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Real or Algo

  • #121
  • Edited 1:48am Apr 26, 2020 1:23am | Edited 1:48am
Quoting GMD
As I said before, I am not a very informed person about this subject, but I am reading the thread with a lot of interest. I have always been amazed on how perfect some trendy structures develop sometimes. Is this algo? or has nothing to do with the thread? {image}
Hi GMD

BWilliams asked this, does price determine supply and demand or does supply and demand determine price.

Then you ask here are patterns caused by the Algo's actions.

Have you ever used a Stirograph and why does it work?

It has limitations doesn't it ?

So I believe the Algo limits price expansion is actually a perfect Stirograph in disguise.
Therefore its price that does determine supply and demand because its manipulated totally by an Algo.
Attached Image
Trading thin liquidity at the boundary of the charts
  • #122
  • Apr 26, 2020 3:42am Apr 26, 2020 3:42am
Quoting BWilliam
One last comment. Single algo purposed to create price or demand and supply, which is which that determine price? How important is it that we know this? Before even this, does demand and supply determine price or price determines demand and supply? Demand and supply is too broad a definition and too superficial for our purpose of future price determination in our forex trading activity. We need more knowledge about the nature, characteristic and behaviour of demand and supply to be able to attempt to do that. The point is it has to go deeper than...
I still don't understand all the algo talk.

If you go to a chart on SP500 or US treasuries or any other market for that matter, you will see the same patterns emerge every time, these markets, like FX, are NOT controlled by algos. That's just a fact.

I'm not sure why you have quoted a youtube lecture on microeconomics. Yes it's not just supply and demand, there are two additional key components in the equation that you can use to DERIVE supply and demand

1) Liquidity
2) Profitability

It doesn't matter if you operate on the m1 time frame or w1, you will see it again and again, liquidity sets price, price finds liquidity. Why does price spike to below the swing lows on a chart only to reverse? Searching for liquidity. Why is there a huge amount of demand (liquidity) at the extreme ends of that timeframe? Profitability.

If you have ever worked in a large fund or money managing institution, you will understand why charts act the way they do. It is purely a mechanical and human phenomenon. What are the two things found at the edge of a chart? Liquidity and profitability.

Algos are volume absorbing code doing thousands of transactions a second because a desk trader cannot do that function as efficiently as a code. It's not manipulation. If ANYTHING, markets today are MUCH less volatile and more predictable due to higher prevalence of algorithms that smooth out the orderflow and create more consistent price feeds. That's been extensively studied. Pull up any chart from any market and see for yourself.
  • #123
  • Apr 26, 2020 4:15am Apr 26, 2020 4:15am
Quoting xRedStaRx
{quote} I still don't understand all the algo talk. If you go to a chart on SP500 or US treasuries or any other market for that matter, you will see the same patterns emerge every time, these markets, like FX, are NOT controlled by algos. That's just a fact. I'm not sure why you have quoted a youtube lecture on microeconomics. Yes it's not just supply and demand, there are two additional key components in the equation that you can use to DERIVE supply and demand 1) Liquidity 2) Profitability It doesn't matter if you operate on the m1 time frame...
Hi there,
Thanks for the input. Care to show us how you read charts with chart examples if you have time on you. I am sure it would help us to see and learn different ways of reading charts.

Regards
Dennis
  • #124
  • Apr 26, 2020 4:48am Apr 26, 2020 4:48am
Quoting whitesta
{quote} Hi Nikl, The GBP/USD looks similar. The red horizontal dashed line below the 3 touches is your target right? Do let us know how you will go on with this trade if you do place it. Regards
Hi whitesta
Ideally for a reversal trade I'd be looking for price to breach the dashed line, preferably a fast moving spike that breaches my TMA zone (on M1). I'd be weary of a grinder day though as the last 3 days have been below average in regards to the ADR value (yearly) and been stuck in a range.

I'll be setting alarms so as not to miss any potential action!
By the way I'm still finding my feet so take everything I say with a big pinch of salt.....
Cheers
Nick
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  • #125
  • Apr 26, 2020 5:17am Apr 26, 2020 5:17am
Quoting whitesta
{quote} Hi there, Thanks for the input. Care to show us how you read charts with chart examples if you have time on you. I am sure it would help us to see and learn different ways of reading charts. Regards Dennis
Sure, I mainly use 3 tools in my analysis

1) Basic supply and demand
2) Price action
3) Common sense

That's all you need.

