Real Reasons Behind Market Patterns

Discussion in 'Psychology' started by cornix, Sep 3, 2014.

  1. themickey

    themickey

    Cornix, a good thread.
    My perception is that with all the millions of traders and hundreds maybe thousands of stocks etc, there is no one answer as each stock or index behaves in a different manner. With the indexes we see often straight-ish trend lines, but with stocks especially the more speculative ones there is a high level of randomness. My impression is that stocks/indexes travel in more or less given direction until it gets to a point like a tight rope walker on a fence wire, but when she tires, a slight zephry breeze can tip her over either to the left or right.
    My impression also is a large % of weak traders are copy catters who just follow direction while a small % of powerful traders have the control using pure, as it were, algo computer systems - they are not so much reading the news, they just trade according to what their algo dictates and their fire power allows them to influence direction.
    In others words, pure systematic traders with very little emotion.
    The large institutions as well I think have tools us bottom dweller swamp critters don't have. They see a picture we don't see as we lack the computer software technology. I jump to this conclusion based on the fact that in Australia it seems no co-incidence that the big 4 banks in Australia all own major brokerage houses catering for the retail trader and as well make gigantic profits year after year. Granted some of their large profits are derived from selling real-estate mortgages which is another lucrative business. I've always suspected the banks own the brokerages not so much for the fees they gain from trading but also because it allows them a window to access to data which is highly valuable to themselves, in afterwords I suspect a conflict of interest within the banks trading arms, but I can't prove it unfortunately.

    Anyhow attached is a EOD chart of the S&P500 going back a couple of years (only used this short time frame so you can read the chart details a bit more clearly).
    These are buy and sell signals shown on the chart which are algo derived. It is a very simple concept, I designed this some years ago on Amibroker and it still works today.
    All it is is a trailing stop loss of a set percentage. Every stock chart / indice will have a different % as every one is an individual, eg very speculative stocks will have very large % stop losses but also very speculative stocks often have such high levels of randomness they cannot be algo'd.
    So in conclusion I'm trying to say that indexes in particular are primarily governed by support and resistance and trend lines, monitored by algo's.
    Speculative stocks are also governed by the above, but as per the analogy of the tight rope walker, she is drunk and unpredictable largely, and monitored predominantly by discretionary wannabee millionaires sitting in their trailer in underwear.
    Intraday trading, I cannot understand it too much - constantly lots of noise and randomness, while EOD is where I can see the logic of its behavior.
     
    Last edited: Oct 12, 2014
    #91     Oct 12, 2014
  2. cornix

    cornix

    One more worry I expressed today on the other resource is: in case with following patterns, which we "just see" and don't know their cause, how do we know if they "stopped working"? How much a draw-down is needed to give up and admit some pattern is no longer valid?
     
    #92     Oct 12, 2014
  3. Redneck

    Redneck


    imo CF - you are way over thinking..., and over worrying

    When the behavior causing the "potential" pattern ceases - get the hell out of Dodge

    How much draw-down -> is a personal choice.., based on one's skill/ emotional make up/ capitalization

    =========================

    I trust you're getting closer to that which you are seeking

    RN
     
    #93     Oct 12, 2014
  4. Google supply and demand. You should already understand why the market moves. Supply side wants the price high as possible. The demand side wants it as cheap as possible. At some point on each side, the demand side is going to say it's to expensive. Demand slows down and prices drop. At some point then, suppliers are going to say I'm not selling that cheap, and supply slows bringing the price up. It's a cumulative effort that determines these points. It could just be the market makers alone determining these levels or it could be a variety of factors impacting supply and demand. It all depends on the liquidity.
     
    #94     Oct 12, 2014
  5. Redneck

    Redneck

    A very academic response – unfortunately academics and actual trading seldom mix - well

    ========


    So what say we delve a little deeper in an effort to stimulate the ole cranium


    Price in a range – what exactly creates the next wave of supply…, or demand


    News may be one possible answer… but then.., at times…,why does demand come in on bad news…. or supply on good

    What if there no news – and price shoots off


    Certainly…, buying…, OR…, lack of selling - equate to demand…, and selling…,OR…, lack of buying - equate to supply – but….


    What about when price shoots up (presumably demand) – then immediately reverses and heads incessantly off in the other direction (down)

    Traders really changing their collective minds / positions that quickly

    And if price were heading higher – why are sellers not waiting – to sell at even higher prices



    Same can be said when price shoots down.., reverses…, and then heads to the moon


    Why did buyers step in…, and stop prices from going lower – what buyer doesn’t want to buy at lower prices


    At this point one could potentially speak of emotions and irrationality being involved – but what trader can function consistently... even rationally - on that


    ===============

    To say the mkt moves on supply / demand – which many (including a resident guru or two) do – is a gross oversimplification…, and mis-representative


    But hey..., at least it sounds plausible - and hard to counter - to / for the less experienced

    =====================


    Btw…, and on another note;

    Never confuse liquidity – with volume (all be the volume buying…, or selling)




    Just a little sumthin…, sumthin - to ponder

    Or not

    RN
     
    Last edited: Oct 12, 2014
    #95     Oct 12, 2014
    Baron and justrading like this.
  6. cornix

    cornix

    Yes, I realize that, but the reason is my personal experience, which is: things worked until they didn't. Suddenly. :)
     
    #96     Oct 12, 2014
  7. Redneck

    Redneck


    That an important data point CF


    If your signal(s) no longer materializing – that one issue – mkt has evolved completely away from your approach

    ==============

    If however..., your signals are materializing – but the mkt's subsequent follow through has changed – that says the mkt has evolved – ever so slightly – that it appears superficially to be acting as what it used to be…, but in actuality no longer is

    Study your signal(s) – the subsequent follow through..., identify the change – modify your approach accordingly

    =====================

    Another thought; something has changed / manifested inside you..., that is now inhibiting / precluding you from trading like you historically have

    ===============


    Maybe you've already thought of all this

    But I think you're searching for something – and I suck big time as a mind reader

    So I'm brainstorming in an effort to lend a hand Sir


    RN
     
    #97     Oct 12, 2014
    dartmus likes this.

  8. You are a trained academic, Cornix. Read up on the different types of efficient markets-- you are definitely on the right track here with your admission that "things just stopped working" -- that is true for every honest trader-- some folks will not admit it, are delusional, or are just pretenders on elite trader for fun.

    Think about it, if the folks who claim to be able to make TA or whatever work-- why are they not ultra wealthy? There is certainly enough money in the market to create this-- EVEN the market kings seek OPM to get huge-- I think more folks have become wealthy via lotteries than trading their own account---- you see, once you get OPM and get connected on Wall Street, you get INFORMATION-- some good some bad, but enough will be good to make you very wealthy.

    truth is, the market is always changing and morphing, its goal is to take as much money from as many players as possible at any given time--- if you don't have INFORMATION or a STRUCTURAL EDGE its just a matter of time until whatever it is you are doing stops working--- even stuctural edges will stop once regulators or the market itself catches on-- this other stuff is just nonsense---but attractive nonsense none the less.

    Read Niederhoffer for further info about how the market really works, surf
     
    #98     Oct 20, 2014
  9. Because the fact is they are ultra wealthy. Turtle Trading was based on TA, and hedge funds were run by successful traders based on just TA. Obviously, size limits how much a method works.
     
    #99     Oct 23, 2014
  10. Who is ultra wealthy? How does size effect the turtle method? I don't understand this post.
     
    #100     Oct 24, 2014