searching for holy-grail.. is this theory true?

[DionysusToast]

Back on page 2 when DT said it's consumption of liquidity that moves price, I asked if it was only that, and furthermore, what liquidity was consumed over the weekend where price moved significantly over such a weekend, and he still hasn't answered.

Aaah - a gauntlet, I missed that.

Prices don't move over the weekend, markets are closed. How much supply & demand was there over the weekend when the markets were closed?

The open price is set by a computer program based on the orders submitted prior to the open. So the computer program is looking at the liquidity picture, the imbalance and choosing an open price.

 

[DionysusToast]

Fair enough, although I think he may mean that liquidity being removed
can have similar effects to liquidity consumption at certain times.
Only he can answer that.

Liquidity is always being removed. Either because it never intended to trade or because of a change of heart.

What remains must be consumed before price moves. Of course, all liquidity can be pulled but you still need a market order following that for price to follow.

In fact, let's face it. There is no price in the market anyway. There's always 2 prices at any one time.

 

[DionysusToast]

This comment reminded me of the days when Grey1 was around and ran his Technical Trader forum. I know DT was a member for a while and perhaps he will help me out here if I don't get this quite right. Broadly speaking, Grey1 used to advise members to assess whether or not prices are moving for technical reasons or for fundamental reasons (i.e. driven by news).

So, in cablemonster's scenario quoted, if the price move coincided with a terrorist attack on a pipeline or major oil installation, then some traders might (note emphasis please!) conclude that physical supply is indeed affected and that the subsequent price rise is for purely fundamental reasons. On an 'ordinary' day, i.e. there's no evidence to suggest any major changes to the physical supply or demand, then the trader might conclude that the subsequent price rise is for purely technical reasons. And by 'technical', I mean market participants speculating according to who knows what - phases of the moon, tea leaves or a breach of a resistance level or a 200 day moving average etc. As I think most of us are aware, DT lumps the whole lot together under the umbrella term 'casino'.

Those able to make the distinction as to whether prices are moving for technical or fundamental reasons are then able to adjust their game plan accordingly. A useful trick if you're able to pull it off on a consistent basis. Personally, I've never been any good at it. So, my solution is to ignore the whole lot and just try and figure out the prevailing sentiment on the day and then 'go with the flow'.
Tim.

You always have to have an idea on what sort of day it is in order to day trade.

So I agree with the techincal/fundamental drivers. I just differ in that I think they are doing nothing but drive people to speculate on what other traders will do later on.

 

[DionysusToast]

I still can't decide who are the buyers and who are the sellers. All I "know" is that if they want to trade, they are either on the book for a certain time frame or not, but if their trade is completed, they ARE part of the volume. Looking at each trade event can help one figure out the direction that price should take to satisfy the most trade placers immediate and near future. One can then look at the actual price movement and then decide the amount of resistance the market is giving to the movement of price in either direction. Surely bid and ask, being the only way to enter the market providing liquidity, will in the long run give the answer as to market sentiment compared to current price even if the price of cheese in Antartica reaches the same price as peas in Idaho?

Cheers

Well - easiest way to look at it. Everyone that went long is a seller and everyone that went short is a buyer.

Quite often, you will see a cluster of buyers and sellers at over a range of prices. As you move up, the sellers will be washed out. As you come back to that range of prices, you are in a situation where the people that brought at that point will have a vested interest in it not breaking. They may defend. If it goes through them, they will exit and price will accelerate.

This is speculation.

 

[DionysusToast]

Not really, it is a contract to take or deliver the underlying upon expiry of the contract if it is physical, which is in the future. I suppose you could argue that if someone is buying today they are betting that the future price will be higher. But if you are taking delivery, you are paying today's price.

Whilst this might be why those markets were created, it is not what the vast majority of trading is about.

Hence all that activity at rollover times. Hence Goldman Sachs recently having to pay off a bunch of traders so that they DIDN'T have to deliver on Gold contracts they were counterparty to. They were speculating, they got called, didn't have the gold and had to arrange a settlement.

 

[Liquid validity]

Liquidity is always being removed. Either because it never intended to trade or because of a change of heart.

What remains must be consumed before price moves. Of course, all liquidity can be pulled but you still need a market order following that for price to follow.

In fact, let's face it. There is no price in the market anyway. There's always 2 prices at any one time.

Yes true.
I was mainly referring to market makers deliberately removing
liquidity at certain times that suit them, I should have made that clear.

Obviously on a per order basis its pulled all the time,
those quote traffic charts I posted show the way that quote traffic has increased.

 

[DionysusToast]

Yes true.
I was mainly referring to market makers deliberately removing
liquidity at certain times that suit them, I should have made that clear.

Obviously on a per order basis its pulled all the time,
those quote traffic charts I posted show the way that quote traffic has increased.

Yeah - HFTs too - all this nonsense about them "providing liquidity" and providing a service to the market...

First sniff of trouble and they all bloody hide! Great service, eh?

Last time the Vix poked above 20 in June, we lost roughly 60% of the liquidity on the ES and people were telling me it was the same in their markets too.

 

[Liquid validity]

Yeah - HFTs too - all this nonsense about them "providing liquidity" and providing a service to the market...

