Best to start with a picture from the NQ today. First the 1 minute chart: And now the 5 second chart: So leading up to this, you can see how dead the volume is. Based on the 1 minute chart, there seemed to be a level of support forming at roughly 37, and just down below were the daily lows from Feb 27 and Feb 26. Out of nowhere at roughly 12:25, price spikes down. It barely lasts 30 seconds, and price now starts the steady climb back up. When traders are looking for trades, there is usually someone on the other side waiting to take that trade. But in this case, it sure seems like we ran out of buyers very quickly. Once we dropped below that first cyan line, the thinner one that seemed to be forming the first level of support, I bet that lots of stops started to get triggered at this point, and once again, there were hardly any buyers to keep prices up, but at the same time, someone was still on the other side of the trade. In fact, price really only dropped about 5 points, from 4337 to 4332. When we look at the volume, we can see the hundreds of contracts over just several 5 second intervals that exchanged hands. So on the one hand, we have no buyers initially, which is what starts the cascade, but on the other hand, there are plenty of buyers to take those contracts just a few points lower. The only explanation, from my limited knowledge, that I can come up with is the algo trading. I have no idea what percentage of trading is done by humans sitting at home, by computers, by HFT firms, by other types of funds, etc. And from what I understand about futures, they are supposedly harder to manipulate because there is no accumulation, unlike in stocks, and futures are supposedly spread thinly enough amongst the different parties involved that no one entity can affect the price all that much. But how else to explain a sudden withdrawal of offers to buy during a very slow time, followed by an immediate buying frenzy to actually buy up all that is offered? I imagine some algos are programmed to buy up the down spikes, but when the cascade continues, as in major news events that actually provide a basis for the selling, and someone therefore realizes that the spike isn't just temporary, this adds to the selling as now those algos start dumping whatever they just bought hoping to make a quick buck. So when I see these spikes, I can't help but think that perhaps one of the major players pull all offers to buy, and since they knew, having caused it, they start slowly buying all that is thrown at the market for several points less once the stops are tripped, and then when others realize there is nothing to this spike and everyone else gets back to buying, they can start unloading what they just bought for cheap. Why else would anyone buy in a quick down spike unless you know that this spike down isn't anything to worry about? Any thoughts?
The weak hands also opening sells, the break of supp and momentum thinking the market is tanking. . Theres a time to stay with volitility and a time not too.. the sells then having to cover as price gets up
For sure having to cover is what ends up fueling the rise, but i just don't see it as too many people traders... guys sitting at home, are responsible for this. When price drops quickly like this, it seems to me that liquidity is removed. If its just people trading, I think the flow would be smooth... but when computers make up a significant percentage of the trading, then all they have to do is stop offering to buy for 5 seconds to cause this I think. Then yes, as you say, people see the drop, start shorting, and the algos are sitting there waiting to buy everything offered. These tactics work well during the slow times where I think a fund who can trade a few hundred contracts can actually swing the market. It might not work at the opening with the heavy volume from so many players, but if you are in a dead period where barely 300 or 400 contracts trade in an entire minute, then removing any buying for 5 to 10 seconds and buying up the several hundred contracts that are offered can I think propel the market forward in the intended direction of the party who at first was supplying liquidity but stopped. But of course I'm just guessing and would love to hear from the pros.
It's just a series of measured moves. Once a level breaks and there's a measured move target or a trend line target or yesterday's close or some other key level, bids (or offers in an up-trending move) will get pulled because a better price (the measured move or other key level price target) is likely there for the taking. Crowd psychology, with algos making it all the more quick and orderly.
Interesting... I will have to look out for this. It certainly makes sense though that how you say, once a level is breached, and seeing another level very close by where you are likely to see buying, why not just wait for price to get to that level and get a better price. I'm all about the better price lately!
Spikes are the result of panic when everybody wants to get in ( or out) through the same narrow door.
the weak hands can easily be fund traders too, what do you think would happen if some big sell orders came in a thin market?
When there are many orders in same area, Pro's know exactly where they lie, they already short, Nasdaq not like ES, can be easier pushed market lower to trigger the stops where there is lack of volume causing the slippage, Pro's start taking profit and letting out those who were long and Pro's are now going long. It is fun to just wait for areas where public gets in, only to see market go back other way, "Yea, I will buy here and risk 3 ticks, it be the best trade of the day, a no brainer then lose 5 full points.
So based on your notes on the chart, how do the Pros know to start buying the protective stops that were just run? What if the drop is in fact real and they are the only ones buying, hoping to unload higher, but there won't be anyone to unload to because nobody else wants to actually buy higher? Today we had a nice couple of little cascades outlined by the red arrows, but there wasn't much of a recovery. (until of course later where price went all the way back up to where it opened)