Price

[Kinger]

I have a questions that’s been rattling my brain for weeks and I've been trying to find the answer.

What makes the price go up and down ?

I understand for every buyer there is a seller, but in supply and demand what/who pushes up the price when a seller is selling for the buyer to buy.
And in the same scenario, what pushes the price down when a seller is selling for the buyer to buy ….

Don't understand what I'm missing ..

Is it all electronic ? I presume it is because the of the speed it changes, but what drives it to go up and down ?

 

[PitBull]

Demand and supply

Just think of an ice cream stall on a hot sunny day. Lots of demand. Say the stall only has a few ice creams left, the people who want an ice cream may be willing to pay a higher price than the next customer, so on and so forth, so price is pushed up.

Say its not a sunny day, the ice cream stall will need to lower his prices to attract demand, so on and so forth.

Simplest way I could explain it.

If someone wants shares bad they are willing to pay a higher price if they want to sell them badly they lower their price.

It's down to the motivation of the buyers/sellers, equilibrium is when demand equals supply and the opposite is disequilibrium.

Hope this clarifies.

 

[new_trader]

I have a questions that’s been rattling my brain for weeks and I've been trying to find the answer.

What makes the price go up and down ?

I understand for every buyer there is a seller, but in supply and demand what/who pushes up the price when a seller is selling for the buyer to buy.
And in the same scenario, what pushes the price down when a seller is selling for the buyer to buy ….

Don't understand what I'm missing ..

Is it all electronic ? I presume it is because the of the speed it changes, but what drives it to go up and down ?

It is much more complicated than supply and demand because there is the element of price manipulation. I was as baffled as you were as to why at certain prices a transaction takes place and 2 books which closed the gap in my understanding were:

1) Tape Reading & Market Tactics (Paperback)
by Humphrey, B Neill (Author)

2) Studies in Tape Reading (Paperback)
by Richard D. Wyckoff

 

[Kinger]

Am I right in think then in a bear market, the sellers are trying to sell with no buyers, so the price keeps dropping until someone buys them.

So in the case of the 27th Feb 2007, the markets dropped, the sellers wanted to sell off what they had quickly, so undercutting the previous trade price until all they had were sold. So even though buyers were buying, the sellers were still dropping prices ??

Just trying to get my head around the psychology part of proce movements … I read somewhere unless you understand this … you have no chance.

 

[Slapshot]

Some good advice posted here.

Be aware that the professionals/market makers call them what you will can mark prices up/down temporarily to catch stops and lead you into a false position and/or force you to cover an already good position. The professionals/market makers can see both sides of the market, they know where the stops are and will take advantage of this knowledge.

 

[AsifA]

Am I right in think then in a bear market, the sellers are trying to sell with no buyers, so the price keeps dropping until someone buys them.

So in the case of the 27th Feb 2007, the markets dropped, the sellers wanted to sell off what they had quickly, so undercutting the previous trade price until all they had were sold. So even though buyers were buying, the sellers were still dropping prices ??

Just trying to get my head around the psychology part of proce movements … I read somewhere unless you understand this … you have no chance.

no no no. when the price is coming down the MM are accumulating stock from trapped positions and stop losses. When the market is going up the MM are distributing stock. Think about it - there is fixed, semi fixed and floating stock. The latter is about 5% of the total. that is what gets traded. The whole thing revolves around price movement. If the MM cant move price then there is no money to be made. Thus when they take market up, they have bought stock at a lower price from the previous downturn and are now selling it to you at a higher price. They will then take the market down with a view to you having bought it at a higher price and sold at a lower one. Its true and its a funny old game

 

[blackcab]

This might help - there are probably better descriptions of auction markets out there somewhere (if you find any, post the links here)

http://www.lind-waldock.com/edu/newsletter/502/abcart01.shtml

 

[Charlton]

Am I right in think then in a bear market, the sellers are trying to sell with no buyers, so the price keeps dropping until someone buys them.

So in the case of the 27th Feb 2007, the markets dropped, the sellers wanted to sell off what they had quickly, so undercutting the previous trade price until all they had were sold. So even though buyers were buying, the sellers were still dropping prices ??

Just trying to get my head around the psychology part of proce movements … I read somewhere unless you understand this … you have no chance.