First sniff of trouble and they all bloody hide! Great service, eh?

Last time the Vix poked above 20 in June, we lost roughly 60% of the liquidity on the ES and people were telling me it was the same in their markets too.

Completely agree.
I don't know who it is or if its still the case,
but apparently, there is a pro HFT professor (consultative papers to SEC and policy makers)
who also sits on the board of directors at one of the main exchanges:
RT Leuchtkafer Bibliography of HFT Studies
http://www.trade2win.com/boards/forex/178568-searching-holy-grail-theory-true-18.html#post2181486
Couldn't make it up

Ditch FIFO and go the randomised batch processing route,
no one else would notice except the HFT firms.
Obviously MM's should be exempt, but the curbs on their
own aggressive trading should be put back in place.
Will that happen anytime soon...
Still, it can be dealt with, even if it makes life a little tricky at times.

 

[Shakone]

Aaah - a gauntlet, I missed that.

Prices don't move over the weekend, markets are closed. How much supply & demand was there over the weekend when the markets were closed?

The open price is set by a computer program based on the orders submitted prior to the open. So the computer program is looking at the liquidity picture, the imbalance and choosing an open price.

Right a computer at the exchange takes in orders, and even though no liquidity is consumed, price is moved/determined based on the prices and quantities people are willing and able to trade on. The prices and quantities people are willing to trade on for products is connected with a certain concept of economics called...?

 

[random12345]

Right a computer at the exchange takes in orders, and even though no liquidity is consumed, price is moved/determined based on the prices and quantities people are willing and able to trade on. The prices and quantities people are willing to trade on for products is connected with a certain concept of economics called...?

v1=rand() % 2000;?

Ho ho ho, little programming joke for you all there.




Sorry.

 

[DionysusToast]

Right a computer at the exchange takes in orders, and even though no liquidity is consumed, price is moved/determined based on the prices and quantities people are willing and able to trade on. The prices and quantities people are willing to trade on for products is connected with a certain concept of economics called...?

Actually, the process is something known as netting

 

[cablemonster]

only in an internet trading room can you have a discussion about trading when the market is shut. Last time I traded when the market was closed I finished break even.

 

[Shakone]

only in an internet trading room can you have a discussion about trading when the market is shut. Last time I traded when the market was closed I finished break even.

Well if bombs drop on Syria over the weekend there might be even more talk about oil prices and other nonsense.

 

[Joules MM1]

Well if bombs drop on Syria over the weekend there might be even more talk about oil prices and other nonsense.

idea: top moment to fade a blow-off... you know you want to....

 

[counter_violent]

OK, so hopefully wer'e all agreed now that supply/demand has got fook all to do with prices moving up n down.

Prices are speculated up and down by varying degrees of extension until they find equilibrium points, then the speculation cycle starts again.

 

[new_trader]

Everyone except me. I say supply and demand has got everything to do with prices moving up and down.

 

[rsh01]

OK, so hopefully wer'e all agreed now that supply/demand has got fook all to do with prices moving up n down.

Prices are speculated up and down by varying degrees of extension until they find equilibrium points, then the speculation cycle starts again.

disagree as per prev post....

if there is 50 on the offer & same on the offer of the price (tick/pip/whatever) above, & you pay market for 100, what happens to price? goes up cos of greater demand than supply?

that is supply & demand in operation. always the same, regardless the market.the orig post was not about the macros of the paper vs physical futures markets.

 

[Shakone]

OK, so hopefully wer'e all agreed now that supply/demand has got fook all to do with prices moving up n down.

Prices are speculated up and down by varying degrees of extension until they find equilibrium points, then the speculation cycle starts again.

Classic forum words in bold :cheesy: You've got two hopes of that CV as I'm sure you know.

Anyway, I've changed my mind. Price is prevented from moving by the price viscosity, and to move price traders drink the viscosity (also known as 'thinning' we need to invent lots of new terms for centuries old things you see - because education is unnecessary). It doesn't reach an equilibrium, it reaches a temporal stasis, and traders financially conjecture rather than speculate.

 

[rsh01]

Actually, the process is something known as netting

re Eurex pre-opening period (where netting occurs):
"The opening period consists of several steps taken to uncross the order books and to start the continuous trading phase. Uncrossing is performed through an auction process during which matchable orders are executed, thereby creating an opening price for those contracts where a "crossed book" situation exists at the time of netting. It is not necessary, however, to actually determine opening prices for every product. The pre-opening period is characterized by the availability of potential opening prices, allowing traders to assess supply and demand."

Eurex - Trading phases

 

[wackypete2]

re Eurex pre-opening period (where netting occurs):
"The opening period consists of several steps taken to uncross the order books and to start the continuous trading phase. Uncrossing is performed through an auction process during which matchable orders are executed, thereby creating an opening price for those contracts where a "crossed book" situation exists at the time of netting. It is not necessary, however, to actually determine opening prices for every product. The pre-opening period is characterized by the availability of potential opening prices, allowing traders to assess supply and demand."

Eurex - Trading phases

Why would traders want to do that when supply/demand has got fook all to do with prices moving up n down?? I'm confused.

Peter