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How price moves "in laymens terms"
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How price moves "in laymens terms"

  #1 (permalink)
Just starting out...
Rockville, Maryland, United States
 
Futures Experience: Beginner
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Favorite Futures: forex, EUR/USD...
 
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How price moves "in laymens terms"

Hello all, obviously I'm new to Big Mikes so I would like to attempt to contribute right away. One thing that seems to stand out here is the more than "fair share" of experienced traders. This is my attempt to tap into you guys for all of those who like myself, have never really got a handle on what and how price moves.

Now I know right off the bat that there are those reading this that will say to themselves "oh boy, if this guy hasn't figured that out by now then..." Well, you get the idea, but here's my point; yes, after 3 years you would think that I would "get it" but I am now willing to admit that I do not. I actually have no problem with spread, slippage(non-manipulative that is), and so on... What I still don't understand is how in plain simple terms the different ways in which price can be moved.

I see posts by newbies all of the time screaming about different ways in which they've been screwed by their brokers or something similar so if we get some good feedback to this, maybe it will help them to see the light. Except on two occasions, I personally have never had reason to question my brokers. For example; I may be wrong on this but there have been a couple of times during some very key news announcements that my platform has frozen. I didn't blame them simply because if you put yourself in their shoes, they might have to or else... But that's my point, I still do not fully understand the how and why of it.

In an attempt to keep this short(oops, too late) I'll try to give a couple of examples here to give a better idea of what I'm talking about.

1. The most basic: As far as I understand, when someone, anyone, places say a buy order, someone else must be selling. Or; if you sell, someone else must be buying. So in this zero sum game, how is price moving at all?

2. This has only happened twice to me but... You're in a trade that is going your way, the setup was just about as perfect as they come and I mean YOU KNOW where this bad boy going. You're up say 50 - 70 pips and go ahead and move your stop to around 27-28 pips behind. About a minute or so after doing that, you blink your eye; let me repeat that, you blink your eye, and there is a spike that takes out your stop. What are the possible ways in which that can be done? Again; still not blaming my broker.

I'll go ahead and leave it at that for now. I'm guessing that this should be enough information to show what I'm looking for. Again; I realize that I am laying my ignorance on the table here but from the thousands of threads I have read, I am far from being alone.

Thank you much, and happy Thanksgiving!

missca


Last edited by Big Mike; November 25th, 2010 at 07:25 AM. Reason: moved to forex
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  #2 (permalink)
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  #3 (permalink)
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missca View Post
Hello all




missca View Post
1. The most basic: As far as I understand, when someone, anyone, places say a buy order, someone else must be selling. Or; if you sell, someone else must be buying. So in this zero sum game, how is price moving at all?

I have in my possession a pair of shoes you want to buy. I list them for sale at $10.00, you agree and buy them at $10.00.

I have another pair of shoes I am willing to sell at $11.00. You are willing to pay $11.00 for these, so it works out.

Price just moved from 10.00 to 11.00.


missca View Post
2. This has only happened twice to me but... You're in a trade that is going your way, the setup was just about as perfect as they come and I mean YOU KNOW where this bad boy going. You're up say 50 - 70 pips and go ahead and move your stop to around 27-28 pips behind. About a minute or so after doing that, you blink your eye; let me repeat that, you blink your eye, and there is a spike that takes out your stop. What are the possible ways in which that can be done? Again; still not blaming my broker.

I can't comment on this too much, but it sounds like Forex to me and I would certainly question whether or not it is "just typical forex" or if it's your broker (not helping). Who is your broker?

Other forex traders can comment more.

In futures you don't see such moves 99% of the time. You may wish to consider trading the 6E instead of EUR/USD so you can trade in a regulated market.

Mike

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  #4 (permalink)
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Rockville, Maryland, United States
 
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Broker and 6E

At the time of the spikes I was with FXCM. What was disturbing about it, and I should have made this clear, was that I could see maybe if the price spiked up and then stayed there or gradually made its way back down, but this was Bam; up then down all at once.

As for 6e, I am not familiar with it and yours is the first site that I have been to where it's even mentioned. I'll tell you what; since coming here, I realize that I know nothing and have a lot to "re-learn".

Boy! Where have I been hanging out??????
Thanks much.

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  #5 (permalink)
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6E is just the EUR/USD trades via CME futures market (regulated) instead of Forex. You can read up on it but there are advantages and disadvantages mainly depending on your experience level and capital (6E requiring more of both).

