How and Why Does Price Move? Who and What Moves Price? | Forex Factory

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How and Why Does Price Move? Who and What Moves Price?

  • #1
  • First Post: Aug 2, 2009 3:44am Aug 2, 2009 3:44am
How and Why Does Price Move?

Who and What Moves Price?

How can One profit from Mispricing?
Time hides Nothing
  • #2
  • Aug 2, 2009 3:49am Aug 2, 2009 3:49am
Here's some good stuff, Cindy: http://www.forexfactory.com/t/47648/...s-price-1.html
  • #3
  • Aug 2, 2009 3:50am Aug 2, 2009 3:50am
Quoting FXSurfer
Here's some good stuff, Cindy: http://www.forexfactory.com/t/47648/...s-price-1.html
Thanks FX Surfer I'll check it Out

Cheers
Time hides Nothing
  • #4
  • Aug 2, 2009 4:59am Aug 2, 2009 4:59am
In my opinion if the demand for a currency increase, so the currency price increase.
As an example the SNB intervined by exchanging 1 bln chf for eur and so the eurchf went up around 300 pips.

Constin
  • #5
  • Aug 2, 2009 6:23am Aug 2, 2009 6:23am
Quoting CindyXXXX
How and Why Does Price Move?

Who and What Moves Price?

How can One profit from Mispricing?
Heres my "bare bones" answers to the above questions (Which may be wrong)

How: Money(The difference between the ammount of Buying and Selling)

Why: The Imbalance of Supply and Demand

Who: Big Players (Banks etc)

What: Information

As for the last question I guess to answer this takes a much deeper understanding of the above 4 answers in order to apply it to actual trading in a practical sense.

It all well and good to say for example price moves one way or the other due to the imbalance of supply and demand which is always present in the markets... But without a deeper understanding its just words...
Time hides Nothing
  • #6
  • Aug 2, 2009 6:40am Aug 2, 2009 6:40am
This will at least be interesting to you in your quest.

http://money.howstuffworks.com/nasdaq1.htm
  • #7
  • Aug 2, 2009 9:33am Aug 2, 2009 9:33am
Quoting Scotty B
This will at least be interesting to you in your quest.

http://money.howstuffworks.com/nasdaq1.htm
Cheers Scotty
Time hides Nothing
  • #8
  • Aug 2, 2009 9:41am Aug 2, 2009 9:41am
Quoting constin
In my opinion if the demand for a currency increase, so the currency price increase.
As an example the SNB intervined by exchanging 1 bln chf for eur and so the eurchf went up around 300 pips.

Constin
This happened late in June, as I recall.
Would make it a bit lively if we saw more like that one.
  • #9
  • Aug 2, 2009 10:02am Aug 2, 2009 10:02am
I can't remember where I got these docs, but they explain order matching algorithms in much more detail. This is very foundational to your question. Basically, for price to move one pip, buyers and sellers have to make trades at the given price. I know CME has a two week demo you can sign up for. Its very cool because you can actually watch the order matching engine in action. You can see the price where buyers and sellers are meeting and actually trading, but you can also see the other orders off in the periphery that are pending and waiting a match. It reminds me a lot of a swarm of bees just kind of floating around. It also shows very raw support and resistance. There is always a portion of the orders sitting in the window that are never matched because the swarm moves in the other direction. We don't have such a luxury in the forex, but if you can get to know your chart you'll be able to spot those places the swarm will likely go/not go. For example, when you see price approaching a high pivot point and or S/R and then it begins retreating from that place once it gets fairly close, you would probably see a lot of sell offers up right above that pivot (limit orders), but price moves away because nobody is willing to pay that price the sellers want. I hope I'm making sense. Anyways..Check out the files, they are interesting.
Attached File(s)
File Type: pdf Continuous_trade_matching_algorithms.pdf   72 KB | 1,099 downloads
File Type: pdf OrderMatching.pdf   79 KB | 1,029 downloads
  • #10
  • Aug 2, 2009 11:43am Aug 2, 2009 11:43am
Quoting Scotty B
I can't remember where I got these docs, but they explain order matching algorithms in much more detail. This is very foundational to your question. Basically, for price to move one pip, buyers and sellers have to make trades at the given price. I know CME has a two week demo you can sign up for. Its very cool because you can actually watch the order matching engine in action. You can see the price where buyers and sellers are meeting and actually trading, but you can also see the other orders off in the periphery that are pending and waiting a...
Awesome thanks Scotty sounds very interesting yes i get what you're saying - its like "tape reading" Yet (in forex) with no tape to read?

