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

  • #21
  • Aug 3, 2009 5:10am Aug 3, 2009 5:10am
Quoting CindyXXXX
How and Why Does Price Move?

Who and What Moves Price?

How can One profit from Mispricing?
Cindy, read posts by Gaston (there are 100 of them). If I understand him correctly, his trading strategy involves understanding heavyweight player agendas and profiting from imbalances in supply and demand. Especially his responses in these discussions: here and here.

Admittedly he doesn't answer your questions outright, but I found some valuable clues by reading between his lines, and then studying charts, trying to figure out how/why possible order flow around consolidation and key S/R levels initiates the resulting price movement.

Good luck,
David
  • #22
  • Aug 3, 2009 5:55am Aug 3, 2009 5:55am
Quoting FXSurfer
... 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.

Darkstar is a really smart guy, but this is not strictly correct and is a common misconception. Generally in a Central Limit Order Book market price can move in three ways:

1) Removal of all remaining liquidity at bid/ask by an opposing trade.

2) Cancellation of all remaining liquidity at bid/ask.

3) Addition of new liquidity inside the bid/ask spread.

Price can, and often do, move without any trades taking place in the specific market.
  • #23
  • Edited 7:15am Aug 3, 2009 5:58am | Edited 7:15am
Hi,

Without discrediting the value of any of the preceeding posts, it is almost certain that none of the information will actually translate into a definable trading advantage.

Triangular arbitrage used to be one of the ways in which discrepancies between crosses and majors were exploited for very small amounts. Algorithmic trading programs have long since taken over what individuals could hardly achieve because of spreads and timing issues involved.

Although knowledge and understanding of the mechanics is a positive thing (like all knowledge is), it is mostly as irrelevant as it is for a human to understand the biological and physiological processes involved in breathing in order for a human to actually breathe.

A further issue is the decentralized cash FX market structure - unless FX futures are considered, there is no open interest per day and at any given moment prices can change from one direction to the other. In spite of this seemingly uncertain pattern of movement, probabilities do exist in any market and there is an order in the chaos.

Over 20 years ago, I was new to the markets and have asked pretty much the same set of questions. The answer to my question why the market went up at a time when it just did, one of the veterans said with a grin on his face: because there were more buyers than sellers (or people wanted to buy more than there was on offer at the time).

When I looked at him believing he was joking, I asked back: but how do you know? And he replied with the same grin on his face: because prices are going up.

Looking back, that was all I needed to know; but what made the real difference was this:

I learned precisely this aspect of trading first - everything else is secondary.

As a result I looked at the market from that precise perspective and when constructing trading models, it was always with this knowledge in mind. Whatever edge one is looking to create, it has to be based on that reality and this reality will prevail whether we know 'how' the transaction is brought about technically or whether we choose to ignore the technicality behind it.

Good luck.

regards
daytrading
Enter Signature
  • #24
  • Edited 7:12am Aug 3, 2009 7:02am | Edited 7:12am
Wow a bit of action has taken place in here since I was last on - Great comments by every one.... Great to see some knowlegable traders in here I apreciate it.

Hanover the questions on the first page arised from Gastons profile - It is pretty much word for word what he wrote himself and yes after seeing just one of his posts I was intrigued to say the least and ended up reading all 100 of them...
This was about a week ago. He doesn't give much away but he certainlly makes some very interesting comments.

I need a little time to digest the previous posts....
Time hides Nothing
  • #25
  • Aug 3, 2009 7:21am Aug 3, 2009 7:21am
Quoting CindyXXXX
Hanover the questions on the first page arised from Gastons profile - It is pretty much word for word what he wrote himself and yes after seeing just one of his posts I was intrigued to say the least and ended up reading all 100 of them...
Oh, I see..... oops, I didn't make the connection between your post and the "preferred trading systems" in his profile
  • #26
  • Aug 3, 2009 7:23am Aug 3, 2009 7:23am
Quoting daytrading
Hi,

Without discrediting the value of any of the preceeding posts, it is almost certain that none of the information will actually translate into a definable trading advantage.

Triangular arbitrage used to be one of the ways in which descrepancies between crosses and majors were exploited for very small amounts. Algorithmic trading programs have long since taken over what individuals could hardly achieve because of spreads and timing issues involved.

