Trading Logic and Market Constants
Good afternoon Ladies and Gentlemen,
Below I will share some unique insight regarding the Markets.
First off for those of you wondering where I was these past 2 months I was tied up with system development and research, however I am back to make a contribution. This is a long over due thread, I appreciate the information that the Users of FF have provided over the past few years.
Whether information is gold, or fool's gold: information of any kind gives the participant the opportunity to improve him/herself. Golden information points us in the right direction, useless information allows us to reflect and examine the logic of unsuccessful Traders, ultimately benefiting oneself by learning from the mistakes of others.
Typical Trading Logic
When we look at the "average trader" or unsuccessful trader their logic typically involves examining past price, developing a method, then calculating the accuracy of the method using past data, example:
if the method had a 60% accuracy over the past 20 years than... "surely it will have approximately 60% accuracy in the future" <- this flow of logic always leads to failure, so why not use something that can adapt on the fly as new information streams in... the human mind!
It goes without saying that the Markets are complex, so complex that prediction is futile for the average man/woman.
So instead of trying to predict the Markets lets try to understand them better, why don't we define it, learn, and find out what the "Market" is? TYhrough greater understanding of the Markets we will have greater likelihood of success.
Today I would like to present a bit of Information regarding Market Constants. My definition of a Market Constant is just as it sounds:
"A Characteristic which has existed in the past, does exist, and will continue to exist as long as there is a Market to trade."
Below I have listed out a few Constants, do note that some of them are obvious, other's not so much. By creating a similar list, and adding to it as you develop, you may find that this information will influence your Trading for the better.
- There are 24 Hours in a Day one of those Hours will contain the High of the Day another Hour will most probably contain the low (this concept can be applied to any period(s) of time)
- Markets are Recurrent X% of the Time (using Price not Bars)
- Fat Tailed Distribution exists on all TimeFrames, the effect or "fat-ness" if you will is more pronounced on lower periods of time
- Due to the Markets not have a Standard Distribution there is absolutely no way the Markets can be called "Random" (contrary to popular belief, mind you popular belief time and time again leads to failure in the Trading World)
- Past price does not influence current Market Moves regardless of what happened in the past: Example, If countless massive Sell Orders suddenly execute... does it matter if the price they executed at had one hundred previous Support Bounces?? The simple answer: No
- New Information flowing into the market causes speculation, which in turn creates Order execution and finally the movement of Price. A line Drawn on your chart, or oversold indication of the RSI will never ever cause Price to move.
- The Markets are Static, we as humans trick ourselves and sometimes others into believing differently... The markets are, and always have been, and probably will continue to be made up of Numerous Orders.
However, we often look at a Chart and Visualize that it's moving, comparing it to some Natural physical occurrence such as: throwing a ball and expecting the ball to continue in the direction it was thrown.... unless there is an unlikely large gust of wind that pushes it away...
There is the Constant of Fat Tailed Distribution, but it does not change the fact that the Markets are made up of Single Orders not a "Flow of Orders"
(This next statement is not a constant but something I find valuable. It was inspired by a user here at FF named CrucialPoint, credit goes to him)
If no Orders are executed for 10 minutes, price will not move; if no Orders are executed for 1 year, price will not move.
So how relevant is "time" when it comes to trading, we as Traders make profit from the movement that occurs on the Y axis of our trading charts not the X axis.
(re-read the underlined statement above, there is a relationship that exists between the movement of price and orders, it's as simple as that.. however not simple enough to trade, BUT this concept is often overlooked when individuals are developing trading methods and by doing so it inhibits progress)
There is no "get rich quick scheme" when it comes to trading, there is however a "get poor quick scheme" if one does not try to separate themselves from the crowd of unsuccessful traders. I have said this many times, the majority fails constantly, if one uses the same methods as the majority they too will most likely fail.
So instead develop unique methods of examining the Markets, and trading the Markets BUT first develop a unique method of thinking; your thoughts influence your actions so of course they will influence the way you examine and trade the Markets.
Develop a unique perspective.
Developing traders need to be mature enough to recognize that the True Nature of the Markets is complex, however there is and always will be Market Constants, by identifying these Constants one has greater likely hood of success since the individual will know a bit more about the "true" nature of the market.
Godbless and Best of luck to you Brothers and Sisters,
(The list outlined above, contains bits of information that has positively influenced my trading since the day I first started. This list is based off of my experiences, I do respect the opinions of other Traders especially those of you that may disagree with what I've written. I look forward to discussing any criticism or concepts that arise from this post, thanks all.)
Any reference and agreement with CrucialPoint's comments and I'm always interested in reading more !! Subscribed !!
Would you be able to expand on your comment below please....
