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So in this video a fellow named Anthony Drager asserts that it's not merely aggressive buying/selling (thus liquidity consumption) that moves a market but traders aggressively exiting a position.
This made me pause and think because I had never considered narrowing down motivation that narrowly before, mostly because I have no problem using a MO to enter a trade if I need to. I do not know if I agree 100% with Mr Drager on this.
While use of MO's certainly represent an element of emotional trading I feel like FOMO driven entries may be as common as panic exiting.
So, opinions and thoughts?
Can you help answer these questions from other members on NexusFi?
I never used market order to enter position bc I fear a slippage. I think the main force that moves markets is news. People emotionally overreact to news. This cause big moves. And when we don't have news supply/demand works. Some big guy buys 10000 contracts. I see "oh it's big move with big volume, I wanna take here trade" and I become a part of this movement.
Big moves on news are not caused by emotionally driven people. They occur because of the lack of liquidity. Big players get their bid and offers out of the market when news are due.
That quote explains Support and Resistance. Some of the big traders (not all) do not trade with stops and amazingly don't exit a position until it gets close to their original (losing) entry point. Where do these big traders reside? Swing highs and lows on the 1hr (or higher) charts, because only they have enough weight/volume to move markets if they have reversed a trend at high volume by using large area of liquidity (usually stops) to exit their winning positions and also to enter new positions in the opposite direction. If these traders get caught out then they don't use stops, they are happy to sit and wait and wait for price to come back to their entry levels (reverting to the mean), and they also participate in the counter move in order to ensure price reaches (or gets close to) their original losing position levels. Whether these support/resistance levels work depends on two things-how many people are exiting their original losing positions AND how many people are also opening new positions at these levels.
All neatly encapsulated by this quote: "The market can remain irrational longer than my ability to stay solvent."
I should add that the levels rapidly decrease in importance if they are relatively close to where price resides before big fundamental news, which surprises the markets, is released either by a Trump tweet or a big non farms miss.
It makes no difference whether a market order is opening a new position or closing an existing one. A market order is an aggressive trade that is consuming liquidity (it is a market taker) from passive resting orders (market maker).
Price will move when:
liquidity consumption from aggressive market takers exceeds the available liquidity from passive market makers. The aggressors win. Order flow imbalances, etc, etc.
the available liquidity from passive market makers is greater than the liquidity consumption from aggressive market takers. The passive orders are absorbing all of the aggressive buying or selling, hence absorption. At some point, the aggressors are overwhelmed. They may puke at market (aggressive activity in the opposite direction) or their stops may be hit in turn converting to market orders
Things auction up and down in a myriad of fractal sizes and the larger liquidity on a given side is the determinant of the direction of price in any given auction period be that tick, time or range.
You do not need any orders to even execute for markets to move. You only need traders sense of value to change.
Let me give an example, let's say all houses are selling in a neighborhood for 200k and then Google or Apple announces they will move in next door. Everyone learns the new information at approximately the same time. Everyone changes their offers to 500k-700k range. You did not need any trade to happen for the market to move.
The perception of the change in value was enough to move the market. Even if a few people didn't learn the news, you would expect there to be fewer sells at prices between 200k and 500k. Now, let's say some institutional investor starts buying at 500k, you might see a lot of trades and then price jump higher. Why? Because all the supply at 500k is taken out.
So you can see different sorts of moves.
All opportunity is defined by scarcity. Every price is an opportunity to buy when market is trending and that is why you usually see it happen on low volume. Normally expert/large traders are positioned before the move and offer liquidity at the end of the move.
Whether or not aggressive buying/selling moves market tends to reflect more who is aggressively/buying selling... and how different participants react to it.
I am not sure who this Anthony guy is, but he sounds like a salesman - would that be fair?
If one is aggressively exiting a position, one is aggressively buying/selling - there is no getting round that.
We are never going to know why x amount of contracts were bought/sold at x price, only that they were (and this is assuming you go down to that granularity of looking at the market - I personally do not look at those numbers). For example - this mindset around 'stop-runs' has never made sense to me, although I concede it does seem to help others - to me it has always come across as a narrative tool to help understand the market rather than having any grounding in what is actually happening. My approach to trading is chart reading - understanding something called progression (how the market moves between time frames), momentum and the identification of levels. There is no place for 'stop-runs' in this approach, yet other chart readers swear by them - everyone has their own way of reading the market.
As the tpredictor above points out, there does not need to have been any orders for the price to change - markets fall due to a lack of bid (I got this insight from a TradeItDontDateIt video and it really helps explain how markets work), if no one is willing to bid the price has to drop, there does not need to be aggressive selling for that to happen.
