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  • #121
  • Dec 28, 2017 12:21pm Dec 28, 2017 12:21pm
Quoting Darryl
Hello all, I would like to share one of the ways I trade. I look for price to go up and hit Exact Price Levels, (EPL), and I look at Volume. Its simple and works. I took this sell trade Monday evening and closed it this morning.
Hello Darryl...thanks for sharing your method. I am curious though...the volume you have running below price...is that a calculation of some sort? If so what is it calculating? It looks something like Delta volume might look, but it is just enough different that I cannot tell what its calculating. Can you advise? As well what creates the red and green volume bars?
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  • #122
  • Dec 28, 2017 12:47pm Dec 28, 2017 12:47pm
Quoting DonPato
I'm thinking that we should perhaps return to the basics of market structure.... Market Structure element #1: "It takes two to tango" Just like the tango, you need TWO participants to create ONE transaction (or tick). One who buys and one who sells. .....
You poked the bear, so now I must chime in.

I want to start off by reiterating that for every buyer there is a seller, and for every seller there is a buyer. Anytime you hear statements like, "The market went UP because there were more buyers than sellers.", or, " The market went DOWN because there were more sellers than buyers.", they are completely false. A transaction can not occur without both a buyer and a seller. What moves the market is determined by the AGGRESSION of one side versus the other.

Let's take a closer look:

Suppose we have a Market of one car. We have a seller who is willing to sell the car for $100,000. The ASK price, is therefore $100,000. We have one buyer who is willing to buy the care for $50,000. The BID price, is therefore $50,000. Now in the real world, they might split the difference and settle on $75,000. But in this example, the car must sell for either $50,000 or $100,000. So if neither party is willing to transact at the other's price, nothing happens.

Now suppose that the buyer believes that there are other buyers who are willing to pay the $100,000. In order to ensure that he gets the car, he must accept the ASK price of $100,000. This motivation, enthusiasm, or AGGRESSION, will cause the market to move UP to the seller's price.

Conversely, suppose that the seller has knowledge that there are other cars available down the block. In order to sell his car before the buyer walks away and finds another car, the seller must accept the BID price of $50,000. Again, this motivation, fear of losing out, or AGGRESSION, will cause the market to move DOWN to the buyer's price.

Thus, this market only moves when one side, either the buyer or the seller, is AGGRESSIVE. This is true of all markets, just on a larger scale. AGGRESSION moves the Markets.

Here's a look at today's EUR/USD on a 15 Min. chart. Not all AGGRESSION BARS (aka STRUCTURES) are labeled, but all are colored.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: Aggression.png Size: 56 KB
Click to Enlarge Name: PaintBars 7.jpg Size: 303 KB
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #123
  • Dec 28, 2017 1:07pm Dec 28, 2017 1:07pm
Hi HG,

interesting and and thought provoking as always!

are your aggression bars linked to pace of tape somehow?



Quoting HiddenGap
{quote} You poked the bear, so now I must chime in. I want to start off by reiterating that for every buyer there is a seller, and for every seller there is a buyer. Anytime you hear statements like, "The market went UP because there were more buyers than sellers.", or, " The market went DOWN because there were more sellers than buyers.", they are completely false. A transaction can not occur without both a buyer and a seller. What moves the market is determined by the AGGRESSION of one side versus the other. Let's take a closer look:...
  • #124
  • Dec 28, 2017 1:22pm Dec 28, 2017 1:22pm
Quoting HiddenGap
You poked the bear, so now I must chime in. I want to start off by reiterating that for every buyer there is a seller, and for every seller there is a buyer. Anytime you hear statements like, "The market went UP because there were more buyers than sellers.", or, " The market went DOWN because there were more sellers than buyers.", they are completely false....}
I hope YOU'RE not the "bear"!!

Well said on your post. I especially like the idea of "aggression" but would like to add that price will also rise or fall if one side of the order flow choses NOT to participate or that their order flow is absorbed. This may be a little ahead of myself, but I want to establish this early. IF one side of the order flow...lets say buyers are hitting the ask...but price does NOT tick higher, that indicates their buy orders are being matched, and "absorbed". This is why it is so important to understand your point clearly.

