Price, (Volume), Support, Resistance, Demand, Supply . . .

[dbphoenix]

mmm, but you can't trade the past can you One way or another we're all using the past to try and guess the future - even if the past for some is only seconds old.

Why not trade the present?

 

[theknifemac]

One question:

For an Index Future like ES, price will follow the S&P500 Index.
How so then if it affected by Supply and Demand?
Would not Supply and Demand adjust according to SPX?
If SPX gaps up, ES would have to gap up regarding of Supply present?

Supply / demand would become present for the index and the future so that they move back towards their normal relationship whenever one of them has moved 'out of line'. So you might see people buying the futures and selling the stock if the futures are cheap. Vice versa for when the futures are expensive. During normal trading, the futures have a tendency to lead the index as the futures are more liquid.

Stew

 

[kevin546]

Why not trade the present?

Could you give an example of what you mean and how you would apply it from price bars etc.

Kevin

 

[dbphoenix]

Could you give an example of what you mean and how you would apply it from price bars etc.

Using barjon's example, given two price bars that are adjacent and that are of some length to be defined and that close at the same price which is also the high for each bar, and given that the volume for the second bar is lower than that for the first bar, what is the probability that the next bar will be higher or lower than one or the other of the two bars (again to be defined)?

 

[nicos]

Hi again dbp

People seem to shy away from answering this kind of questions. I wonder what will happen! In the meantime, I'd like to quote you bearing in mind that the per-bar volume was the same on both occasions.Also ask you what you mean by "next bar will be higher". Do you mean close higher? have higher high (and higher low)?

Perhaps selling pressure is lessening, making it possible for buyers to advance price with less effort. Or perhaps there are regiments of sellers waiting to disembowel buyers if they step over the line represented by the high of the second bar. There's no way of knowing. There is no cosmic "meaning" in a given volume bar or price bar or volume/price bar pair. Or even cluster. Both represent continuums, and how we choose to chop up those continuums is a structure that is a product of our imaginations, not of any particular market basic.

Surely two bars are not enough to make this decision. It will be useful to know the stage in the accu.. markup.. distr.. markdown cycle. If we go to the lower time-frame then we'll see that the second bar achieved its close on lower volume. On this information we can say that the lower volume denotes an unsustainable rally(?). The next bar is very likely to open higher exceed the resistance a little and then plumet...

I did read demand/supply.. honest! Incidentally, the word "pressure" is only mentioned once.. -in the last page I believe. Will it be mentioned more in a subsequent version when we all become more advanced cum intuitive?

regards

Nicos

 

[dbphoenix]

Hi again dbp

People seem to shy away from answering this kind of questions. I wonder what will happen! In the meantime, I'd like to quote you bearing in mind that the per-bar volume was the same on both occasions.Also ask you what you mean by "next bar will be higher". Do you mean close higher? have higher high (and higher low)?

Any or all of the above. You'd have to ask barjon what he had in mind.

 

[nicos]

dbp,
with respect, you chose that example as a reply to kevin's question. You did not give him an example per se. Instead you asked him a question which I, rightly so far, guessed it may not be answered. Perhaps I should wait for Kevin's answer, as after all he was the askee. Then I'll see your response, as you obviously don't want to respond to me! Fair enough.

 

[barjon]

nicos

I wasn't suggesting that one bar followed another. I was just trying to depict that one day's price and volume bars could look very similar to another day's, notwithstanding that the way each daysworth of volume was built up might be very different. In the example I used it was the volume relating to the final highs that was significantly different, not the day's volume overall.

dpb has posed something different with two price bars of similar length, both closing on the highs and at the same price, but with the volume for the second bar lower than the first. (btw dpb you're already two bars in the past and using them to guess the future one

jon

 

[dbphoenix]

dbp,
with respect, you chose that example as a reply to kevin's question. You did not give him an example per se. Instead you asked him a question which I, rightly so far, guessed it may not be answered. Perhaps I should wait for Kevin's answer, as after all he was the askee. Then I'll see your response, as you obviously don't want to respond to me! Fair enough.

I chose that example because that was the example provided. There are several ways one could define "higher", all of which could be -- and probably should be -- tested. Therefore, what matters is not just the defining, but the testing.

 

[dbphoenix]

nicos

I wasn't suggesting that one bar followed another. I was just trying to depict that one day's price and volume bars could look very similar to another day's, notwithstanding that the way each daysworth of volume was built up might be very different. In the example I used it was the volume relating to the final highs that was significantly different, not the day's volume overall.

dpb has posed something different with two price bars of similar length, both closing on the highs and at the same price, but with the volume for the second bar lower than the first. (btw dpb you're already two bars in the past and using them to guess the future one

jon

I'm not trying to guess anything. I provided what I understood to be your setup. If you had no setup in mind, then I'll go back to what I said in posts 254 and 256 [now 194 and 196].

 

[barjon]

Not so much a set up as a focus. After the first type of day (the highs at or near the close on high volume one - which might almost be described as finishing on a buying climax) I'm wary of longs early on the next day and happier to be short. With the second type, pretty keen to be long and wary of shorts. Neither day, as I've described them, seem to occur frequently.

 

[kevin546]

Dbp

Thank you for your reply, this thread is very refreshing. Do you make use of volume or just rely on price itself. Your comment concerning trading the present , could you expand on this please.

My knowledge in this field is rather limited. I do not use volume partly because you cannot rely on what is a sell and a buy and the manner in which some trades are entered into the market IMHO.

