Weak Hands

What Are Weak Hands?

Weak hands is a term used to characterize traders and investors who lack confidence in their plans or lack the means to implement them. It can also refer to a futures trader who has no intention of ever taking or providing delivery of the underlying commodity or index. 

The concept usually applies to an investor or trader who is compelled by fear to swiftly abandon positions on nearly any negative news or occurrence, leading to realized losses and inferior returns on investment (ROI). They often follow a set of rules that make their trading actions predictable, and they are quickly "shaken out" by regular market price fluctuations.

Further Understanding the Concept of Weak Hands

Weak hands can also refer to a trader (forex, stock, fixed income, futures, etc.) who enters the market as speculation, most likely a tiny speculator, instead of an investor. They typically enter and exit positions with the purpose of reversing their holdings depending on minor price fluctuations. 

Generally, this is a trader who lacks the conviction or financial resources to maintain their positions. A futures trader with weak hands does not plan to take or provide delivery of the underlying asset, according to a lesser-known definition. 

This automatically classifies them as a speculator. Weak hands behave predictably in all markets. This can involve purchasing soon after the market bursts to the upside from a technical trend on the charts or selling instantly after the market falls to the downside from a technical trend on the charts. 

Dealers, as well as institutional traders, will take advantage of this behavior by purchasing when weak hands sell but also selling when weak hands buy. This pushes the weak hands to exit before the market begins to move in the intended direction.