I am perhaps the least intelligent of the participants in this thread, but this really stood out for me. To say that on an intra-day basis, demand and supply is a dangerous game contradicts exactly with what DbPhoenix teaches. I know that he is always trying to move things to a higher time frame (ie. hourly bars), but there are countless examples of him showing stuff on the 1 min chart. Now I'm not looking to pick a fight here, but from my perspective, I see monoid make this post that many find enlightening, Db himself gives it a "like", and yet, this point above seems to contradict exactly the basis of what Db teaches about supply and demand. Can somebody smarter than me help rationalize this? Furthermore, when monoid says that price going up due to demand is naive, once again, based on my countless hours of reading what Db writes, this to me seems inaccurate. It shouldn't matter what or who is creating the buying or selling. If a large position needs to be liquidated, there is no getting around the fact that lots of contracts need to be bought or sold, hence the demand or supply would be there. Anyway, so I just wanted to point out that based on everything I've read from all involved, there are actually some important conflicts here that I don't think I'm wrong about perceiving.
People in many different professions can "like" another thought, concept, ideology that contradicts their own. They can go as far as to praise it. Also, be aware that when someone writes a large coherent statement...you can "like" the overall context but still disagree with a few concepts within. In addition, you may decide you don't feel like debating about the few concepts you don't agree with but you just wanted to praise the overall concepts, thoughts and presentation. This was something I learned quickly in my one year on my high school debate team. Later in college, I dated a law student and the above was hammered home often when she talked to me late into the night about some case study. Simply, you're still making this way too personal...its getting more confusing for you. P.S. Overall, I like what monoid stated but there are a few things I don't agree with. Those few concepts are in contradiction with some views I have about trading. Yet, I don't feel like discussing a few concepts I disagree with...that's normal considering overall there are many things that was stated that I strongly agree with. P.S.S. I may order some books on Behavior Finance...seems like a good reading topic.
@k p: I don't know what @dbphoenix teaches. So, I cant speak for him. All I was trying to convey in my post was that there are too many "games" played by large positions that accurately determining 'supply' or 'demand' is almost impossible, in my opinion. You are correct in stating that a large position that needs to liquidate (in my example) will need to buy a large number of contracts. But you are incorrect in assuming that it is 'demand'. Buying is not the same as 'demand'. In my example, the large position is really 'seeking demand'. As I mentioned in my earlier post, the large position, in my example, might be doing so hoping to get a following there by creating a momentum ignition (i.e, in your words 'demand' comes thru' eventually). However, there is no guarantee that it will happen. It is my opinion that the market might become a little easier to comprehend if we leave out rationalizing events based on things we cannot be sure of. The words 'demand' and 'supply' invoke predefined responses in us. Using those words to provide a description of what happens in the market (when we cannot be sure of it) only complicates the analysis further -- we start expecting certain events to occur because of our framing, and when those events do not take place, we become confused even further. This game is difficult enough why make it more difficult? Of course, all this is my opinion, and as with all other things in trading, others will have different opinions. It does not matter what one trader or another thinks, it is up to you to determine what works for you and what does not. All the best. Regards, Monoid.
This is fully agree with, which is also the reason why I started that thread a few months ago about spikes, which I do believe you replied in. Yes, anything to make it easier I'm all for. I would equate demand with buying pressure, which is how I believe Db describes this. For price to go higher, someone must be willing to pay more than the last person. Now often this can just be momentary, to suck new long positions in of course, but at some point, you might have to give in to the fact that the trend may be up. So the demand part comes in when more and more people are willing to keep paying the ask. Anyway, that is the extend of my understanding, and as you suggest, I certainly don't want to complicate it any more than necessary. I do certainly also agree that intra-day, the dynamics sure do look different than when looking at higher time frames. (ie. Price might open and head decisively lower, but somehow still end higher for the day), so the type of demand may very well often be just big money looking to lock suckers into long positions, etc.
Fully understood. I guess I just wanted to point this out to see if there could be any discussion about it because it seems to be the fundamental concept of what moves price, and so if you have two trading experts that disagree about some fundamental mechanism of the market, this would be quite interesting. Its like if you have two chemists, both good at their jobs, but one somehow doesn't agree that atoms are made up of protons, neutrons and electrons. They might both know how to mix chemicals together to make some new molecule, but having a disagreement about the fundamental nature of the composition of matter would be quite the shocker.