Kinger

Prices are arrived at by mutual consent, but not necessarily equality, between buyer and seller. Orders are placed at levels which indicate the intentions of the buyers and sellers. These levels are determined based on a number of criteria including:
(a) Expectations - does the buyer expect the price to increase or decrease. If one party expects price to increase they may be willing to pay slightly more in order to acquire the instrument.
(b) Intentions - there will be occasions when an organisation needs to acquire large volume of stock e.g. for a takeover. They must acquire this stock without alerting others as far as possible, who would clearly increase the price at which they are willing to sell if they know about the intention. There are ways in which professionals can try to conceal these intentions to avoid prices going against them.
(c) Skill, experience and available information - there may be big differences between these attributes for 2 sides of a transaction. These differences will also lead to differences in expectations or a lack of awareness of the other party's intentions
(d) Other opportunities - one party may have other opportunities for investment or speculation for which they need the funds. For example a shareholder may wish to dispose of significant volumes of shares in order to liquidate assets for other purposes and, if they need the cash immediately, they may be willing to sell at market rather than wait for a limit price to be reached
(e) Emotion - less experienced traders may become trapped in their positions e.g. if there is a price drop they may not have had time to sell at a reasonable price level. They may hang on but will eventually panic and sell at a much lower price than intended. Alternatively even if prices turn and start to rise they may still sell at a lower price than intended to avoid a repeat of the pain just suffered. Equally a potential buyer who missed out at the beginning of a trend may jump in because they don't wish to miss the boat.

It's not that dissimilar to other markets e.g. fashion. There is no fixed value for an item of clothing. It's production cost may be very low and may not be that dissimilar between a supermarket garment and one from a fashionable shop. The branding and label make the difference. This branding difference is determined by what people think of it - is it trendy ? what are their intentions ? - I really must buy one of this latest gadget so I look cool ! I'm not paying that much for that gadget - it's out of fashion now ! It's the perception that counts

Charlton

 

[AsifA]

Kinger

Prices are arrived at by mutual consent, but not necessarily equality, between buyer and seller. Orders are placed at levels which indicate the intentions of the buyers and sellers. These levels are determined based on a number of criteria including:
(a) Expectations - does the buyer expect the price to increase or decrease. If one party expects price to increase they may be willing to pay slightly more in order to acquire the instrument...............

Totally disagree with that Charlton. Its a worthy explaination but its not what happens in reality. If I know what you bought something at, and I have the ability to influence the price, then you can bet I'm going to bring it down, below your purchase price to a level that you cant tolerate and force you to sell at a loss. That s not much to do with basic demand and supply theory.

 

[new_trader]

This might help - there are probably better descriptions of auction markets out there somewhere (if you find any, post the links here)

http://www.lind-waldock.com/edu/newsletter/502/abcart01.shtml

This is a very good article and IMO, the only way to trade is to look at the numbers. Once you abandon charts & indicators you will wonder how you ever traded successfully with them.

 

[Charlton]

Kinger

Prices are arrived at by mutual consent, but not necessarily equality, between buyer and seller. Orders are placed at levels which indicate the intentions of the buyers and sellers. These levels are determined based on a number of criteria including:
(a) Expectations - does the buyer expect the price to increase or decrease. If one party expects price to increase they may be willing to pay slightly more in order to acquire the instrument...............

Totally disagree with that Charlton. Its a worthy explaination but its not what happens in reality. If I know what you bought something at, and I have the ability to influence the price, then you can bet I'm going to bring it down, below your purchase price to a level that you cant tolerate and force you to sell at a loss. That s not much to do with basic demand and supply theory.

Asifa

Read the words carefully. There is mutual consent otherwise a transaction could not have taken place. Once you have accepted the painfully low price (from your point of view) you have consented to it. Note that I added NOT EQUALITY. There is no equality of strength in the example you gave. I was the weaker player and had to consent to your price. You were the stronger player in this example.

You are correct - this is NOT basic demand and supply theory. It is a case of stronger versus weaker hands for some of the reasons I gave in (a) to (e)

Charlton

 

[AsifA]

Asifa

Read the words carefully. There is mutual consent otherwise a transaction could not have taken place. Once you have accepted the painfully low price (from your point of view) you have consented to it. Note that I added NOT EQUALITY. There is no equality of strength in the example you gave. I was the weaker player and had to consent to your price. You were the stronger player in this example.

You are correct - this is NOT basic demand and supply theory. It is a case of stronger versus weaker hands for some of the reasons I gave in (a) to (e)

Charlton

What I was trying to get at is that its entrapment. When the market is going up for example - you buy ? correct ? whose doing the selling ? why would anyone be selling in a bullish market ? Somebody has to be selling if there is as I said only a small percentage of floating stock. It has very little to do with strength and weakness other than by way of passing comment. Mutual consent is on the false and naive premise of ceterus parabus in the market. The reality is mis -information and more importantly market manipulation.