Price will rise or fall when one side or the other gives up or is absorbed. When viewing the orders come in, I have found that price will stay at the same point as orders (at the market) come in until one side (lets say sellers), go literally to zero...no more sellers left to take the counter party to buys...thus price will tick higher, trying to attract more sellers. And it will continue to tick higher until sellers and buyers can be matched. One might say, that there are "more buyers than sellers" because an overage of buying orders remains unfilled, but as you stated it is because the buyers are wanting to transact at the market (ask) and there is no one to take the other side of those transactions...thus price rises.

The same is true of the opposite side...if the buyers dry up first and go to zero...price will tick down, looking for more buyers....This will segue perfectly into my next post...Dominance.
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  • #125
  • Dec 28, 2017 1:50pm Dec 28, 2017 1:50pm
Quoting Trader-Waldo
{quote} Really? one willing seller(100000) and 5 willing buyers. who is going to be new owner? one who pay most, it is auction.it is not going to be match; it will exceed 100000....multiple offers, like in real estate. so is it false statement: "The market went UP because there were more buyers than sellers." ? at the time of transaction will be one buyer and one seller. this is my understanding, I might be wrong.
Not a false statement at all...HiddenGap's point is this...1 seller, 5 buyers...the buyer who is the FASTEST or the most aggressive gets the car. He/she quickly completes the transaction before the other buyers have a chance to bid. The seller takes the first one to come up with the money.

Think of it like this. You want to sell your car. Of course you want the best price. The 5 sellers bid on the price, but then don't have the money to transact. You are frustrated, because while people talk and bid there is nothing to back up the bid, so you say, here is my price ($100,000), first one with the cash takes the car. I know that if I wait longer someone else may come in with the money...I can definitely see the interest by the bidding. So my "aggression" or my speed in transacting is rewarded. I buy the car and the other bidders start looking for another car to buy...and now they are willing to pay even more, AND will have to act "aggressively" to complete the transaction.

After all this, do you think the next seller will offer $100,000? Most likely not...we will price higher...perhaps $110,000...and so it goes...
Buyers have established their willingness (or should I say desperation) to transact, while the sellers sit back and wait for their price to be met. Which side is "dominating" the market?
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  • #126
  • Dec 28, 2017 1:53pm Dec 28, 2017 1:53pm
Quoting Swamipips
Hi HG, interesting and and thought provoking as always! are your aggression bars linked to pace of tape somehow? {quote}
Thank you for the kind words.

They incorporate several concepts: OrderFlow, Volatility, Velocity, Volume, Facilitation, Ease of Movement, Pace of Tape, Range, and Trend.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #127
  • Dec 28, 2017 3:51pm Dec 28, 2017 3:51pm
DonPato, I found the indicator on another website and like it. Sorry, I don't know about the calculation, here is the indicator.
Attached File(s)
File Type: mq4 #VOLUME WAVE CORE alert_v1.mq4   6 KB | 1,093 downloads
File Type: ex4 #VOLUME WAVE CORE alert_v1.ex4   20 KB | 836 downloads
  • #128
  • Edited 12:42am Dec 29, 2017 12:10am | Edited 12:42am
To be more precise

"Aggression" is not quite correct

Consider rather a game of "Expectation" usually followed by a "Debacle"

1) Sellers willing to pay lower prices because they expect the price to move lower
2) Buyers willing to pay higher prices because they expect the price to move higher

Now, this may be a surprise to some but:
1) Buyers entering the market do not move the price higher in an up trend
2) Sellers entering the market do not move the price lower in a down trend

The "fuel" that keeps keeps price going higher and higher are the sellers who have to buy back their position at a loss (sellers are aggressively losing: debacle)
The "fuel" that keeps keeps price going lower and lower are the buyers who have to sell back their position at a loss. (Buyers are aggressively losing: debacle)


When you look at a price move up or down and before taking a position, then always consider this:
The price will always move in the direction that causes the greatest financial damage to the largest number of accounts.
  • #129
  • Edited 3:12am Dec 29, 2017 3:02am | Edited 3:12am
Quoting Mingary
To be more precise "Aggression" is not quite correct Consider rather a game of "Expectation" usually followed by a "Debacle" 1) Sellers willing to pay lower prices because they expect the price to move lower 2) Buyers willing to pay higher prices because they expect the price to move higher Now, this may be a surprise to some but: 1) Buyers entering the market do not move the price higher in an up trend 2) Sellers entering the market do not move the price lower in a down trend The "fuel" that keeps keeps price going higher and higher are the sellers...
For the most part this is correct!

