What is the market to you?

Hello,

I am currently working on a concept of my own and I would like to ask some questions about it. It would be really nice if we can have a discussion and whether you think I am right or wrong you should say exactly what you think. One of the most crucial part is telling whether you are a fundamental trader or a technical, also what type of technical trader are you? J16? Indicator?

My questions to you is:
1. What moves the market?

2. What is the market to you? i.e. is the market a place where people only trade their expectations and what you see on a chart is what peoples expectations are?

3. Is the market a search for liquidity? I.e. it moves from area of large liquidity THROUGH area(s) of low liquidity to another area with large liquidity, so more or less - the market is a search engine. Look at attached picture for case in point.

Thank you and take care.

A place where people can buy and sell, for any reason in the world (utility, speculation, entertainment, etc.)


Any move in the market could basically be called a search for liquidity (besides quote shifting by liquidity providers, but nvm). All those up moves and down moves in your chart would have been created by buyers wanting to consume more liquidity than on offer at the current price, and sellers wanting to consume more liquidity than bid at the current price, repeatedly. Therefore the market must "search" higher or lower for more liquidity. It's called price discovery.

However, I don't think the idea that it's all about moving through areas of low liquidity to those of high liquidity, constantly searching, is valid. The market could be in an area of low liquidity, or just illiquid in general, but that doesn't mean anything without actual order flow. For example, the market may be at 1.3550, and maybe at 1.3600 is a huge amount of liquidity, and at the current price and for hundreds of pips below the market is extremely illiquid. Does that mean it will go up in search of liquidity? Not if the order flow is coming from the sell side.

So to recap, if the market is moving in a given direction and it's illiquid ahead but further up there is a lot of liquidity, then yes you may see something like in your chart. But the "liquidity structure" doesn't mean dick unless you've got orders pushing it in that direction.

Also note that I can change your chart completely and still achieve the same visual result: the diagonal moves are where the market is very liquid, but there is sufficient order flow to overcome it. Then the market becomes very illiquid during the horizontal green periods, but there are hardly any orders to push it any which way. Think the typical Asian session for the euro or pound.

As always, great responds from you euro. Then I would like to discuss even more.
Why does these potential SUPPORT buyers (buy at support - sell at resistance) continue buying after the price moved away from their "support" area? Why didn't they do it in the first case? Price still is overlapping the same price area as before if you think about it (think price moved DOWN to support, people buy, then moves up the SAME PRICE "ladder" area).

My question is.. if everyone was to buy at support (or sell at resistance) then price wouldn't move from support or resistance right? Because there aren't any more orders to drive it.. Everybody was waiting for their order at support and got it. Then what?
What makes a trader buy (thus pushing price even higher) AFTER price hits support and moves away, say 10 pips from it? Is it because he wants confirmation that there is support?

BTW I'm reading price discovery by osler right now euro.. You have any more?

Take care and have a great weekend!

1) in larger view it's ussually real money flow and expectations of currency economy growths - banks, corporates, institutions, people and so on, doing conversions, carry trades, for example strong exporters in Japan

in shorter intraday view it's more "random" and it depends on liquidity on bid/ask sides. In this way most important are market orders and stoplosses(in specific way). Limit orders are important in way that they are preventing the price to go above/below the limit order if it is big enough...

for example if there is big sitting bid 50 pips below actual spot it will firstly need to fill this whole bid in order to continue lower - it's the reason why we are often watching spikes at some support level, it ussually means that some order is getting filled and it depends wheter other participants are going to buy it at market later so that price could go higher, if not it means when the bid gets filled we can go further down

about SL's - at first let's forget about retail stoplosses and the traders who are crying that their broker hunts their stoplosses because it's impossible - it doesn't work in this way, can be bug in their quotations and charts, but i would slap my face if somebody will show me retail broker who is able to move Eur/Usd 10 pips(maybe only with very very lucky circumstances )

Every bank with own dealing room is providing brokerage services, bigger ones 24h brokerages with dealings in NY, Europe, Asia. The traders there are taking orders from other bank traders and corporates. If you as a trader has a bigger position you ussually divide it in smaller ammounts and put few smaller stop losess each in different bank, because it can looks good in certain circumstances and certain liquidity conditions for the bank which knows about your big sl to push it in direction of your stoploss(if it's not too hard - depends on orderbook, market shape nd so on) and close that position accumulated before right on your stoploss - this is scenario when he wants to CLOSE on your or ussually cluster of stoplosses from other banks, another case is when they want to GET INTO position at good liquidity level where price will not require to move back few times to fill their limit order or they will not get bad average price if entering at market. That's why price ussually fade round numbers or S/R levels 10-20 pips before reversing - because there are limit orders sitting right on S/R or exactly on round number - but it's bad for bank trader to get in there because of lack of liquidity (he needs exactly the other side as the limit orders sitting at the level to get liquidity) so the bank push it a little and get in on that stoplosses.