Great info !!!
Ok i'll pick this one
"- Past price does not influence current Market Moves regardless of what happened in the past: Example, If countless massive Sell Orders suddenly execute... does it matter if the price they executed at had one hundred previous Support Bounces?? The simple answer: No
- New Information flowing into the market causes speculation, which in turn creates Order execution and finally the movement of Price. A line Drawn on your chart, or oversold indication of the RSI will never ever cause Price to move."
I would say that past levels indeed influence current and future market price moves. Speculation at the retail level at least is soaked heavily in the orders of technical traders that rely on historic levels, trend lines, Fibonacci, and such. Orders that cause price movement.
In your example you say "one hundred support bounces". I would say that's a great example of past price influence.
Are you saying these are illusions?
Past price may not be a "market constant", but it must surely have it's own probability towards success, no?
As for new information flowing into the market causing speculation, wouldn't you have to be privy to such to benefit? Say you are purely technical and market behaves at your levels (seeing price action at S/R and such). Wouldn't the cause of price movement be self defined? Technical vs fundamental traders, News traders...ETC
My thought would be price is moved by orders. Which soever causes those orders can vary between technical, fundamental traders, News traders...ETC
Now if we go into the probability of success of each trade ordering style we may then find one greater than the other consistently.
If we find that technical traders are randomly successful or not at all, then we must humbly gather our lines and averages and force them over a cliff.
Am I making sense? Or am I still trapped in the matrix?
Give me the red pill
I feel that most new traders are more comfortable with technical and that puts weight on the market as well as the countless algorithms that do the same.
I really enjoyed the article. Thank you.
I have a question:
I do not understand what you are talking about the appearance of the support levels. As far as I understand, you are saying that the level of support or resistance does not exist, because the past does not affect the present?
Although, if we take abstraction:
The amount of time, which produced 2 deals with the time interval between them. One pulled up the chart, the other down. Then, the next deal not will depend on the two previous ones, because it will be another period of time.
Clean thinking,great ideas........
Cauchy distribution has neither a mean nor a standard deviation nor any of the other moments defined. Yet a Cauchy i.i.d random walk is a random walk.
My opinion is.
1. The market can not be static. You can pick out some static models or elements such as patterns, but if you take the amount of time from the beginning until today the existence of the market, we can say that the market develops or falls depending on the economic situation in the world.
2. If there were no psychological resistance level of support, then the market would be acquired The direction of movement up or down.
The presence of resistance or support level, you can confirm the information about the location of orders to buy or sell traders (Ofer and bids. In other words, if a certain price level present bids, this level can be regarded as support, and vice versa, the accumulation of Ofer near a certain level of points in the presence of the resistance zone.
I would love for this discussion to continue.
There were 99 Professional smart traders and 1 CrucialPoint.
After careful analysis of price history and technical details (fundamental et al..),
They decided (all 99 of them) to buy into the market.
God forbid, CrucialPoint was this nutcase who constantly has his episode of mental diarrhia (whom to some, CrucialPoint is full of shit, with very little substance and very little practical and applicable advice) and decided to proclaim to the whole world that he is going to sell against the Pro's and will make money... for no apparent and logical reason. This was just insane! It goes against supply and demand, against all TA & FA analysis and against the conventional wisdom.
So 99 long placed $1 per pip point (market total of $99) and CrucialPoint short placed $1 per pip point.
The next day was a big shock and to the horror!!!... (I didn't make this up) the market went down!!!
"THAT'S JUST FUCKED UP!!!"
"There are more buyers than sellers, the bulls are in charge."
"This market is rigged!!!"
... they all proclaimed in an open outcry.
So WTF just happened?
Well, if the market moved up just 1 point up, that would mean 99 traders will be in profit by $1 (total of of $99).
Where is the extra magical $99 going to come from??? when there is only $1 for the taking???
IT'S NOT GOING TO MOVE UP EVEN IF WE REPLICATE THIS A MILLION TIMES.
People have memory. People create transaction. Transaction create price. So Price doesn't have memory?
Market is between people. Not price itself.
I think you need to add more to your explanation of trading logic.
The sun rise at each morning for a million year 100%, so can i say it will rise 100% in the future?
I brush my teeth each morning for 20 years, someday i am lazy i skip. Say 97%. For the next 10 days in to the future, how many day do you guest i will brush my teeth?
My father smoke for more than 10 years, everyday. Now, How many day do you guest my father will smoke in the next 30 days?
Successful people have habit and routine. And they are rich. Now think about professional traders at big bank. Will they break their habit in the future? How long into the future?
