Dumbass ? No need to result to insults. Moving on... Regarding your suggesiton that net effect of volume of trades at certain prices makes price direction predictable. In short, I don't agree. Re: your photo analogy... I think most people shown a photo of a blue sky would insist it is blue. What would you say ? My mind is not closed; just that I've never heard anyone convince me otherwise about predicting price movement. True markets are most likely inefficient but so what. Does it matter if stock price does not reflect the fundamentals ? Who then chooses where the price should be ? Are you suggesting that a retracement to the efficient price will always occur and if so when ??? And how can anyone trade purely off price ? You would need something to compare it against surely (support, resistance, volume, moving averages...) or do you simply look at a stock name, look at the number next to it and trade like that ? Apple at 135 is a buy because... well the price says so ??? I am intrigued to read some of your techniques (not bothered if they are previous posts or new examples.) This thread has been quite serious so some light hearted relief is long overdue. abc1
inefficiency does not only mean a stock's price based on fundamentals, there are many inefficiencies of the market, everyday there are times when futures contracts trade at a discount or premium to their fair value based on the prices of them versus the prices of the their underlying index. Spread differentials offer an inefficiency in the market, where the market price does not reflect the price at which people are willing to buy and sell. You are still thinking too narrowly, picking a direction, it isn't necessary to trade.
http://www.elitetrader.com/vb/showthread.php?s=&postid=1549995#post1549995 http://www.elitetrader.com/vb/showthread.php?s=&postid=1520312#post1520312 - Throughout this thread I post, starting I think on page four, and I talk about how I tradfe off of price a little, giving examples with real life trades.
This isn't just price. This is order book and volume analysis with support and resistance thrown in. Your method is also scalping. The ideas are fine but again there's a lot of assumptions going on there, especially of who the size is and what it means. At times you assume that the size is necessarily smaller than the total of the rest of the opposite side which is not always true. It could be another trader with same clip size, a dummy bid/offer set for flipping etc etc. New size can come in at any point too don't forget or on a larger scale, news could wipe out any of your order book plays instantly. Trust me, I've seen big size working on over five prices taken out in seconds. Again, the scalping method is for short plays which is generally fine if that's your style but your order book analysis is by no means price predictive. abc1
Of course there is more but I picked one example to reflect my point. Also, your suggestion of trading discounts and premiums assumes a reversion to fair value. This does not necessarily happen. Spreads can blow out too; sometimes quite massively. BTW even if you are in a spread it will naturally have some direction to it. abc1
Reversion doesn't have to happen every time for this to be a predictor of price. The truth is that reversion happens most of the time in certain plays. I know guys making > 6 figs, year in and year out just playing reversions. I also made a living for 4 years on reversions on NYSE, but Reg NMS killed it. This thread is about you not being "convinced" of price prediction. What would it take for you to be convinced?
Exactly; reversion can work. However, this is a trading technique using certain assumptions based on underlying data. Also, it can and does blow out and when it does... To be convinced of price prediction I would like to see some evidence. Past examples are fine. Not looking for other peoples current money making ideas; just discussion on the theory. abc1
We inderstand your OVERANALYSING very well! No offence...but you seem to be a High Analytical. You seem to lack Common Sense (which in itself is an oxymoron because very few seem to have it therefore the saying "common sense is not so commom") To succeed in trading you must make money consistently. The more money one makes and the more consistently the more successful they are. Obviously there are specific things that a successfull trader does that 99% of the others do not do. This is called a skill! A learned skill that the others have not aquired. If the 1% are consistenly taking money away from the 99% how in the world is that considered CHANCE? lol! In ever profession there are the 1% 'ers and the 99% 'ers. Stop focusing on what the 99%'ers are doing with their life and start asking yourself what are the 1%'ers doing that works so consistently. "Either you think you can or you think you can't...either way you are right" HENRY FORD. Either you think trading success is chance or you think it's a skill....EITHER WAY YOU ARE RIGHT...YOU GET MORE OF WHAT YOU FOCUS ON. Hope this ends your confusion! LOL.
indexes will revert to fair value due to arbitrage on the floor and program buying and selling. Paper will come into the pits when the indexes do not reflect fair value, and buy or sell the futures against the underlying stocks. It will always revert to fair value unless institutions and the like all stop trading... seems unlikely to me. When the setups appear they are extremely low risk, they just have to be large enough to profit from with the slippage involved in placing the trades.