How Markets Work, in a Nutshell!

out..

M1




laterz..

Still S&R are the most important and popular and the easiest chart drawing. Don't have an idea what for that derivative stuff of fibs, bands, waves is used... for fun maybe...

Yeah , Sup./Res. are pretty much important in order to know where ones at , OTOH if one doesent has an understanding of either , he pretty much is screwed ie.
dont know what to do with does drawings...

so how or why does a level of support or resistance develope ?

well , here is how

Put simply, support is the price at which those who have enough money to make a
difference are willing to show their support by retarding, halting, and reversing the
decline by buying. Resistance is the price at which those who have enough money to
make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls
this money professional or big or smart or institutional or crooked or manipulative or (fill
in the blank) is irrelevant. If repeated attempts to sell below this support level are met by
buying which is sufficient to turn price back, these little reversals will eventually form a
line, or zone. Same is the case with resistance.


Why ?

As Wyckoff put it, if a stock (or whatever) is thought to be below “value” and a trader or
group of traders see a large potential for profit ahead, he/they will buy all they can at or
near the current level, preferably on “reactions” (or pullbacks or retrenchments), so they
don’t overpay. If the stock is above the perceived value they’ll sell it (or short it),
supporting the price on those pullbacks and unloading the stock on rallies until they are
out (or as much out as they can be before the thing begins its downward slide). “This”, he
writes, “is why these supporting levels and the levels of resistance (a phrase originated by
me many years ago), are so important for you to watch.”


One can expect to find support where the most substantial buying has occurred in
the past and resistance where the most substantial selling has occurred.

If he doesn’t understand support and resistance, he’s going to have trouble understanding how and where and when to enter and exit, much less
where to take profits, assuming he has any.

here is where we are at .. on EU

H1

a valid short.. playing a pullback..


m1

out

m1




Laterz

Doesn't MA display the same outcome as average S&R taken from different timeframes? OR MA doesn't account for human analysis for example identifying working S&R from useless one??
Sorry if I expressed my mind too confusing..

well , i dont really understand your question ..

a wild guess here .. u state that MAs do hold some creditibility when it comes to judge weather price finds sup./res. at the MAs ?

well yes, they do.. but as u stated a post earlier.. its just a derivative measurement form its main source .. which is Price!

now one can and will trade according to MAs profitability... for sure.. (what ever floats ones boat) ...

but state it this way... if an MA is a derivative form of price.. hence "Moving average" which allready sounds a like "mean" or hence "value"...
over a period of time... then... ?

there are two types of "support" or "resistance" .. lets be percice here.. i call support or resistance where the participants actually
where able to halt or stop price from declining/rising due to the force of buying/selling (action) which took place either ,while price was/is above below a certain "value"
whereas price can also find "support" / "resistance" ie. a tunring point due to a lack of trading going on at a certain level (rejection).. but that doesnt hold the same information as actually buying or selling interrest at a certain level...

different Timeframes and its participants do play a role.. in all of that... but i will come to that later in that thread...

u just got to know that all one needs is price.. to judge the markets.. and nothing else.. (maybe some minor drawing skllis )

what is price capable to do and what not ? and at waht location? what does all this mean to the ones who pot. are either in the same boat or in the opposite boat ?
how will they act if "this" or "that" happens.. and how will the market respond to all that ? (rock/paper/scissors) **( u can overthink alot .. but all one got to do is.. work with what is in front of u.. and either cut your loss or let it run.. ( ie. if u are in a profitable position HOPE it will go on.. if u are in a losing position FEAR u will lose more)...


cheers

meanwhile on eu

h1





i tried to play the pullback yesterday .. but price didnt want to go down that day.. at least while i was at my screen.. so it be..(still banked some pips due to location) (different day different opportunitys)..

how about a lil story time ??