Step 1 is to define the market participants, it is a spectrum, but I will break them down to 3 tiers for simplicity

1) Retail
2) Mid-market
3) Wholesale

From these 3 tiers, you have two types of players, commercials and speculators. Commercials are the players that seek to exchange currency for day to day, month to month or year to year activities, it can be your average tourist needing a couple hundred, your local grocery shop needing thousands of dollars, or the biggest oil companies in the world doing hundreds of billions. All the commercials go to banks for the transactions, the banks execute these primarily on the spot market, it's not just the spot market, but let's use it since this is mostly what we trade. Commercials are 99% retail tier, they do not care what the price is, they just want to exchange the money, they provide liquidity to the system, and it is the banks job to give them the best available price. For the bigger commercials, this is done on the daily/weekly/monthly/quarterly/yearly fix, that's a separate discussion, but its a big opportunity and a big part for intraday moves to give banks profit.

Then you have speculators, these are retail like you and me trading on an online platform with the broker trying to make a buck, mid-market which is asset managers, medium level hedge funds and leveraged funds, and big commercial, investment, and central banks. With the exception of central banks, they buy and sell to make profits, not to use the asset for their activities. The bigger you are in terms of money under management, the higher the time frame you operate on, and the more on edge of a chart you do your business. For a speculator in order to make a profit, you have to satisfy this condition, if I buy today at x, I fully expect to sell at a profit. So how do you determine what is the right price? Spot price = Expected future price + profit/loss on interest. Expected future price is largely a function of real supply and demand, that is a balance of payment macroeconomic prediction, and is determined by current account activity as well as future expectations of flows and interest rate direction that I will leave to you to explore.

I tried to summarize as much as possible, but if you have that framework in mind, you can then move on to the charts.

Let's take the example of GBPUSD in the past months since it was an exceptional time in that pairs chart, we made 35-year lows, so how do you approach that market? What I'm about to show is explained almost exactly the same by many trading methods with different theories as to why the price has acted the way it did, or using different vocabulary for the same process. Again, it doesn't matter what you use, there is money on the other side of any transaction, and in order to understand what price does or where it wants to go, you have to first understand what is the goal of the transactions taking place.

The best way to identify wholesale level of liquidity is to look at major swing lows in a chart when you have price freefalling only to experience a sudden brake, it has hit wholesale liquidity pools. It is the price level where massive amounts of money with their own economic models saying the price has gone too low, this is a good level to buy at because we expect it to be much higher in 3-12 months time according to the expected pricing formula.

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Does that guarantee that big money will step in everytime price comes here? No, for two reasons.

1) Fundamentals may have changed
2) There is now retail and mid market speculators coming in at these historic levels and buying up the market because of "support and resistance" levels and it "has to hold"

What does that do for the wholesale buyer? It takes away his liquidity. He cannot buy at that price anymore, retail has cut him in line and tried to buy in anticipation they will get supported again. But the wholesale buyer has nothing left to buy, he has hundreds of billions sitting around waiting to get in with not enough selling on the other side to take his order, the retail have taken it all. So he waits until there is more liquidity in the market to give him the price he wants, now you have created a new demand zone below that historic level, or as others would call it a "stop hunt" or "algo conditioning"

Price breaks the previous wholesale level, longs are liquidated, price free falls again, you get aggressive selling from the natural momentum of the chart, coupled with speculators losing their hands, now you have created enough liquidity for the big buyer to step in.

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1) Price breaks the retail midmarket speculator level.
2) Amid the crashing freefall price, it rams into a wall at 1.1500 big figure, a significant institutional number, that is the first clue the bottom is near.
3) You have fresh meat coming in from Retail and mid-market speculators picking bottoms, they sensed a bottom is near and placed long orders at the bottom to catch the big move, wholesale have orders that didn't get filled in, they got crowded out yet again, price fails to move higher, and has to dip down once again seeking liquidity, stops get taken out, you get a violent reaction breaking the highs, mission successful, that is your second and final clue the bottom has been printed.
4) This is where fresh 'smart' retail comes in, they buy at that saturated order block, for a more conservative trend trader, he waits to take the pullback that consumed the above supply zone and gets in on the mid-level demand orderblock (red zone) that took it out.
5) Profit.