I try to apply price acceptance and minus development from the price bars and rely on pivots from price.

Kevin

 

[dbphoenix]

Dbp

Thank you for your reply, this thread is very refreshing. Do you make use of volume or just rely on price itself. Your comment concerning trading the present , could you expand on this please.

My knowledge in this field is rather limited. I do not use volume partly because you cannot rely on what is a sell and a buy and the manner in which some trades are entered into the market IMHO.

I try to apply price acceptance and minus development from the price bars and rely on pivots from price.

Kevin

I use both price and volume. All trades are both sells and buys, so I focus on imbalances between buying pressure and selling pressure.

Trading in the present requires defining one's setups and trading those setups after having tested them to determine the probabilities of one outcome occurring over another. It doesn't involve guessing as to what's going to happen at some point in the future.

 

[kevin546]

dbp

Now I can relate to that, otherwise know as a trading plan or strategy, testing all aspects of your trading, knowing what you must do to protect your capital and entering on the balance of probabilities from the study you have undertaken of this system and your ability to apply it throughout.

Kevin

 

[Remiraz]

Supply / demand would become present for the index and the future so that they move back towards their normal relationship whenever one of them has moved 'out of line'. So you might see people buying the futures and selling the stock if the futures are cheap. Vice versa for when the futures are expensive. During normal trading, the futures have a tendency to lead the index as the futures are more liquid.

Stew

ES = Emini S&P500 Index Futures
SPX = S&P500 Stock Index

The answer I got on ET was Supply/Demand only affects arb-ing the ES vs SPX.
Since ES is pegged to SPX, wouldn't that makes all supply and demand analysis on ES useless?

Say you sell 10,000 contracts of ES while SPX is making new highs.
Supply overwhelm demand and the ES plunge.
But as SPX makes new highs...the ES will follow no matter how much u try to sell it down, the arb-ers will pounce on the divergence.
So no matter how much supply or demand there is in ES, it still follows SPX.

No??

If this is true, what are support and resistance levels on ES? Should I be doing TA on the SPX instead since supply/demand on the ES doesn't dictate where the SPX is heading?

 

[dbphoenix]

If something rises "no matter how much you try to sell it down", then there is greater buying pressure than selling pressure. What happens in something else does not necessarily affect the tactic.

 

[Remiraz]

If something rises "no matter how much you try to sell it down", then there is greater buying pressure than selling pressure. What happens in something else does not necessarily affect the tactic.

Yes I see...

1) SPX shoots thru the roof (making new highs).

2) You sell down ES with 10,000 contracts.

3) ES goes back up to SPX's level after initial spike down due to your selling.

Analysis : Greater buying pressure in ES due to where SPX is. (Arb-ers forms the majority of the buyers maybe?)

But then wouldn't supply/demand be a lagging indicator to SPX?

1) SPX goes up.

2) ES buying pressure increase due to SPX going up.

3) ES goes up.

Analysis : Changes in the SPX shift buying/selling pressure in ES. Buying/Selling pressure in ES however, do not affect the SPX.

Right?

 

[dbphoenix]

Analysis : Changes in the SPX shift buying/selling pressure in ES. Buying/Selling pressure in ES however, do not affect the SPX.

Right?

As far as this thread goes, it doesn't matter. If whatever you're trading goes up, then there's an imbalance between buying pressure and selling pressure. This does not mean that you can't use something else -- or several something elses -- to confirm or not whatever it is you think you see.

However, this gets into setups and testing and strategy, which is best placed in your own thread, particularly since you seem to be viewing all of this within the context of scalping for ticks, and the bulk of what is here doesn't apply to that, or at least is not intended to.

 

[JumpOff]

I got the low down, no good, can't understand the derivative blues!

Is volume causative? Please let's get this answered! I have asked these same questions several times in several different threads. Perhaps you (dbp) feel you have answered this already, but if so it has been in a way that is too complex for my poor brain to understand!

Remiraz is asking if the price of the SPX "controls" the price of the ES???

Now this is where it gets all twisted in my head. Isn't the SPX also just an index of the prices of the underlying stocks? The SPX doesn't go up because of buying pressure on a limited number of suppliable 'shares', does it? It goes up because the arbitrary mathematical formula that generates it recognises that the underlying stocks have gone up, right?

Here it is from the horses mouth:

http://www.cboe.com/OptProd/indexopts/spl_spec.asp
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. These are summed for all 500 stocks and divided by a predetermined base value. The base value for the S&P 500 Index is adjusted to reflect changes in capitalization resulting from mergers, acquisitions, stock rights, substitutions, etc.

Arbitration can not be the cause of price movement in a calculated index. Neither can volume. The price is calculated from the underlying stocks! If you are considering volume as a leading indicator, you will look at the aggregate volume of the underlying instruments. Correct?

I am not experienced enough to say what volume 'means' in the underlying markets, but...
Can we at least agree that volume means something different in calculated derivative markets (of unlimited supply) than it does in a market where there are only so many precious shares that can be bought and sold?

JO
P.S. I rate this as the best thread yet on T2W - now we are getting to the stuff I really want to know about!

 

[dbphoenix]

Can we at least agree that volume means something different in calculated derivative markets (of unlimited supply) than it does in a market where there are only so many precious shares that can be bought and sold?

Let's try a different approach:

What difference does it make, at least in terms of practical application to realizing a profit in trading?