AJ

Where we are at (daily)


Price action thus far... (h1)


We are trading at a potential resistance level , price made some higher lows towards this level .. then , as price trys to breaks this highs we have no follow
thru.. ie no one was willing to follow price any higher (rejection), as price begins its decline it takes out all higher lows and the momentum is high during that selloff
as you might allready know several SL probably got hit during that selling aswell as some shorts where triggered.. but price actually finds support at arround 98.28xx .. which given the fact that we are at res. and took out some long sls.. but price doesent go any further indicates some serious buyers bought into the weakness created during the selloff , we even tested the low beyond the first swing low.. but price shoot right back up (dog that didnt bark) .. sellers are most likely done ie price didnt do what one might thought should happen if the lows are taken out. especially at this level..

the change of supply and demand now shifts in favour of demand , which most likely will end up with a tetst of the actual highs , and if that highs get taken out
and the remaing supply in form of sellers/ limit orders gest absorbed at this level we.. will breakout to the upside.. with some momentum behind it for sure...

its just a story thou.. anything can happen...

Some interresting stuff and insights into the Interbank foreign exchange market .. * where we all get drip feed from

wiki:

The interbank market is the top-level foreign exchange market where banks exchange different currencies.[1] The banks can either deal with one another directly, or through electronic brokering platforms. The Electronic Broking Services (EBS) and Thomson Reuters Dealing are the two competitors in the electronic brokering platform business and together connect over 1000 banks.[1] The currencies of most developed countries have floating exchange rates. These currencies do not have fixed values but, rather, values that fluctuate relative to other currencies.

The interbank market is an important segment of the foreign exchange market. It is a wholesale market through which most currency transactions are channeled.
It is mainly used for trading among bankers.


Market makers

Unlike the Stock Market, the Foreign Currency Exchange Market (Forex) does not have a physical central exchange like the NYSE does at 11 Wall Street.[2] Without a central exchange, currency exchange rates are made, or set, by market makers.[1] Banks constantly quote a bid and ask price based on anticipated currency movements taking place and thereby make the market. Major Banks like UBS, Barclays Capital, Deutsche Bank andCitigroup handle very large currency trading (forex) transactions often in billions of dollars.[1] These transactions cause the primary movement of currency prices in the short term.

Other factors contribute to currency exchange rates and these include forex transactions made by smaller banks, hedge funds, companies, forex brokers and traders. Companies are involved in forex transaction due to their need to pay for products and services supplied from other countries which use a different currency. Forex traders on the other hand use forex transaction, of a much smaller volume with comparison to banks, to benefit from anticipated currency movements by buying cheap and selling at a higher price or vice versa. This is done through forex brokers who act as a mediator between a pool of traders and also between themselves and banks.


an excerpt of an interview of a spokesman of the peoples bank in china (RMB = renminbi )

Q: What is a market maker in the inter-bank foreign exchange market? Why is the market-maker system adopted together with the OTC approach?

A: A market maker in the inter-bank foreign exchange market is a participant in this market who undertakes the obligation of offering selling and buying prices to other participants on a continued basis while buying RMB with foreign currencies or selling RMB for foreign currencies and provides liquidity to the market through such transactions.

The market maker system is a basic arrangement in the international foreign exchange market. Continuously offering prices and making transactions, a market maker provides liquidity, smoothes out price fluctuation in the market, helps to boost transaction efficiency and diversify risks, and profits from the buying and selling spread. At the same time, a market maker becomes a hub of supply and demand information and thus an important pricing center.

With the development of OTC transactions, a multi-layered foreign exchange market system will be formed. Large capable institutions can conduct large-value transactions among themselves, while at the same time, as market makers, they will provide liquidity for the small & medium-sized financial institutions. With the development of foreign exchange market, large institutions will become the main sources of quoted RMB exchange rate. In 2002, the People’s Bank of China accumulated some experiences by introducing market makers on a pilot basis in transactions of the RMB against the Euro and the HK dollar in the inter-bank foreign exchange market. Formally introducing the market maker system along with the implementation of OTC transactions in the inter-bank foreign exchange market will facilitate transactions in the market, improve liquidity and enhance financial institutions’ capability in market making. It will also help to establish a price pass-through mechanism among the OTC transactions, the automatic price matching transactions and transactions effected over the bank counter and further improve the RMB exchange rate regime.

