How market prices move?

[phenomenon]

Hello,
I am a new member to this forum and to trading as well. I started to google and read about trading like a month ago in order to get to know about it as much as possible. I could find many or some info about indicators and so on, but the problem is that I would like to understand the very basics. Could someone explain me how market prices move? I've read that if there is more buyers than sellers, then prices are rising. It seems very confusing to me as I've also read that the number of buyers and sellers is always equal, it's kind of contradictory. I downloaded Ninjatrader a few days ago and spent some time looking at bid ask last prices trying to figure out how it all works, but I am still unaware. I also opened DOM window to have a look, but I read somewhere that limit orders in DOM have no effect to market prices because it would be too easy to manipulate price just by putting many limit orders on either buy or sell side. I hope, someone can explain me how it all works. I really look forward to your response.

PS: Sorry for my English, hope it's understandable.

 

[bbmac]

Using a simple analogy:

Let's say you put your house up for sale at $500k and after a few weeks you do not sell it because it is a soft market and there is an over supply of houses in your locality at $500k or even better houses cheaper than you are asking. - What this means is that at this price there are no buyers ie supply outstrips demand at thisa price level...so you lower the price to say $450k and you receive 1 offer - so at that price a buyer is willing to transact at the new lower price - the new price for that asset therefore is $450k - ie the asset found a level at which there were buyers and that became the new porice of the asset.

On the flip side in a better market let's say you put your house up for sale at the same price $500k and there are a number of interested buyers and they bid for the house one bidding $520k and another $530k - so at this $500k price in this market demand outsrips supply and the buyers bid the price up. You transact at the highest price $530k and this becomes the new price of the asset.

This is a very simplistic analogy but it is basically how prices in any market moves - price is a function of the underlying demand for and supply of an asset.

G/L

 

[phenomenon]

to bbmac:

Thank you for your answer,
so basically, it works as I stated before, demand > supply => increasing prices ... demand < supply => decreasing prices, it sounds logical. I tried to simulate the situation looking at DOM in Ninjatrader, I placed a huge amount of contracts on buy side, so contracts on buy side were exceeding contracts on sell side, but prices didn't increase at all. Do you know to tell me why it didn't work?

Regards,
Peter

 

[Shakone]

phenom, sim is just a replay of the real data, (or in some cases it is just made up data). So it records the data and plays it back to you. It sounds like you're asking why when you place a load of orders on sim mode in which you are watching a replay of recorded data, that you could somehow move price. Of course this is obviously not going to happen.

 

[phenomenon]

Yes, that's what I was asking for. I thought it plays made up data and I also thought that algorithm is "clever" so I can simulate a real situation. But, does it really work like that, if I was trading live and placed loads of contracts on buy side, would I affect the price? If so, isn't it easy to manipulate market price? Can big players come and buy loads of contacts in order to increase price and then sell with profit? I think, it would be too easy game for big players if it worked like that.

 

[Shakone]

Yes, that's what I was asking for. I thought it plays made up data and I also thought that algorithm is "clever" so I can simulate a real situation. But, does it really work like that, if I was trading live and placed loads of contracts on buy side, would I affect the price? If so, isn't it easy to manipulate market price? Can big players come and buy loads of contacts in order to increase price and then sell with profit? I think, it would be too easy game for big players if it worked like that.

No it is not that 'clever' and I don't think you would want it to be, as it would give a false reflection of the market anyway.

If you bought up all the sell orders through several levels of the dom on the ask, then yes you could move the price, for a little while at least. But it takes a lot of money to do that. Do check the margin requirements for 1 contract, and then take a look at something like the E-Mini.

I am sure that manipulation goes on by people with deep pockets.

 

[phenomenon]

Hello Shakone,
I was just wondering if something like that is possible or can happen. Thanks for the reply.

 

[noni]

I think every person who are beginner in market,want to know the answer of this question. I am also new in market and i have plan to start my business in trading. I was finding like this info, i have read previous posts and collect few tips.

 

[BeginnerJoe]

i have plan to start my business in trading.

Why you start business in trading ? Is it because trading is like using the ATM where you enter the correct PIN and money comes out ?

 

[NVP]

Markets move

UP
DOWN
SIDEWAYS

buy in the ups , sell on the downs , and dont trade in the sideways:smart:

why they move ?......you can spend decades on the subject , but in the end just do what the market tells you on the chart you are trading, and dont worry to much about the detail unless you want to teach or be a market commentator

if we get any more "Expert Market commentaries" on this damn T2W Forum I will scream and scream until i'm sick

N