There you have it.
  • #126
  • Apr 26, 2020 6:41am Apr 26, 2020 6:41am
Quoting Nikl
{quote} Hi whitesta Ideally for a reversal trade I'd be looking for price to breach the dashed line, preferably a fast moving spike that breaches my TMA zone (on M1). I'd be weary of a grinder day though as the last 3 days have been below average in regards to the ADR value (yearly) and been stuck in a range. I'll be setting alarms so as not to miss any potential action! By the way I'm still finding my feet so take everything I say with a big pinch of salt..... Cheers Nick {image} {image}
Thanks for the explanation.
  • #127
  • Apr 26, 2020 6:44am Apr 26, 2020 6:44am
Quoting xRedStaRx
{quote} Sure, I mainly use 3 tools in my analysis 1) Basic supply and demand 2) Price action 3) Common sense That's all you need. Step 1 is to define the market participants, it is a spectrum, but I will break them down to 3 tiers for simplicity 1) Retail 2) Mid-market 3) Wholesale From these 3 tiers, you have two types of players, commercials and speculators. Commercials are the players that seek to exchange currency for day to day, month to month or year to year activities, it can be your average tourist needing a couple hundred, your local grocery...
Thank you for the detailed explanation. Gives us hope that there is light at the end of the tunnel. Very much appreciated. Hope to hear more from you. It helps us alot.

Regards
  • #128
  • Apr 26, 2020 6:58am Apr 26, 2020 6:58am
Quoting xRedStaRx
{quote} Sure, I mainly use 3 tools in my analysis 1) Basic supply and demand 2) Price action 3) Common sense That's all you need. Step 1 is to define the market participants, it is a spectrum, but I will break them down to 3 tiers for simplicity 1) Retail 2) Mid-market 3) Wholesale From these 3 tiers, you have two types of players, commercials and speculators. Commercials are the players that seek to exchange currency for day to day, month to month or year to year activities, it can be your average tourist needing a couple hundred, your local grocery...

Just my lay mans terms.
The price feed that we see represented on our charts will move up and down. Obvious areas can be exploited, patterns that repeat over and over.
The market has to present the data in a way that draws traders in while collecting stops, setting traps.
This is how they make money.
The easiest way they can do this is with a highly controlled price feed.
As much as I would like the market to be as you described respectfully I cannot see it being anything other than an Algorithm from a single source.

Occams Razor. .. all things being equal etc etc.

Your view is respected and the sole reason why I thought to open up the discussion, and in no way am I trying to persuade traders here of anything different.
Your post was very well put together, elegant, considerate and I can only assume you are a professional working within the industry, if not then a very well read trader who knows his craft.

I do have strong suspicions regarding the data that we trade, to prove it would be almost impossible, and in the scheme of things, not required.

Cheers.

A.
  • #129
  • Apr 26, 2020 7:16am Apr 26, 2020 7:16am
I believe you guys are having two completely different conversations.... at least what I have been able to pickup from reading.

One person here is talking about 'algos,' as it relates to a bunch of different people running algos in the market. He is saying this is not the driver of price.

The other group of people are saying that there is a single entity that is an algo(not a bunch of random people using them), who's sole function is to fill orders. It is not an algo that trades in the same way people do, but it is an algo that processes, fills orders, and has some logic built into to fullfill orders in the way it seems most efficient(by getting orders grouped together a certain way).

Of the two distinctions above, this thread seems to be about the latter.
  • #130
  • Apr 26, 2020 7:26am Apr 26, 2020 7:26am
Quoting forrestang
I believe you guys are having two completely different conversations.... at least what I have been able to pickup from reading. One person here is talking about 'algos,' as it relates to a bunch of different people running algos in the market. He is saying this is not the driver of price. The other group of people are saying that there is a single entity that is an algo(not a bunch of random people using them), who's sole function is to fill orders. It is not an algo that trades in the same way people do, but it is an algo that processes, fills...
xRed is saying it’s a natural market, I believe it’s a single source data feed.
Im happy to hear views either way, it’s the original source of the data that interests me.

M.
  • #131
  • Apr 26, 2020 7:51am Apr 26, 2020 7:51am
Quoting moodybot
{quote} Just my lay mans terms. The price feed that we see represented on our charts will move up and down. Obvious areas can be exploited, patterns that repeat over and over. The market has to present the data in a way that draws traders in while collecting stops, setting traps. This is how they make money. The easiest way they can do this is with a highly controlled price feed. As much as I would like the market to be as you described respectfully I cannot see it being anything other than an Algorithm from a single source. Occams Razor. .. all...
We all have our frameworks for how the market operates, and all are to be respected.