Although knowledge and understanding of the mechanics is a positive thing (like all knowledge...
Hi Daytrading - thanks for your post but are you honestly saying it is a great discovery to know that prices went up because there were more than sellers?

Actually if I understand correctly price will rise not neccesarily because there are more buyers than sellers but because there is a lack of sellers (supply)

Sorry If I do not understand correctly you obviously know a thing or two I don't mean to sound condesending.

I mean isn't this the first thing everybody learns?

Cheers
Time hides Nothing
  • #27
  • Aug 3, 2009 7:34am Aug 3, 2009 7:34am
Quoting hanover
Oh, I see..... oops, I didn't make the connection between your post and the "preferred trading systems" in his profile
Ha no worries Hanover
Time hides Nothing
  • #28
  • Aug 3, 2009 7:45am Aug 3, 2009 7:45am
Quoting triphop
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...
Well thats motivating Triphop thank you - Just a short time after all this thinking and reading I am seeing my charts in a slightly different light. Something is different but I don't know exactly what - I think its more subconcious but my focus has definetly shifted for the better.

I'm a long way from done I guess its a life long journy - never stop learning..

One thing I'm still struggling to grasp is how order flow can hold any weight in the Spot market when its decentralised ... There was Scotty B on the previous page who mentioned about how you can get a feel for it by looking at your charts at key areas. But still the concept is quite mind boggling.

i have orded that book today and I'm hoping after 600+ pages I the light will become a bit clearer
Time hides Nothing
  • #29
  • Aug 3, 2009 7:58am Aug 3, 2009 7:58am
Quoting CindyXXXX
Hi Daytrading - thanks for your post but are you honestly saying it is a great discovery to know that prices went up because there were more than sellers?

Actually if I understand correctly price will rise not neccesarily because there are more buyers than sellers but because there is a lack of sellers (supply)

Sorry If I do not understand correctly you obviously know a thing or two I don't mean to sound condesending.

I mean isn't this the first thing everybody learns?

Cheers
Hi Cindy,

You mean to say 'buyers' in the 1st paragraph of your reply, I guess - and yes, it is the most underrated and greatest discovery for any new trader.

Secondly, in my book a lack of sellers or more buyers than sellers is the same thing. If you go to the market (regardless of what market - even the fruit and veg market in your local village) and you find yourself looking for apples amongst 20 other people while there are only 10 apples left, you'll go home either empty handed (no fill at your/last price) or you might have to pay a premium at this point in time. Conversely, by the end of the market day, if nobody bought enough apples and the seller has some left, he might reduce the price to get rid of them.

Sorry if you might perceive this as a simplyfied school teaching logic but the real point I am making here is that this specific simplicity about market prices is very often forgotten and replaced with unnecessary complicated and time consuming approaches which ultimately SHOULD tell you the same.

You don't sound condescending at all - there is nothing wrong with questioning.

Finally, I doubt that this is what people nowadays learn (or teach temselves) in the very beginning. I have seen and worked with many traders - young and seasoned - and believe me when I say that the majority are interested these days in putting on their first trade rather too soon while omitting the process of understanding the most simple but invaluable truth of the markets.

regards
daytrading
Enter Signature
  • #30
  • Aug 3, 2009 8:27am Aug 3, 2009 8:27am
Quoting daytrading
Hi Cindy,

You mean to say 'buyers' in the 1st paragraph of your reply, I guess - and yes, it is the most underrated and greatest discovery for any new trader.

Secondly, in my book a lack of sellers or more buyers than sellers is the same thing. If you go to the market (regardless of what market - even the fruit and veg market in your local village) and you find yourself looking for apples amongst 20 other people while there are only 10 apples left, you'll go home either empty handed (no fill at your/last price) or you might have to pay a premium...
oops correction yes Buyers!

Wise words - I can see what you're saying. Simplfied school teaching logic? NOT AT ALL - When anyone with as much trading experience as you speaks - I'm all ears.

Question - What if you acted upon "Information" and were in the door first and saw 20 people approaching looking for apples and bought the whole lot at wholesale?

I think the latest posts of this thread have been focusing mainly on the (How and Why) when there has been no discussion on the (Who and What) -

To isolate one is to discount the other. They are all relative and thus should be treated that way to make a propper argument for or against.