Though the course of an auction market is determined by the Law of Supply and Demand, you are correct that "buying is not the same as 'demand'". However, it became clear to me years ago that attempting to explore the ever-more complex levels of how the Law of Supply and Demand is manifested in the market -- i.e., market psychology, or what is nowadays called "behavioral" or "economic" finance -- was largely masturbatory: so few were interested that for all practical purposes one could say "no one". So instead I used terms such as buying/selling pressure and buying/selling interest, but I have no evidence that that did much good either. What understanding came down to in the end was whether or not the student/learner/whatever had studied the material, the material in this case being Wyckoff, who explored all this a hundred years ago. Wyckoff makes the accumulation/markup/distribution/markdown cycle quite clear in terms of motives and mechanics, that, for example, "breakouts" are generally engineered by big-monied interests who are already fully invested and want to profit from that investment. Therefore, they "ignite" a move above a level that is being monitored by at least some in order to attract the attention not only of those who have been monitoring the situation but of those who weren't paying any attention at all until the breakout occurred. This buying has nothing to do with "demand"; it is nothing more than an attention-seeking move. At this point, those who have engineered all this begin selling what they have accumulated. They have so much, after all, and do this so regularly and so often, that they don't need to make dozens of points. A few are sufficient. This accounts for the large volume one so often sees either at breakouts or shortly thereafter: it doesn't reflect "demand"; demand is unrequited unless eager sellers are willing to meet that demand; therefore, all that volume reflects a great deal of selling, together a great many transactions, which require both buyers and sellers. And who is doing all that selling? Those who had been accumulating whatever it is before the breakout. Only after they're done can the observer judge whether or not the buying interest was genuine or nothing more than an old firecracker that sputters and dies. This is what retracements are all about. If the interest is genuine, the retracements succeed and price advances. If the interest was not genuine, price falls back into what had been the accumulative base. Those who had been accumulating now have their money and can do this all over again for the benefit of those who have no idea what's going on -- which is practically everybody -- or they can move on to something else. Nowadays I suggest that those who are observing price behavior determine whether or not buyers are willing to pay the ask. It doesn't get simpler than that. And one doesn't even need a chart to make that determination. Are they willing to pay the ask or not? If they are, price rises. If they aren't, it doesn't. They may be willing to pay the ask five minutes from now, or even seconds from now, but at this moment, they're not. And until they are, price ain't goin' nowhere, no matter what the trader hopes for. The SLA has helped somewhat in this regard: either price crosses the line or it doesn't, and one needn't be a graduate student of the markets with decades of experience in order to make that determination. The challenge comes in deciding what one is going to do about it. Yesterday, for example, the NQ rose to 36/37, repeatedly, a level which it first reached during the overnight on Tuesday. Yesterday afternoon and evening it came within a few points of that level again. Early this morning, it broke above that level for a gain of ten points. Since then it has been working its way back to 36/7 in what may or may not become a successful retracement. Is it necessary to know why all this is occurring? Not really. All one needs to know is that price "broke out" and is now retracing that move. If one wasn't a participant in the breakout, he must now apply whatever criteria he has developed to determine whether he should buy this retracement or not. If he hasn't studied and has not therefore developed these criteria, whatever trades he makes will be more or less random, as will his results. At the moment, the NQ is sitting dead on 37, and we have over two hours to go until the opening bell. What to do? What to do?
The fundamentals of trading by price are, imo, shared by all who trade by price. They may differ from one to the other in the words chosen to communicate their understanding of these fundamentals, but the fundamentals are the same. You could put those two quotes together, put in user name DbMonoid, and there is nothing contradictory - it could easily stand as a statement of opinion by the same individual. Amongst those who trade by price, I doubt there could be very many, if any deep fundamental disagreements as to what is and is not relevant to understanding how the market moves and how to profit directionally from those movements. It is almost always going to involve analyzing the current context of the market, the levels relevant to maintaining or challenging that contextual view, and then using current price action to determine how and when to participate. For some it may be a trendline or S/R break, others may wait for retrace-continuations - from the very beginning for me my favorite has been watching the order book and T&S - another carry over to my futures trading from my start as an intraday stock trader. In other words, there are many ways to skin this cat - but there is, in the end, only one cat. This use of "behavior," or "judging the market by its own actions" is why someone day trading a market with a trading plan that utilizes precisely this behavior as some component of their entry trigger cannot "call" a trade before it has happened. For the way I trade, the best I can say is I'll be looking for a potential trade if/when price reaches wxyz level. But the direction of that trade, the precise entry fill for that trade, the moment of that trade (or even whether that trade will happen while I am in a position to take advanatage of it) is not known by me until about 5/10ths of second before I become a liquidity taker by hitting the market buy/sell button. Sometimes the trade happens so quickly I have to enter on a limit order and hope to get in on a small initial reaction so as not to skew my risk adversely. The only call one can make in such a position is to say "I will be looking either to long or short at or near wxyz if price gets there." The reaction form others who don't trade by price is typically along the lines of "So what your saying is price can go up or it can go down - duh! That's useless!" But that, for me, really is all I can say until I am in a trade. My chart shows me the levels I would be interested in, and the overall market context - but that is all based on the results of past trades. What is missing is for the market to arrive again at that level of interest and then for me to judge the market at that time by what the market is doing at that time, i.e. at some future "now." BTW, what a nice example this thread is of what ET could be.
In relation to the above, the following was posted yesterday. Whether or not one wants to consider these movements to be random is of course entirely up to the individual. But given what I posted earlier about 37 and 47, they may be of interest. The following was posted last week:
I have never watched the Order book or T&S. All my entry tactics are based on the immediate bar pattern. While one can get a sense of the quality of interest by watching the right tick, I was hoping to use the order book information to improve my tactical framework. Would it be possible to explain words like 'Order Book', T&S, 'DOM shows price getting heavy'? I know very little about this set of tools. I understand that the entry itself is based on the overall context and the way price behaves at levels that may act as the tipping point. Thank you.
This is traded volume greater than 20 on the ES for the past couple of minutes. I'd call this "getting heavy" as size starts hitting the bid (market sell orders consuming liquidity) and the easy tick down. Again, in the absence of a trading plan this will do little for someone trying to trade off of it. And what is missing, of course, is the watching of the turn at 97.75/97.50 and the behavior of size during the little range from about 11:50 through 12:25 or so and the two lower highs. EDIT: DOM is depth of market - the ladder of bids and offers that most trading platforms have. T&S = "Time and Sales, which is what I am showing in the attachment. It is literally lists the time and price at which the market has traded. I set mine to show whether the trade was on the bid or the offer, and I filter for size depending upon the instrument I am looking at.