Looks like I have some reading to do.

I know you can see the order book in the FX futures market - I wonder if this can be any help in the spot market where there is no order book.

Thanks Again
Time hides Nothing
  • #11
  • Aug 2, 2009 12:04pm Aug 2, 2009 12:04pm
You may not care but....

Just some background as to why I started this thread...

Last week I wrote myself an essay question (the questions listed in the first post) to aid me in learning why things are happening in the market as well as how.

After some intensive google searching I started drawing blanks with too much information out there and also in other areas a lack of.

After starting this thread I have discovered many great reading materials to study thanks to the help of all that have contributed so far

I figure if I can complete my essay to a high distinction standard then just maybe I will have more of a clue about the environment I'm trading/working in.

I haven't done an essay since college, but I just remember at school the way essay questions forced you to research and learn new things while at the same time keeping you focused on the original question. Then it drills the info into your head as you write it up in your own words.

With such a broad subject that is the financial markets I figured this to be a good way to go about it.
Time hides Nothing
  • #12
  • Aug 2, 2009 1:03pm Aug 2, 2009 1:03pm
Quoting CindyXXXX
You may not care but....

Just some background as to why I started this thread...

Last week I wrote myself an essay question (the questions listed in the first post) to aid me in learning why things are happening in the market as well as how.

After some intensive google searching I started drawing blanks with too much information out there and also in other areas a lack of.

After starting this thread I have discovered many great reading materials to study thanks to the help of all that have contributed so far

I figure if I can complete...
What an excellent approach to understanding the market and learning how to trade. Once you have a better understanding of the markets you'll have a massive head start in how you approach how you will learn to trade the markets, which will rapidly shorten your learning time. Scotty has already given some valuable hints. Good luck.
  • #13
  • Aug 2, 2009 2:20pm Aug 2, 2009 2:20pm
This always makes me laugh http://www.dacharts.com/articles/_bandwagon.htm

Not sure it will help you with your essay
  • #14
  • Aug 2, 2009 2:45pm Aug 2, 2009 2:45pm
Quoting jzw
This always makes me laugh http://www.dacharts.com/articles/_bandwagon.htm

Not sure it will help you with your essay
Haha funny (or is it? ) - what a great analogy... If a trader has a BIG sell order he wants executed he needs enough buyers to to buy from him - to jump on his "Band wagon" just before he jumps off.

Nice one
Time hides Nothing
  • #15
  • Aug 2, 2009 2:47pm Aug 2, 2009 2:47pm
Quoting Porkpie
What an excellent approach to understanding the market and learning how to trade. Once you have a better understanding of the markets you'll have a massive head start in how you approach how you will learn to trade the markets, which will rapidly shorten your learning time. Scotty has already given some valuable hints. Good luck.
Thanks Porkpie
Time hides Nothing
  • #16
  • Aug 2, 2009 3:18pm Aug 2, 2009 3:18pm
Cindy!

i rmba our days trading harold system in his room. wot a memorable days!

the mkt is volume driven! volume governed by wot u learnt in eco101. lol. struggle between demand and supply, when there is an inbalance between the two we have a trend in the direction.

the mkt is big, it will take eternity to factor out wot and wot.

but in all simplicity, the mkt is like solving the following
AX^2 + BX - C=0

there are three ways to solve any equation that takes this format

1. completing the square
2. almighty formular
3. factorisation

now, it all depends on which one u wonna adopt to solve the equation. so as well the mkt, diverse views and complex theories.