The group of the losing traders is the main force behind most trends and it's the key for "solving" the market riddle. And this is especially true for mean reverting-zero sum markets like Forex.

It's funny that almost all losing traders desperately want to know the strategies of the winning traders. (They think there is some secret).
And yes, there is a secret!

If you want to win, you have to study:
1. The behavior, the psychology, the actions and the strategies of the LOSING traders.
2. The actions and the strategies of the MARKET MAKERS.

The market makers take money from the pool of losing traders.

Of course there are some exceptions. For example during market bubbles and manias (look BTC). Also on the stock markets we can see persistent long bias. The markets move up because most people buy, no matter what. The stock market creates economic growth. On the other side, the average market gain per year during bull markets is <10% while the average loss during recession is >30%-40%. (Fear is stronger than greed)
Also bull markets can last many years, while recessions followed by market crashes often happen in weeks and even days.
This is where the terms LONG and SHORT come from.
  • #130
  • Dec 29, 2017 3:53am Dec 29, 2017 3:53am
Quoting HiddenGap
{quote} You poked the bear, so now I must chime in. I want to start off by reiterating that for every buyer there is a seller, and for every seller there is a buyer. Anytime you hear statements like, "The market went UP because there were more buyers than sellers.", or, " The market went DOWN because there were more sellers than buyers.", they are completely false. A transaction can not occur without both a buyer and a seller. What moves the market is determined by the AGGRESSION of one side versus the other. Let's take a closer look:...
What HiddenGap has described here is how a normal auction market would work. However in our markets we have the market maker who has to take the other side of the trade as they are paid to provide liquidity and quote the bid / offer spread so there will always be a seller to each buyer. They will take the other side of a buy trade for example if they believe that price is going to go down. If they dont think price is going to go down they will let the other market participants fill the order or they will pull their liquidity and start quoting higher prices.

What happens is that the market maker senses that there are lots of aggressive buyers entering the market (they can see the orders hitting their order book and who they are from) , they know that value is higher they will not want to take the otherside of those orders as they will make a loss so what they will do is pull their liquidity from the market and start quoting at high prices thereby shifting price higher. Its the market maker who changes price.

The market maker makes money where there is high volume but it needs to be two way volume, as soon as it becomes directional they pull liquidity.
This is why markets range for the majority of the time and only trend once value has shifted or if volume disappears and market makers pull liquidity away to the previous area of high volume near to where current value is.


In the chart the black line is the value line for the EUR. The market goes up on low vol in the first red box and builds value higher, however as soon as volume starts to fall off here the market makers will want to go looking for business again. As it went up on low volume they will want to test the high volume area (POC) below the market again to see if there is still two way business there.
As price goes back down it does so on low volume they know business has dried up. They will have accumulated a long book as price moves down as they have to take the other side of the trade. If they want to get rid of their buys they will need to find sellers. To find sellers they need to take prices higher and as value is above the market this is where they will move price . Volume increases as it move back up (green boxs) and this pattern repeats itself as we work through the chart.



Attached Image (click to enlarge)
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Boxing clever since 76.
  • #131
  • Dec 29, 2017 5:16am Dec 29, 2017 5:16am
Quoting copi88
{quote} What HiddenGap has described here is how a normal auction market would work. However in our markets we have the market maker who has to take the other side of the trade as they are paid to provide liquidity and quote the bid / offer spread so there will always be a seller to each buyer. They will take the other side of a buy trade for example if they believe that price is going to go down. If they dont think price is going to go down they will let the other market participants fill the order or they will pull their liquidity and start quoting...
could you please provide more examples based on that logic?
  • #132
  • Dec 29, 2017 5:44am Dec 29, 2017 5:44am
Quoting stoxos
{quote} could you please provide more examples based on that logic?
sure can you be more specific, not sure exactly what you want an example of
Boxing clever since 76.
  • #133
  • Dec 29, 2017 5:49am Dec 29, 2017 5:49am
Quoting copi88
{quote} sure can you be more specific, not sure exactly what you want an example of
i mean you talked about the logic that MM pulls away liquidity so markets shift away. Can you please give examples of setups where you think that type of activity took place ?
  • #134
  • Dec 29, 2017 6:38am Dec 29, 2017 6:38am
Quoting stoxos
{quote} i mean you talked about the logic that MM pulls away liquidity so markets shift away. Can you please give examples of setups where you think that type of activity took place ?
Good example on CL yesterday.
Price making lower lows everyone thinking that the market is going to go lower. However two clues show that this is actually a long accumulation.
One is a slow grind down and two the deltas are positive.