 

[andycan]

What I was trying to get at is that its entrapment. When the market is going up for example - you buy ? correct ? whose doing the selling ? why would anyone be selling in a bullish market ? Somebody has to be selling if there is as I said only a small percentage of floating stock. It has very little to do with strength and weakness other than by way of passing comment. Mutual consent is on the false and naive premise of ceterus parabus in the market. The reality is mis -information and more importantly market manipulation.

you need to get the interpretation correct
pros sell into a bullish market because they accumulated whilst everyone was diving for cover as the market begins to move up
there is natural profit taking which allow the players to buy and slowly ride the move up, this in turn attracts the general traders to start to buy
the pros are now in control and dominate where its going.
dont be fooled it has everything to do with strength and weakness but not how you are thinking it.
the pros create the market create the incentive, dress the charts to allow you to see what they want you to see they dont always get what you would consider a pattern but there is more than one way to skin a cat

 

[AsifA]

you need to get the interpretation correct
pros sell into a bullish market because they accumulated whilst everyone was diving for cover as the market begins to move up
there is natural profit taking which allow the players to buy and slowly ride the move up, this in turn attracts the general traders to start to buy
the pros are now in control and dominate where its going.
dont be fooled it has everything to do with strength and weakness but not how you are thinking it.
the pros create the market create the incentive, dress the charts to allow you to see what they want you to see they dont always get what you would consider a pattern but there is more than one way to skin a cat

but thats exactly what I am saying, perhaps as not as succintly or as in depth as I would like to. The whole thing hinges.on entrapment - for you to have taken a position ( price) on the basis of information ie the market is bullish - intent - buy low - sell high. yes it has a measure to do with strength and weakness, but if you have strength, the motive behind the use of it is important. It is imperative that anyone investing understands the flow of stock as it changes hands. The market and price testing that goes on as markets are taken up and down.

 

[andycan]

but thats exactly what I am saying, perhaps as not as succintly or as in depth as I would like to. The whole thing hinges.on entrapment - for you to have taken a position ( price) on the basis of information ie the market is bullish - intent - buy low - sell high. yes it has a measure to do with strength and weakness, but if you have strength, the motive behind the use of it is important. It is imperative that anyone investing understands the flow of stock as it changes hands. The market and price testing that goes on as markets are taken up and down.

i was merely pointing out a reality that sometimes is misinterpreted
it wasn't meant as a correction to your statement,

 

[new_trader]

i was merely pointing out a reality that sometimes is misinterpreted
it wasn't meant as a correction to your statement,

So I suppose it's more of case of trying to determine whether the demand/supply is real or artificial. If you understand what you are looking for it makes no difference either way.

 

[andycan]

So I suppose it's more of case of trying to determine whether the demand/supply is real or artificial. If you understand what you are looking for it makes no difference either way.

there is a hundred different ways to interpret what is going on some will refer to the selling or buying pressure due to the MA crossing over others will refer to some form of indicator being overbought or oversold, others though few, understand the nature of what the roles of the market participants are, and even within this 'congregation of players' there still can be varing interpretation. what one needs to do is undestand the very nature of what a market is and why it is there, stock markets serves one purpose but its portrait to be something completely different because its unspoken then assumptions are made and via these assumptions misinterpretations is what allows the players to be in control
do you see now?

 

[new_trader]

there is a hundred different ways to interpret what is going on some will refer to the selling or buying pressure due to the MA crossing over others will refer to some form of indicator being overbought or oversold, others though few, understand the nature of what the roles of the market participants are, and even within this 'congregation of players' there still can be varing interpretation. what one needs to do is undestand the very nature of what a market is and why it is there, stock markets serves one purpose but its portrait to be something completely different because its unspoken then assumptions are made and via these assumptions misinterpretations is what allows the players to be in control
do you see now?

Depends on what you mean by "do I see"?. Big players can and do manipulate prices, this isn't a myth a misinterpretation or an assumption. They are in control becuase they can and do benefit from information that the public often does not have, or, is received much later. They also have the money to manipulate prices. It has [almost] nothing to do with technical analysis.

 

[andycan]

Depends on what you mean by "do I see"?. Big players can and do manipulate prices, this isn't a myth a misinterpretation or an assumption. They are in control becuase they can and do benefit from information that the public often does not have, or, is received much later. They also have the money to manipulate prices. It has [almost] nothing to do with technical analysis.

now knowing these facts can you capitalize?
do you know when markets will turn? and why
this is what eludes the majority this is what im refering to, we all know the big players move the market but how many truely understand it?
technical analysis is a tool nothing more nothing less its aim is to cash in on the repetitive nature of markets
fundamental analysis aims to explain conviniently why a market has reacted or a reason to react but the intention was always there prior
therefore there is another force that drives markets and that force is the single reason why markets exist

 

[new_trader]

now knowing these facts can you capitalize?
do you know when markets will turn? and why
this is what eludes the majority this is what im refering to, we all know the big players move the market but how many truely understand it?

Although I only think I understand it my main concern is to learn how to recognise and prepare for it. Much like the weather. In doing so, trading becomes much more of an art than a science. Abandoning charts and indicators is the best thing I have done since I began day trading.