An Excerpt of Guidelines for Interbank Foreign Exchange Market Makers

Article 1, To further develop the foreign exchange market, increase the liquidity of our foreign exchange market, and improve the price discovery mechanism, ..
... to assume the obligations of continuously providing market members with buying and selling prices for transactions between XXX and foreign currencies on the inter-bank foreign exchange market....

...Spot market makers are banks that provide market-making services in the spot inter-bank bid-offer market and the inquiry foreign exchange market....

....a general market maker in the inter-bank foreign exchange market may, after its trading eligibilities are ratified by the SAFE, automatically obtain the status as a market maker for newly approved types of transactions in the inter-bank foreign exchange market, and enjoy priority to obtain Class I clearing status in the hierarchical management of centralized net settlement. ....

The market makers in the inter-bank foreign exchange market are obligated to:

1. Continuously provide, within the prescribed trading time, two-way valid and realizable prices of XXX against the major transaction currencies;
2. Quote prices within the floating range set by the XXX Bank for inter-bank market foreign exchange prices in the spot inter-bank bid-offer market and the inquiry foreign exchange market;
3. Trade honestly in the foreign exchange market and not manipulate market prices by illegal or other improper means; <
....

The story continues.. or should i say unfolded...

like so...

Market Makers , a lil insight story


The Interbank participants are banking giants such as Citi,UBS,Goldman,Deutsche Bank, etc..
wich manny act as market makers and offer the quotes that ultimately drive the pricing you see,
you can say all the participants are big dollar players since the lowest set trade size is 1mm dollars , it isnt uncommon for orders larger then 100mm dollars beeing executed on the spot FX market , Many Interbank members fill orders for customers , aswell as trade / speculate to make profits just like any other currency trader , the advantage interbank market makers have is the access to order flow information. if you are a the market maker and you see all the orders, you have insider information about the direction of the prices .. how such an advantage plays out will be illustrated at an example below.


Illustrative example on how a trade between , MarketMakers / Specialists / Buy/Sell Side on currencies may play out caution! its just illustrated by me and my experience from , reading some storys and interviews etc.. i made my own conclusion.. any institutional trader can point out any mistakes i made (maybe some numbers are off aswell ) but then again its just illustrative


Lets say Bank XY gets an order from a customer to Sell 100 million Dollars against the Euro,
lets pretend The Eur/Usd Market at the time the order was given , is pretty dull (yes ,there are down times even in FX ) .. and at such the BankXY simply cant put in a 100Mill Sell order without paying a higher premium ie driving price down etc.. u simply dont do that if there isnt enough liquidity, even if liquidity is there they would probably handle such an order in quite the same manner , due to obvious reasons …

1st (“Natural”)

so first the Bank XY is make some calls "upstairs" to the trading desks on the street, in order to find a "natural" (another institution willing to buy/sell you XX currencies in decent size)
Another point is that you can't call too many firms, or everyone on the street will know there's a large buyer/seller out there…

Now BankXY makes some calls, let's say BankZZ and Bank00. They talk to the traders and let them know they got 50million to sell and maybe more behind it. (Never tell your size until you absolutely have to) They'll immediately ask for a working order, and in this case they would say no - We r looking for a natural. They will now make calls to other large holders . If they can drum up some interest, they will call back and the game starts.

In illiquid markets, the buyer almost always has the advantage because he doesn't have to do anything. He can always walk away whereas the seller has to eventually sell..



If Eur/Usd is around X,XXX15/16 then XY might get a bid of 14 for 20million If the buyer wants 40million they might get a bid of 13. The larger the print the lower the price will be. If XY is able to sell the whole block the buyer will want to know if that "cleans them up" - meaning have they taken XY out of the position or is XY done selling . This will also affect the price of the transaction. No body wants to buy 100million of the dollar and then watch the price go down another 100 or 200 pips over the next few days, as XY continue to sell. Mind you - XY could lie about it and sell more afterwards, as there is no law against it, but the reputation would be ruined and no trader/bank would ever want to deal with them again, thus hurting the chances to execute trades in a favorable way in the future.