2) i think it's both, depends on who is the "trader"

3) it's not true, at all market is moving and always finding place of balance of suply and demand for some time, then moving again and repeat this. it's working as you described only when pool of liquidity is close of spot price, because there is a lot of situations when a lot of orders are sitting at some levels and never gets filled - for example in trend when 90% of bank traders(mainly prop, market makers often are taking opposite) are buiyng dips/selling rallies, they have the bids at levels below the spot(in uptrend) and they are determined ussually by high/low which was made by the trend - so that if trend continues higher without significant pullback then the levels where a lot of bids was placed have never got filled and they move theirs bids a litlle higher

just my 2 cents hope that it makes sense.

with regard mike.

Well it depends how they buy. If they all use limit orders at or behind a given price, then the market won't move past that price. If they all use market orders, then depending on how much liquidity there is on offer, price may shoot up. Note that only some of the limit orders at "support" would get filled. So those who don't may later enter the market at higher prices.

So let's say that a bunch of people bought at "support". What makes the market keep moving after they bought? Well there are always people buying/selling for all sorts of reasons. Maybe some people who initially bought at a place that is considered support and weren't completely filled want to complete their orders without waiting for the market to come back down, so they pursue it with bids on the way up. Some people think the now higher price is still pretty low, so buy at the higher prices. Maybe something happened and any price below x is low. Some buy for reasons completely unrelated to the chart or support. Some use momentum strategies, such as MA crossovers. Some wait for confirmation such as a bounce off support before buying. If there's some news or macro event which is causing the buying in the first place, some are late to interpret it and some are even later, so have to buy higher or support the market with bids. Then there's all sorts of algos that have orders to complete and some will be more aggressive when the market's moving up, some will be more aggressive when the market's moving down (thus supporting it), some will just buy whenever due to other parameters such as VWAP, etc. Then stop losses, hedging, breakout trading, gaming, candle patterns, and all sorts of other reasons why someone will buy into a rising market. (BTW I'm not saying that people buying due to any of these reasons will necessarily move the market in any meaningful way - that's more the subject of your other thread - these are just some reasons I can think of why people might buy "above support".)

Taking a break from Chemistry so I'll hit up a few questions:

Any legitimate factor that will result in alteration of the market's order structure; any factor which results in the execution, placement or removal of orders, leading to price discovery (moving the market).

A medium which brings buyers and sellers to better facilitate trade, by allowing them to communicate their intentions to buy and sell. People may trade for any number of reasons, but I tend to largely group them into utility and speculation (I group gamers/gamblers/entertainment traders as poor speculators. Actually I like them very much, since they tend to provide me with liquidity ).

The market searches for liquidity as an inherent consequence of its design, but only does so when there is an immediacy attached to buying and selling; the use of market orders. Price discovery is the search for liquidity to meet the demands of a demand to buy or sell, which is greater than can be met by the current order structure. It will move through areas of high liquidity, or through areas of low liquidity depending on what is driving it currently.

You are making the assumption that once an order is placed at a support that it will be filled. If your order is a limit buy, as is the case with most participants of size, then it will only be filled if you can find participants willing to sell to you; to hit your bid. If everyone wants to buy, then how likely is it that someone will sell into your bid? Additionally, If one places their order at the support level late in the queue, there is the risk that he/she may not be filled before price moves away from the area of support.

When price is moving away from support, and everyone is looking to buy, for the myriad reasons eurotrash listed above, bids which remain there run the risk of not being hit. Consequently, if the opportunity is a good one, the participants' fear of being left out will drive them to execute market orders to get in on the move, before the mispricing disappears.

A market buy at support would allow one to be filled at the expense of moving price against oneself (if one has that kind of size of course). It will also contribute further to the move away from support.

Regards,
xXTrizzleXx

90%: expectations of changes in interest rates
10%: noise & fear

fundamental trader + exploiting statistically predictable behavior

Fundamentals / expectation of fundamentals

depends on the time-frame I think. If you got dailies or higher, then it's fundamental expectations driving the markets.

The lower you go with the time-frame, the more it is driven by technical expectations.

yes, sometimes, when big guys are trying to establish positions, then the market will become range-bound until the full position is established.