The MMs have now accumulated a long book, and need to find Sellers so they need to take price to an area of liquidity. They will find sellers above previous swing high.
They pull liquidity as you can see in the two red boxs in the long green up bars. See how the market thins out on the sellside.

As soon it as hit they liquidity area they offload their longs to the sellers. They do some nice two way business until the sellside volume gets two big, and so they pull their liquidity to below the market and you can see the buyside volume disappears in the green box.

If you dont have orderflow software you can see withdrawels of liquidity on your charts by long bars on relatively lower volume for the size of the bar.

The are two reasons why MMs will withdraw their liquidity. Either there is an order imbalance that comes into the market and they dont want to be on the otherside of that trade or they are looking for liquidity and are trying to run stops (GC is a great market to see stop runs)

Attached Image (click to enlarge)
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Boxing clever since 76.
  • #135
  • Dec 29, 2017 7:14am Dec 29, 2017 7:14am
Just to go back to this auction market process...

If a seller comes in and see that 10 buyers stick up their hands to buy it, they are not going to sell at that price, he will pull the price away until there is just one buyer left or he starts to get worried that other sellers will come in at that higher price and he will miss his opportunity to get rid of his stock.

Think about it. You have a TV to sell and you offer a price and get an overwhelming response, lots of people start clamouring to buy your TV. Are you going to let it go at that price? No you will try to sell it for a much higher price.

Same thing in the markets, the sellers will not stop price going up if they think they can sell at a higher price.
Boxing clever since 76.
  • #136
  • Dec 29, 2017 7:51am Dec 29, 2017 7:51am
Quoting copi88
Just to go back to this auction market process... If a seller comes in and see that 10 buyers stick up their hands to buy it, they are not going to sell at that price, he will pull the price away until there is just one buyer left or he starts to get worried that other sellers will come in at that higher price and he will miss his opportunity to get rid of his stock. Think about it. You have a TV to sell and you offer a price and get an overwhelming response, lots of people start clamouring to buy your TV. Are you going to let it go at that price?...
What you said and showed until now is pure logic and well explained. You gave a new view about auction process but i want to ask something that it is vital also. Lets say that this area of long accumulation was an area of a X market maker who went long. Price today in CL went up so everything is right. But i want your view/opinion and of course everyone's else on this threat.

Question:
MM bought on that area price went up because ?
a) He continue the buying and probably the pulling/spoofing of limits
b) He don't buy anymore (maybe only absorbs some retail traders efforts to the short side) and lets the retail continue buying because technical analysis point up (moving averages etc.)
  • #137
  • Dec 29, 2017 1:03pm Dec 29, 2017 1:03pm
Hello again Friends...I have really enjoyed reading the discussion that is present here. There are some very experienced traders chiming in and I appreciate your input very much. Today I'd like to talk about the next market structure element:

Market Structure Element #2: Order Flow Dominance
There has been a great deal of discussion heretofore about what moves the market and I must say I agree with all of it. It is all true especially here in the spot FX market. But lets start at the last element: It takes two to tango.

Now that we know that there must be two sides to every transaction we also know that participants whether markets makers or retail traders must participate in the same way...by placing orders. These orders are constantly streaming into a machine called "the market". The market's job is simply to match orders by price. This is where the volume "difference of opinion" comes into play heavily. If one participant enters an order for a sell, that is larger in size (volume) than other participants on the opposing side, their orders will be "absorbed" like a sponge until the larger volume has been matched. So lets say the price has dropped enough to attract a larger participant who wants to buy 100 lots (standard). So he/she needs 100 lots of sellers to step up to match his/her order. If those participants are smaller retail traders (let's say trading mini lots), that's a LOT of selling this large trader can absorb. We can remember that each transaction creates a "tick" in the tick volume. So tick volume will rise...YET price will not react, because this one big order is still left unfilled...