I have provided mine, and I have given the solution with explanations for why the market is not algo driven, and how are the movements in price are explained by supply, demand, and liquidity market forces.

If I have not provided evidence for so, I can do so now by giving you examples of the same patterns in markets where there is for a fact, absolutely no algorithms, no market manipulation, no stop orders, or no leverage taking place. You can pull up similar examples using any ticker on Tradingview as you please.

First and detailed example, a US 2-year Treasury bill, 1-hour chart.

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Second example, Sugar, daily chart.

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Third, a daily chart of a stock on the Egyptian equity market.

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Cheers.
  • #132
  • Apr 26, 2020 7:51am Apr 26, 2020 7:51am
Quoting forrestang
I believe you guys are having two completely different conversations.... at least what I have been able to pickup from reading. One person here is talking about 'algos,' as it relates to a bunch of different people running algos in the market. He is saying this is not the driver of price. The other group of people are saying that there is a single entity that is an algo(not a bunch of random people using them), who's sole function is to fill orders. It is not an algo that trades in the same way people do, but it is an algo that processes, fills...
Hi Forrestang

You are correct I feel.
I believe some traders here are thinking we are talking about trading bots/algorithms that many traders build and apply to the markets both by retail traders and market makers. That would include high frequency trading bots as well.
A few of us here are talking about a single entity - just 1 Algo moving and controlling the market.
A few of us have managed to crack its code and win very well.

Cheers
Trading thin liquidity at the boundary of the charts
  • #133
  • Edited 8:13am Apr 26, 2020 7:58am | Edited 8:13am
Quoting xRedStaRx
{quote} We all have our frameworks for how the market operates, and all are to be respected. I have provided mine, and I have given the solution with explanations for why the market is not algo driven, and how are the movements in price are explained by supply, demand, and liquidity market forces. If I have not provided evidence for so, I can do so now by giving you examples of the same patterns in markets where there is for a fact, absolutely no algorithms, no market manipulation, no stop orders, or no leverage taking place. You can pull up similar...
Hi xRedStaRx

if I can have my 2 cents worth - great post by the way.

I feel you are looking on the wrong timeframes to see and understand manipulation.
I see it within the order flow, thats on passive orders at the core of the market.
I understand by looking at the bark rather than the forest.
Some great work there and looks like you make some good money.

Cheers

PS. changed my post to be polite
Trading thin liquidity at the boundary of the charts
  • #134
  • Apr 26, 2020 8:11am Apr 26, 2020 8:11am
Quoting RickM
{quote} Hi xRedStaRx if I can have my 2 cents worth - great post by the way. YOU ARE LOOKING ON THE WRONG TIME FRAMES TO SEE AND UNDERSTAND MANIPULATION YOU NEED TO STUDY ORDER FLOW - PASSIVE ORDERS AT THE CORE OF THE MARKET You are looking at the forest but fail to study the bark. Some great work there and looks like you make some good money. Cheers PS. Not trying to start an argument, just a different point of view
Hi RickM, thanks for the compliment, the foundation I have laid out is applicable across all timeframes.

You will see the pattern I have described above for the same reasons, only on a smaller scale, yet the principles are unchanged, I have given you examples of markets and asset classes where this is the case without the existence of automated trading, or stop orders being allowed on the exchange.

I do not mind discussions or other traders sharing their point of view, but the argument for market manipulation or a 'single algo' controlling the market falls apart very rapidly with what I have provided. I also thought the market was heavily manipulated until I realized it wasn't.

This realization will not change how you trade or place orders, it only gives you a true insight into how markets function.

Feel free to disagree and we can discuss further.
  • #135
  • Apr 26, 2020 8:21am Apr 26, 2020 8:21am
Quoting xRedStaRx
{quote} ..... I have given you examples of markets and asset classes where this is the case without the existence of automated trading, or stop orders being allowed on the exchange.
Hello sir, I think you are still having a different conversation than the thread is having. The lack of automated traded you pointed out does not disprove the discussion in the thread, they are still electronically traded.