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

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2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
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  #6 (permalink)
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FXCM has quite a reputation for price manipulation especially on micro accounts where you're left completely to yourself (according to terms of use no support is provided to micro clients).

But in fact it could be not FXCM's fault. According to your description, the phenomenon looks mostly like a spike after a major news release like NFP or GDP announce, or rate change. If it's not the case I would ask about the pair traded, not all of them have the same liquidity. And finally I would look around at the average hourly volatility before the event — if it's 2 times more than the spike you mentioned then it's nothing special about it. Anyway, I prefer to think that it wasn't your broker. If you provided any details it could help a lot.

The third suggestion is that given you regularly got trapped this way maybe it's time to think how to exploit situations of this kind?

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  #7 (permalink)
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Regarding Forex price manipulation:

We know brokers have been caught screwing their customers, but it is usually in slippage, stops/limits not been honored, or the more blunt, but much more accurate, tool -- pull the frig'n plug out of the socket (disconnections/platform freezes). What they cannot do, unless they are truly a bucket shop, is push price around.

Case in point, the other day I was testing some new trade ideas. Sure enough, I got the spike several times and was stopped out. Just when I got got pissed and was about to curse the broker.... I remembered that I was trading sim Part of not knowing how to trade is not knowing where to enter, or place stops, even though it looks good. The side-effect to this phenomenon is newbie trading paranoia.

FWIW, I think a chart (bar or candles) is the most dangerous tool. No sensory system is more prone to deception than our eyeballs. I learned this many years ago when I tossed my television and started listening to the radio for news. I sure many of you with ex-wives/GFs can confirm

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  #8 (permalink)
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When the last buyer buys price has to go down. When the last seller sells price has to go up. Supply and Demand 101.

You can see the supply and demand price action on a chart in the form of swing highs and lows. The larger the time frame on the chart you are looking at the more reliable that S/R will be.

Now... what causes people to buy and sell is a whole other discussion. For me, as a trend trader I really don't care *what* is driving price so long as I can determine the *direction* price is going. Once I determine the direction I just jump on board and ride the wave, or so the theory goes.

What I've discovered in trading is that your trading plan has to be reflective of who you are as a person and your personality. A lot of people here trade a 5 minute chart and that works for them. That would never work for me. For me, a 5 minute chart has way too much market noise. I trade spot forex and I trade a 1 hr chart. I'd rather make 1 trade and go after 50+ pips than make 5 trades of 10 pips, but that's me.

The other advantage of trading a larger time period is that those price spikes seems to be minimized. You'll see a lot more of them on smaller time frame chart. At the end of the day if a price spike stops me out I shrug my shoulders. Long term success in this business is all about money management and not getting greedy. Take what the market gives you, be happy, and wait for the next trade. There is always another trade. Your job is to manage all aspects of your trading well enough so that you're there to take it.

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  #9 (permalink)
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Why does price move?

Price moves due to market orders. There is always a spread between the bid and the ask. If half of us put limit orders at the bid and half put limit orders at the ask, the market will not move.

It's like when you go to buy a car. MSRP is 30K (ask), you are willing to pay 29K (bid). No transaction. One of you has to move and say you are willing to take the others prices (market order).

So if these limit orders are sitting there how do they get filled? A market order. Someone says buy at the market. The market price for a buy is the ask so some of those limit orders start getting filled. If enough market orders come in to take out all of the ask orders at that price moves up a tick to the next set of limit orders to start filling from them. Therefore price moves by one tick. If enough market orders come in then price will continue to move in that direction until all of the market orders are filled. Price can move in spurts and violently at times if the market orders are large enough.

This is what happened on the sell side for the futures on 5/6/2010 when the market fell 9% in a matter of minutes. Some bonehead trader for one of the mutual fund company put in a market sell order for 75000 S&P500 futures to hedge against a possible declining market. Normally they space this volume over some time because the market can't handle that kind of volume. This one trade represented 9% of the volume over a few minute period. All the limit bids were taken from the first level, price moved down, hit more limit orders, which triggered stops, which triggered more market orders, which triggered more limit bids, which triggered automated programming to sell, etc. There was no demand to cover this volume of sells and therefore price dropped precipitously.

2010 Flash Crash - Wikipedia, the free encyclopedia

Why Price Moves - An Introduction | Articles-Technical-Analysis
How Market Prices Move - Explanation of Why Buying and Selling Moves Market Prices

Andrew

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