Price discovery is what gets a specific buyer and specific seller to move from establishing a general price to agreeing on a specific price for their transaction, based on the size of the transaction, location of the transaction, cost of the transaction, and many other factors. It is a dynamic process, and in a way, it is the true mission of any market and any exchange.
Price discovery is one of the central functions of financial markets. In the market microstructure literature, it has been variously interpreted as, the search for an equilibrium price (Schreiber and Schwartz (1986))
From an AMVT perspective all markets are auction markets, "Time" is the only constant. The market is not static, that is a concept that belongs to EMH. EMH overlooks the existence of other participant TF's
It is the supply & demand of LTF traders which drive the direction of the market
In this example I will use an equal balance of both buyers & sellers for simplicity.
I use an equal balance for simplicity of my example, but that is not always the case. Most times the balance of buyers & sellers are unequal. Only traders holding positions overnight or longer create the demand that moves markets. If the 99 & 1 were day traders and exited before the close they would have created volume in the form of transactions, but their activity carries no "real" demand
Your scenario denies the existence of other tf participants. The ones that entered yesterday, last week or last month for that matter still holding positions. What about those orders? Those orders still exist somewhere.
But you missed the crucial point
Regardless of previous, existing and/or future pending orders...
"If there is only $1 for the taking"
No amount of in depth analysis is going to change that fact.
With all due respect brother Dkrock your definition of momentum is different than mine, in fact believe that momentum is false. To me Price is made up of Static Points, Price is not Dynamic. and thus has no "momentum" (IMO)
If you do not use a time function, you cannot measure momentum. If you cannot measure momentum, then you cannot calculate the cosecant. If you cannot calculate the cosecant, how do you expect to profit? "
"If price were contained from historical lines, it would simply cycle and everyone could trade it... "
"That is a ridiculous strategy used by most traders, who coincidentally, make up the 95% of losers. Hmm."
What you stated is your logic and your perspective. Last I checked the majority of Traders use Time in their trading and have a similar definition of momentum as you do, it might be a good idea to question your logic, I'm not saying your wrong for all I know you could be a profitable trader my friend. However it is well known that the Majority of Traders use Time when trading, asides from myself I personally don't know any traders that contain price from historical lines other than Crucial Point (which is really an assumption because he has never shared his method publicly only some concepts).
So when you say "that is a ridiculous strategy used by most traders" I believe your logic is flawed. (IMO) not disrespecting you simply stating what I believe. PS. I am always open to criticism it's something that makes me think twice about my own logic so I do appreciate your comment.
And if I read your statement correctly "If price were contained from historical lines, it would simply cycle and everyone could trade it... " that is exactly my point (as long as I'm not misinterpreting what you said).
The day I stopped using time and charts all together was the day my trading research began to lead to "real" probabilities instead of assumptions, these real probabilities hold true throughout time and on any major product.
I am a successful trader, (not making ridiculous gains as many so called successful traders claim to make) my trading is consistently profitable making small % growth, I use just automation to place trades, manually trading would be too difficult to do.
My methods are robust, If i were asked to trade any price Data for any currency or stock (as long as the trading costs, and slippage are minimal) I would make a profit, however because my edge is extremely small I can only trade products whose cost (slippage, spread) are minimal. Although when testing my theories on any major product be it SP500, Gold, or EURUSD for example, the probabilities and theory remain intact.
Zelo my friend. I say the following not for confusion's sake but more so that I believe it can help explain my point...
If a person looks at just about any phenomenon be it a movement of a ball in the air, a machine working, a form of energy, electricity, kinetic energy etc... there are laws that remain constant. The same applies to Trading.
When we as traders look, and try and analyze the markets we look at information. Each trader has his/her own preferences of information they look at, majority look at time, and at price. Some look at typical indicators, custom indicators, the news etc... long story short there are numerous pieces of data that can be used to try and figure out market sentiment. But there is only one type of data that determines if a trader will profit or not, and that is price.
As mentioned here by a few smart folks long before myself: it doesn't matter if the moving average is up or down.
I would like to add that it also doesn't matter if you are looking at the last 5 minutes of Data or 5 years to determine future price movements. below I'll try and explain why,
there is really only one significant data that should be analysed and that is price (as mentioned by CP in one of his threads).
If a trader takes any point of Data, and delete's it off their chart (say a Days worth of Data,) will that prevent trading profitably? Most people would say yes if Data was deleted from their Charts they would not be able to trade and make profit, But-
To my knowledge every weekend the majority of traders (myself included) do not see the exact price movements happened during the weekend Gap. So essentially our Charts when visually observed don't even have all the "historical" data. So my point is if someone were to delete the last 10 minutes of Data as opposed to the weekend Gap, we still have the price to trade with and that's the only thing that matters (IMO) not time.
