Behavioral finance explains why the markets behave like they behave. It all starts with people who want to buy or sell for some reason. Try to understand the psychology behind this behavior and things will not look random anymore. Prices can only go up if buyers are outnumbering sellers and vice versa. This behavior can be transformed into charts. These charts should be the basis of your system, the trend. When you are able to see which direction the crowd will run you can start in the next step to optimize entry and exit. But as long as you have no clue what the crowd will do you can not make the second step. I don't want to go too deep or tell my secrets, but i can predict the move of a trend (intraday) with an accuracy of 89%. This means that 89% of these waves do what I expect them to do.
It isn't necessary that buyers "outnumber" sellers, only that buyers be willing to pay what sellers are asking. As for sources on behavioral finance or behavioral economics, just do a search on Amazon using these keywords. The books are ridiculously overpriced, but if one has the titles, he can check them out of the library. Or, given the tons of information available for nothing online, one can do a Google search using the same keywords. If one has ever been involved in retail, there are no secrets, especially in an online world.
Maybe my explanation was not clear, English is not my mother tongue. What I mean is that prices go up if demand is bigger than supply. If supply is bigger than demand prices will probably go down, not up. So if buyers are willing to pay what sellers ask it means there are more buyers than sellers (in volume, not in physical persons), what i call buyers outnumbered sellers. And vice versa.
More or less. However, many people misunderstand this, hence the same questions year after year. Every transaction involves buying and selling. Otherwise, there would be no transaction. However, there can be "more" buyers than sellers and vice versa in a transaction in that a seller who has 100 contracts to sell may have 100 buyers lined up who only want to buy one contract each. The seller will then conduct 100 transactions in order to unload his shares. Each transaction, therefore, will involve only one buyer and one seller. Is it important to know any of this? Probably not. What is more important is to know that price rises because buyers -- however many -- are willing to pay what sellers -- however many -- are asking. If they aren't, price stops rising. Price falls because sellers are willing to drop their asking price. When they are no longer willing to do so, price stops falling. It isn't indicators or patterns. It's traders trading, each with his own motives and objectives and desires and fears. If one doesn't understand that, he'll never understand why volume trails off so quickly after a breakout, why price can rise for so long with very little volume at all, why uptrends tend to move in 3-5 waves or stages or phases (usually 3), why retracements (pullbacks) exist.
If buyers want to buy 1000 contracts and sellers want to sell 1 contract what will happen? Will price go up or down? Buyers outnumber (in number of contracts demanded) sellers. The number of potential sellers or potential buyers is not important, the volume they want to trade is important. This is confirmed by the fact that volume trails off so quickly after a breakout. If volume continues to decrease price wil react by slowing down or even reversing direction.
If buyers want to buy 1000 contracts and only one is available, only one buyer will get lucky (assuming he isn't buying the top tick). Price will go up if the print is higher than the previous print and down if it's lower (if it's the same, price will go nowhere; price is after all just the last in a series of prints). Volume trails off after a breakout for a number of reasons, chiefly because professional buyers have bought most or all of what they want (which is why price breaks out in the first place). Thereafter, the small fry, like you and me, are just hitching a ride. Price will continue to rise as long as buyers can be found to pay the ask. Volume is irrelevant to the rise or fall.
"Redneck said: First thing you've posted I agree with We fish for whales..., hunt for elephants - both leave sign to read..., tracks to follow RN" http://www.elitetrader.com/et/index.php?threads/a-thought-on-trading-edge.288613/#post-4065758 i.e. The real definition of Trend Following! lol
The principle regarding buy (demand) vs sell (supply) pressure determining price movement is pretty well accepted. But shouldn't this be evident in the price action chart? A price action chart shows open, high, low, close and volume plotted against time. Is the information required to determine which side (buy vs sell) has greater momentum not available in this chart? I thought the entire premise of technical analysis is that all the information needed to determine demand vs supply momentum is buried in this chart. What extra information (other than open, high, low, close, volume) does a behavioral finance based model incorporate? Perhaps other extraneous data (macroeconomic, company fundamentals, prices of correlated assets) can help confirm the strength of a trend.
Careful Odd..., you know what'll come next show me..., show me..., show me..., gimme me..., gimme me..., gimme me..., prove it..., prove it..., prove it You can't do it..., you don't trade Your PnL - its photo shopped LMFAO!!!! RN