to as having weak hands. Typically, they will join and leave positions with the goal of reversing such roles in response to little changes in the price. This is usually a trader who lacks the financial means or the requisite level of conviction to hold onto their holdings. A less common interpretation of “weak hands” refers to a futures trader without the intention of receiving or delivering the underlying product. This automatically classifies them as speculators.

Weak hands behave predictably in all markets. This might include selling as soon as the market breaks to the downside or purchasing as soon as the market breaks to the upside based on a technical pattern on the charts. Dealers and institutional traders will use this behavior to purchase when weak hands sell and sell when soft hands buy. As a result, the gentle hands are forced out before the market begins to move in the intended direction.

The Affective Component

Buying or selling at the worst possible moment is difficult for traders and investors. For instance, the news is worse when a bear market is about to conclude. The market is at its lowest point for those who hang on, and fear takes over as the motivator for individuals. On the other hand, prices will probably be quiet, and charts may indicate technical situations that are best for purchasing rather than selling.

Feelings are intense for pessimism, and feeble hands can only perceive dread. On the other hand, powerful hands—who are often well-funded—see the opening. They have the resources to withstand the decline, so they can still purchase even if the price drops much more.

A more probable sign of weak hands, given the rarity of significant bear markets, is when the stock of a linked firm that releases negative news about profits or some other business event falls in sympathy with a strong company with excellent fundamentals and chart patterns. Weak hands make quick sales, yet the stock rises fast. In the first place, there was nothing wrong with the store. Hence, the price decline presented a chance to purchase.

Conclusion

• Traders and investors who are not confident in their plans or do not have the necessary funds to implement them are called “weak hands.”
• One definition that could be more well-known is that of a futures trader who is not planning to receive or deliver the underlying asset.
• A proven method to lose money is for weak hands to purchase at the highs and sell at the lows.