THey are not talking about HFTs, or other algos created by various traders. The thread does NOT seem to be a discussion about a bunch of individual algos controlling the market.
  • #136
  • Apr 26, 2020 8:44am Apr 26, 2020 8:44am
Quoting forrestang
{quote} Hello sir, I think you are still having a different conversation than the thread is having. The lack of automated traded you pointed out does not disprove the discussion in the thread, they are still electronically traded. THey are not talking about HFTs, or other algos created by various traders. The thread does NOT seem to be a discussion about a bunch of individual algos controlling the market.
My understanding was that it is the discussion in this thread, an algo, or group of algos operated by market makers to manipulate the market by creating a false sense of security in order to gather stops of market participants.

Correct me if I'm wrong.
  • #137
  • Apr 26, 2020 9:13am Apr 26, 2020 9:13am
Quoting xRedStaRx
{quote} Hi RickM, thanks for the compliment, the foundation I have laid out is applicable across all timeframes. You will see the pattern I have described above for the same reasons, only on a smaller scale, yet the principles are unchanged, I have given you examples of markets and asset classes where this is the case without the existence of automated trading, or stop orders being allowed on the exchange. I do not mind discussions or other traders sharing their point of view, but the argument for market manipulation or a 'single algo' controlling...
xRedStaRx, you've provided some great and detailed explanations of how the market works and is structured. Very much in line with the way I view things. I agree the notion of a single entity or algo controlling the market just does not hold up to any sort of close scrutiny at all. No-one has provided the slightest proof or theory of how this could be remotely possibly true. The FX market trades trillions per day - that one statement alone is enough to discount the notion that is is all down to one.

But in the end I don't think it really matters too much what one's belief system is about what underlies and causes the market to behave as it does. As long as the key levels are the same it matters little what model or theory is used; be it one algo, supply/demand and liquidity, astrology or witchcraft that got you to that point!!!

So those that have a belief system that it is down to one-algo - good luck to them - I'm not here to make a judgment on that approach - if that helps them trade the market successfully, then great, In the end that is what it is all about - GREEN PIPS for all
*** Shoot for the moon. Even if you miss, you'll land among the stars. ***
  • #138
  • Edited 4:09pm Apr 26, 2020 3:45pm | Edited 4:09pm
Quoting xRedStaRx
{quote} Hi RickM, thanks for the compliment, the foundation I have laid out is applicable across all timeframes. You will see the pattern I have described above for the same reasons, only on a smaller scale, yet the principles are unchanged, I have given you examples of markets and asset classes where this is the case without the existence of automated trading, or stop orders being allowed on the exchange. I do not mind discussions or other traders sharing their point of view, but the argument for market manipulation or a 'single algo' controlling...

The data feed that we see on our charts could very well be the result of the foundation and principals that you have described.
And it can also be explained away as an Algorithm setting psychological areas for participants to place stops.
There are too many instances of 'coincidence' where price turns exactly on the pip such as from a 3 year low on EURUSD.
To control that move it would take serious control from the very biggest within the industry and most likely collusion, or its an Algorithm going about it's business as usual.
I like to take the simple route and for me it quite nicely explains away the moves such as seen on your charts.
This week on every pair and time frame the same scenario will play out, continuously.
Once again thanks for taking the time to express your views and you're very welcome to continue to do so.
Have a great week.

A.
  • #139
  • Apr 26, 2020 4:16pm Apr 26, 2020 4:16pm
Quoting Freefox
{quote} xRedStaRx, you've provided some great and detailed explanations of how the market works and is structured. Very much in line with the way I view things. I agree the notion of a single entity or algo controlling the market just does not hold up to any sort of close scrutiny at all. No-one has provided the slightest proof or theory of how this could be remotely possibly true. The FX market trades trillions per day - that one statement alone is enough to discount the notion that is is all down to one. But in the end I don't think it really...

I disagree with one point that you have made "that a single entity controlling the market does not stack up at all".....
To be honest I think a single source data feed perfectly sums up the data we see on our charts.
Whether there is trillions running through the markets or not, the consistency at which the market moves and how it moves doesn't stack up as a natural breathing entity.
But as you say, does it matter, probably not.
Green pips to you.
  • #140
  • Apr 26, 2020 5:09pm Apr 26, 2020 5:09pm
I'm not a firm believer of 100% algo trading. Here are a couple of vids I found a few years ago that I thought was interesting.

PS Great thread for the conversation of different thoughts...thanks Andy.

I have no affiliation to either of the vid makers...just educational viewing.

Inserted Video


Inserted Video


Dave
K.I.S.S.
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