Now lets suppose there just wasn't enough volume to fill that 100 lots buy order...what happens when no one else is willing to step up and sell? Price starts ticking higher. All those sellers who were absorbed are now LOSING. The only way to stop the loss is to enter another order in the same direction (buy) as the larger volume...this creates what I refer to as "Dominance".

The buying orders are still incomplete and the machine matching orders (the market) is looking for sellers to finish out the over whelming "dominance" on one side of the order flow. If this doesn't happen quickly, more and more sellers will get out of their positions, and flood the market with even more buying orders. This will create what my mentor affectionately called, a "whoosh" of price movement in the direction of dominance.

Remember the previous discussions..."aggression" (people hitting the ask, or buying the market quote). What does a stop loss order do? When that price is triggered, it converts your order to a MARKET order...that means you get in the back of the line with all the other market orders and it will be filled when it comes your turn. Imagine that price is moving rapidly as it is looking for sellers and you just added even more buying to the buying dominant order flow...this is why your broker cannot "guarantee" your stop...

So lets recap: Order flow is constantly streaming into the market being matched as opposing orders what agree on price. Larger lot size can absorb smaller lot size (volume) and thus stall price or even reverse it. Dominance is established when one side of the order flow remains unfilled and the market ticks in the direction of the side waiting to be filled. This dominance creates a cascade of similar orders as smaller (or "weaker" positions) leave the market using stop (or market) orders. So from a "tick volume" point of view...lots and lots of transactions are occurring creating an increase in the tick volume number, indicating dominance has been established on one side of the market.

In terms of "Liquidity" I think of it like this. The Liquidity of a market are literally orders from large institutions, that are place at specific price levels. When those orders are in place, they will absorb all opposing new market orders (at that level) until the "liquidity" is used up. When the "market makers" move their orders or cancel them (often seen at news events), the market becomes volatile because there are a surplus of orders streaming into the market from one side, and cannot be filled. This is also why the spreads widen because the market makers are unwilling to risk their capital until the volume calms down.
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  • #138
  • Dec 29, 2017 1:11pm Dec 29, 2017 1:11pm
Quoting Darryl
DonPato, I found the indicator on another website and like it. Sorry, I don't know about the calculation, here is the indicator. {file} {file}
OK...I looked at this file, but don't really understand what it is calculating. I am NOT a programmer although I did do some mq4 work back in the days that I thought I could make a robot think like I did....

Any of you coders out there...can you tell me what this is calculating?
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  • #139
  • Dec 30, 2017 12:35am Dec 30, 2017 12:35am
I flipped trough that LRA book and found a major issue with the premise of the author's methodology. The author assumes that trading of futures is handled through market makers. In the old days it was the case. However, in today's world the primary mode for futures trading is direct electronic routing of orders to the central exchange. When a trader places a buy order, that buy order is routed directly to the central exchange at CME or NYMEX and is matched to a sell order from another trader through auctioning performed by computer based on FIFO principle. Those big banks no longer do much market making for futures contracts, although they still act as market makers for spot forex transaction.
  • #140
  • Dec 30, 2017 1:50am Dec 30, 2017 1:50am
Quoting pooh123
I flipped trough that LRA book and found a major issue with the premise of the author's methodology. The author assumes that trading of futures is handled through market makers. In the old days it was the case. However, in today's world the primary mode for futures trading is direct electronic routing of orders to the central exchange. When a trader places a buy order, that buy order is routed directly to the central exchange at CME or NYMEX and is matched to a sell order from another trader through auctioning performed by computer based on FIFO...

In forums people say that in markets like ES and FX Futures there are not Market Makers, since they are a lot of people who biding or offering. Corn and others in-liquid markets have MM in CME.

My personal opinion after what i have seen a lot of times,the DOM before a big news release or before a sudden move, 1-2 sec before movement, DOM will loose up to 70% of its volume. Suddenly you see only for couple of seconds the real liquidity provided buy people like me and you, you will see the big distance of our limit order will have. The reason for me that in markets like Futures and SpotFx we can just press a button and take a contract almost instantly (even with some minor slippage we yelling many times as retails) is because MM fill the DOM with their contracts. So even they are not listed inside CME as it was in old days, MM continue doing business. And i have two points to that, first we still have big fraud cases with manipulation of markets by big banks like UBS which is a MM. Second all those corporations have always their servers/systems as close as possible to the central engines of the markets (example Globex).

Again personal opinion.
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