Mind You ! what is important to you may not be important to the institutional trader. could XY really sell 100 million at one price? No, not unless they negotiated upstairs (read above). But what if they could sell 10million at $x.xx25, 25million at x.xx20, or 50 million at x.xx15 What would They choose? If XY had 100million to sell they would easily choose 50mill at x.xx15. Why? Because of the most important aspect of institutional trading: opportunity costs. By saving a few pennies but having more invetnory left they have just cost the firm money (and thus the clients), if the anticipated result occurs. It is more important for the institutional trader to complete the order than to get the best price.



2nd (Making a Market)

As the Bank XY also is a market maker they have an edge becauset hey know who the most recent buyers are and can contact them immediately (they will be other floor traders reperesenting various firms/banks etc). These traders will contact their clients and see if there's any interest. Usually the interest is in smaller size, but occasionally they get lucky and catch a large buyer in which case they negotiate the same as XY would with another firm. The only difference here is that the Market Maker will want to buy some too, especially if he knows that it cleans them up.

But if there are no large buyers out there, XY just have to pick away, and “play the game”, all while protecting them the book.


What is the Market Makers motivation? His primary goal is to maintain a fair and orderly market. That's his job. In doing so, if he happens to make money, all the better for him. In order to keep the market as fair as possible, the Market Maker will work harder for the large institutional orders, for a few reasons. First, because the large orders dictate in which direction the Price will move. Next, because of the relationships on the floor/market…
The Market Maker makes money in two ways: when traders buy and sell the spread that he has created for the Instrument, and by buying and selling out of his own inventory when certain situations occur where he is almost certain that he will make money. Playing the spread is easy. The Market Maker can trade in front of a limit order, so he can basically adjust his spread all day…

but lets keep the focus on what we really want to know for now: how the Market Maker handles larger orders, not how the Market Maker makes money for himself.

3rd (handle the large order)

Lets say the Bank XY receives an order to Sell 100 million Dollars at the market, and they don't have a natural buyer. What is the normal process?. How does XY start? Usually they start by flashing a decent offer of about 10million . It's a strong offer, but not enough to scare anyone away. If XY gets some nibbles, they might up the ante and show 20million . As a daytrader, we get excited when we see this, but we need to think like an institution. If I was an institutional Buyer , I'd be more likely to react to a real offer than a tiny offer . That's what the MarketMaker (xy) is looking for. But if he can't lure one in, he'll have to just pick away, which means selling at the Bid (Not many small orders will feel the need to buy 1million into such a strong offer). So the price moves down slightly as different bids are taken, but how does XY handle this? If he distributed 10mill already does he sit tight with a 10mill offer at the original level? Does he replace the offer with a lower 5 mill offer? Does he remove the offer altogether to make it seem like there's no resistance? Making the price look strong is a common strategy. Instead of lifting the offer, it's actually more effective sometimes to show a weak offer, of say one or two million, as well as a strong Bid one pip below it making it look like the Price is ready to rise. Not a bad way to attract Buyers.. Another 10million distributed, time for the old 'weak offer' trick again. You get the point..

there are , as in any other market alot of games played.. watch ..



Sorry for the low quality GIFs , but anyhow.. its a slowed down action btw. all this action happens in a mather of 10-20 second

Note on the Deutsche Bank feed u can see some book flipping , some sell order 4$million,moving up and then flips to the Bid etc..
On the Thomson Reuters feed u can see the best quote out atm , u can see which bank quotes etc.. (contributor)

Deutsche Bank Order book


Bid/Ask quote (Interbank) (thomson Reuters)



… do you really need to know all this ?? .. hell no! .. just follow price