for me, i cant be deceived again, almost anything will work in this mkt. the most important thing is to have good risk management and accept losses as it comes.

as crazy as the mkt seems to look, simple harold method works well, several other methods work as well but another problem is the trader's ability to accept risk.............. pulling trigger in the face of losing streaks

dont bother much about going through rigorous researchm it will confuse u the more, u will end up knowing several mkt theories and concepts which wont give u the courage to pull trigger when due bcoz of information overload.

wishing u success in your quest for knowledge

your friend
Mike
  • #17
  • Aug 2, 2009 3:49pm Aug 2, 2009 3:49pm
Quoting Naijafx
Cindy!

i rmba our days trading harold system in his room. wot a memorable days!

the mkt is volume driven! volume governed by wot u learnt in eco101. lol. struggle between demand and supply, when there is an inbalance between the two we have a trend in the direction.

the mkt is big, it will take eternity to factor out wot and wot.

but in all simplicity, the mkt is like solving the following
AX^2 + BX - C=0

there are three ways to solve any equation that takes this format

1. completing the square
2. almighty formular
3. factorisation...
Hi Mike

Good to hear from you - I hope you and your' family are well.

I do see your point and part of me agrees with you but in all honesty I'm on a mission right now for some answers and I can't be stopped! - Maybe you're right I know theres plenty of successsful traders out there that don't bother with all the whys and hows and simply approach the market like a poker game... Fold the bad hands raise the good, play the odds

But for me personally right now straight TA just isnt doing it for me. IMO if you are risking $$ on an unknown result and then the outcome occurs - You lose money or you gain money either way - But if you have no idea as to why or how that happened then you're essentially gambling.

With that said even if you know thw A-Z of all to do with the markets and trading then of course you're still not going to have 100% winners and in a sense the poker analogy would still come into play -But just a little more understanding as to whats going on behind the curtains is what I need I think.

If not to enhance my account balance but to at least regain my interest and passion for trading again.

Thanks Mike
Time hides Nothing
  • #18
  • Aug 3, 2009 3:43am Aug 3, 2009 3:43am
Cindy, if it's any consolation, I didn't make any money until I could answer this question with a modicum of certainty. Frankly, I amazed and impressed with anyone who makes consistent money without understanding the market they're in. Your analogy to poker players is truer than you think; good poker players know all the rules of the game, they have a (researched or intuitive) understanding of the probabilities of what their actions are, and they can read other players. In short, like good traders, they're highly informed.

Anyway, Trading & Exchanges is definitely the first base to kick off your research; a great book, if a little long. The answer as to what moves price is order flow - everything else is secondary, derivative analysis. Once you start looking at the market like this, you realise how crazy the fundie vs TA arguments are (if you didn't already).

Good luck.
  • #19
  • Aug 3, 2009 4:03am Aug 3, 2009 4:03am
Quoting constin
In my opinion if the demand for a currency increase, so the currency price increase.
As an example the SNB intervined by exchanging 1 bln chf for eur and so the eurchf went up around 300 pips.

Constin
The FX market is no different to any other market, if supply outstrips demand, price will fall. If demand outstrips supply, then price will rise. The same question gets asked on these forums about once a month - how much does it take to move the market? The answer is the one dollar, (or cent) that is not able to be matched by a market participant on the other side of the market. If no-one else is prepared to supply what you demand at that price, then the price mechanism must adjust to find someone else who is, at a price that is more attractive to sellers.
  • #20
  • Aug 3, 2009 4:47am Aug 3, 2009 4:47am
I often keep this quote in mind (and refer to the thread that it's in):

Quoting Darkstar
Trade Mechanics:

... for every buyer there MUST be a seller or no transaction can occur. When an order is too large to transact at the current price, the price moves to the point where open interest is abundant enough to cover it. Every time you see price move a single pip, it means that an order was executed that consumed (or otherwise removed) the open interest at the current price. There is no other way that prices can move.
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