I don't say that my methods are the only profitably trading methods out there, I understand this concept because I spent a very long time trying to develop numerous trading systems, once they failed I would analyse why they failed... I started a long time ago with the simple fact that that indicators didn't work, followed by a few other discoveries, and eventually removing time from trading and charts all together.
Every time I would look at an Indicator or Logic behind a trading system, I would ask:
Does this Indicator Influence Price? Answer was No. So I cut it out of my trading
If the weekend Gap is never observed does it Influence Price? No.
If I cut out yesterday's Data Does it Influence the movement of price happening right now? No.
If I remove the last 30 minutes worth of Data does it influence price... you get the idea.
Finally I asked this question: Does time Influence Price? Answer is/was/and always will be No.
As mentioned by CP sometime ago if nobody bought or sold for 1 minute, 1 day, or 1 year price would not move. So time does not influence the movement of price. As I mentioned earlier there are laws or constant that apply to just about everything. Well Time does not influence Price and that is a market Constant, a Market "Law" if you will.
Ps guys don't PM me asking how I trade exactly, I won't ever be explaining in detail how I trade, but I will always be willing to discuss the concepts that influenced by trading. The reason is because nobody taught me how to trade, or helped pay for the development of my ideas, or put in any work/time on my behalf. However this community inspired many of my trading methods with great discussions that made me question and eventually change my perspective on many things in life, including trading.
Thanks all much love
Denial: The Broken Heart
no matter how objective you try to be.
I still remember that day when a close friend of mine had broken up with his girl.
I'm pretty sure we all have been there so everyone will be able to relate to this story.
I will add some crucial points so you can get a different perspective and be shown the light.
Friend: "I don't know what went wrong, we always have a good time."
CP: .... (silent)
Friend: "I was good to her and I sacrificed a lot for her. We had a good time on our vacation. I didn't even see this coming."
CP: "Bro she left you..."
Friend: "Sex was good, the longest time we didn't have sex was only for a week."
CP: "Bro she left you..."
Friend: "Everything was going good. We never had any arguments or major fights. I was always there when she needed me."
CP: "Bro... you're not listening... she left you..."
Friend: "there were no complaints from her family, friends or from her... I know she loves me."
CP: "Bro she left you..."
You can give me 100 reasons or 100 analysis on why it will go up, but it doesn't change the facts.
You can give me 100 reasons on how it was a loving relationship, but it doesn't change the fact that she left.
Coming to terms with the objectivity regarding trading is very hard when your beliefs are challenged.
Traders will still give me 100 reasons regarding time and price... I don't try to convince them...
Don't get me wrong, I'm very open to new things and very willing to admit I'm wrong, but give me some objectivity when presenting an argument.
The problem in trading is that we have the conventional knowledge that hasn't been challenged with some objectivity.
The mind is like a blank canvas and once you imprint any subjectivity onto it, coming to terms with the objective reality is very hard.
I still talk to traders who can give me 100 trading information...
I often repeatedly tell them: "Dude, your account doesn't show it."
I think you missed my point...
Not "Regardless of previous, existing and/or future pending orders"
Rather because of previous, existing and/or future pending orders . Your dollar is not the only dollar in the market.
That is where the magical $99 comes from out of the pockets/profits of the LTF sellers (participants) still holding positions.
In order to facilitate trade, through the price discovery process, the advertizing mechanism will start quoting/soliciting higher & lower prices, In search for new participants to enter the market to upset the balance, or to move to an attractive price high enough to get existing buyers to exit the market by taking profits or by auctioning high enough to force weak sellers out of their existing positions. And in the reverse, to move to an attractive price low enough to get existing sellers to exit the market by taking profits or by auctioning low enough to force weak buyers out of their existing positions.
If your dollar is the only dollar in the market, price wont stand still, in the markets price discovery process, the search for new participants eventually you will be quoted a price high enough that it encourages you to exit the market by taking profits, or you will be quoted a price low enough that will force you out of your position That is the sole purpose of auction markets, through the price discovery process, is to facilitate trade not to let it sit stagnant. Every tick change is a change in the price being quoted .The quotes/ticker doesn't ever stop advertizing unless the market is closed ...
Have you ever considered which actions of traders will affect prize ...?
And to assume that the total of all existing dollar will cover it>>> there is no central system that does not.
Not literally my only existing $1>>> I'm metaphorically speaking that "the money for the taking" is less than the total sum of all previous, existing and pending bets.
Didn't I say you are right and that I agree with you
Are you asking the question or is that a rhetorical one?
... Because that's the whole point of my $1 parable
... Because I'm forbidden to show a graph that clearly shows that
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