And when treated in Isolation is surely insignificant and unneccesarily overcplicated, as for one to exist - you need the other. (Thinking out loud)

This is where I hit a wall as I have nothing of value to contribute...

I think I will sleep on it and come back tommorow...
Time hides Nothing
  • #31
  • Aug 3, 2009 9:30am Aug 3, 2009 9:30am
Quoting CindyXXXX
oops correction yes Buyers!

Wise words - I can see what you're saying. Simplfied school teaching logic? NOT AT ALL - When anyone with as much trading experience as you speaks - I'm all ears.

Question - What if you acted upon "Information" and were in the door first and saw 20 people approaching looking for apples and bought the whole lot at wholesale?

I think the latest posts of this thread have been focusing mainly on the (How and Why) when there has been no discussion on the (Who and What) -

To isolate one is to discount the other....
Cindy,

You are getting ahead of the thread now, hahaha.

What has been discussed so far related to isolated incidents of buying or selling that would have a move in price as a result - but only the immediate move related to those buy's or sales and relatively small in scale (one pip if amount and price matches).

To get further with this, one would now have to take into account a large amount of transactions over TIME consisting of such relatively small moves (at a particular point in TIME) to get the full picture of a larger move during a larger TIMEscale.

So, in my view price moves cannot develop without the consideration of time. In relation to the choice of time-frame for a trader, it is most vital to appreciate the extend an asset can (or cannot for that matter) move on average in a particular time-frame.

No other wisdom or indicator or else can change that - what remains is to align price, time and direction in order to make a profit.

regards
daytrading
Enter Signature
  • #32
  • Aug 4, 2009 12:11am Aug 4, 2009 12:11am
Quoting daytrading
Cindy,

You are getting ahead of the thread now, hahaha.

What has been discussed so far related to isolated incidents of buying or selling that would have a move in price as a result - but only the immediate move related to those buy's or sales and relatively small in scale (one pip if amount and price matches).

To get further with this, one would now have to take into account a large amount of transactions over TIME consisting of such relatively small moves (at a particular point in TIME) to get the full picture of a larger move...
Wow great post thanks... Need to ponder this for a while
Time hides Nothing
  • #33
  • Aug 4, 2009 11:04am Aug 4, 2009 11:04am
Quoting CindyXXXX

How can One profit from Mispricing?
Liquidity problems occur in any trading situation. I once bought some mining shares and was quite pleased when they increased by 25%

When I went to sell them there were no market makers to buy and I was lucky to get out at break even.

Perhaps more experienced traders than I can tell us how to spot this in forex. I know it happens, just not how to benefit.

Hmm what a useless post.
Gone to a better place
  • #34
  • Edited 1:41pm Aug 4, 2009 1:17pm | Edited 1:41pm
Quoting smikester
Liquidity problems occur in any trading situation. I once bought some mining shares and was quite pleased when they increased by 25%

When I went to sell them there were no market makers to buy and I was lucky to get out at break even.

Perhaps more experienced traders than I can tell us how to spot this in forex. I know it happens, just not how to benefit.

Hmm what a useless post.
No its a great post thanks - particularly after I killed this thread in my last couple of posts lol

I have been wondering the same thing
Time hides Nothing
  • #35
  • Apr 23, 2020 10:00pm Apr 23, 2020 10:00pm
Quoting triphop
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...

Hi trip hop, it's been about 10 years since your comment but everything you've said is still relevant. Could you suggest more books and information on order-flow?

Your original post is what every new trader should do. The greatest traders have a strategy that details every aspect of trading. From psychology, to execution, to record-keeping and more. Trading without a detailed strategy is like placing a bet on the roulette table and hoping for the best.
  • #36
  • Last Post: Jul 6, 2020 5:05am Jul 6, 2020 5:05am
Basically, it is not a simple question, there are many complex currency dependencies, various formulas, etc. It is possible to write it for a long time, but I will try to express everything as concisely as possible.
Personally, I think that the price is primarily driven by the belief in currency, why for example the dollar is one of the most stable currencies in the world, because everyone believes in the U.S. and its economy. For example, we can take the situation with the referendum in the UK in 2016, when faith in the UK as a stable country was shaken, and then the pound jumped in price.
The task of a trader in such a situation is to monitor the world news, analyze information and make quick decisions, understanding what drives the price, you can earn very well.
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