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The theory of Supply and Demand
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The theory of Supply and Demand

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The theory of Supply and Demand

Good evening my fellow traders! I wanted to send a shout out and see if anyone has any input. suggestions or ideas. So I'm looking at the Euro trading at my 1.2504 Resistance level as it's bouncing along it for over an hour. So I'm watching it on a one Range bar using Zondors Trade Size Analyzer and I see all of this Selling come in. But the market doesn't respond to it. I see more and more selling come in (I'm short the market by this point at 1.2502) and the market doesn't respond. I see what I want to see- reduced buying and A LOT of selling but the market doesn't go down. I mean during the day this would have been through the floor with the amount of selling I saw. Don't believe me? Throw up an 8 Range chart and compare the volume during the over night. The market moves up 8 ticks with a little over 900 contracts; moves up another 8 ticks with some 700 contracts traded; moves up another 8 ticks with around 1150 contracts and then my little gem- it moves down 8 ticks on almost 2,900 contracts! Does that seem odd to anyone other than me? I saw massive selling and it wasn't responding in kind. Does anyone have any suggestions that could explain this? Hey- let's face it- the market can do whatever it wants. I know that and I am not suggesting otherwise. But this, from a Supply and Demand standpoint makes no sense. But this, not to sound like an alarmist, is conspiracy theory kind of stuff. I always believed, according to theory that the market moves higher on increased buying and lower on increased selling. I have no explanation conceptually for this and wondered if anyone has a theory.

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I don't really understand what you mean by "increasing selling and no buying" or vie versa...
How can you have people selling if there is nobody on the other hand to buy?

For each sell there is a buy, and for each buy there is a sell transaction.

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Fadi View Post
I don't really understand what you mean by "increasing selling and no buying" or vie versa...
How can you have people selling if there is nobody on the other hand to buy?

For each sell there is a buy, and for each buy there is a sell transaction.

That is correct. For every buyer there is a seller and for every seller there is a buyer. However, in order for the market to move lower, as I understand it, every buyer, at a price level has to be filled. The market, to facilitate trade, must then auction lower in search of buyers to meet the increasing number of sellers willing to sell for less at a lower price. There must be more sellers than buyers. If they were always the same the market would never move. Sellers, hitting the bid price, drive price lower. Buyers, conversely, continually want to buy at a higher and higher price buying every seller at a price level driving the market higher. This is called lifting the offer. It is driven by a greater number of market participants on one side of the market over the other. gomi's volume ladder displays this information- the left side of the ladder displays the number of sellers who sold at the bid. The right side of the ladder displays the number of buyers who bought at the offer.

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Consolidation Definition | Investopedia


Quoting 
Definition of 'Consolidation'
In technical analysis, the movement of an asset's price within a well-defined pattern or barrier of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and these periods can last for minutes, days, months or even years. Lengthy periods of consolidation are often known as a base.

Read more: http://www.investopedia.com/terms/c/consolidation.asp#ixzz1z59535Kc


http://blogs.ft.com/the-world/2012/06/eu-summit-live-blog/#axzz1z583YVse


Quoting 
10.45: Charles Grant, the director for the Centre for European Reform has blogged ahead of the summit – a good primer for anyone wondering what’s at stake.
“Like many other EU summits over the past two years, the European Council meeting in Brussels on June 28th and 29th has been billed as a ‘last chance’ to save the euro. With the situation in Greece, Spain and Italy causing alarm, EU leaders should present a credible plan to convince financial markets that they are serious about saving the euro. They are unlikely to do so. Although there will probably be other last chances, time is starting to run out. Unless France and Germany can soon agree on a grand bargain, disaster may loom.
Not only France but also Italy, Spain, the European Commission, the IMF and the Obama administration are urging Germany to accept ‘eurobonds’ (collective eurozone borrowing), bigger bail-out funds that can intervene in sovereign bond markets and a ‘banking union’ that would include common deposit insurance and bank recapitalisation schemes. For now, however, Chancellor Angela Merkel is not budging.”


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as i've been studying volume action for the past few days, i noticed that some charting software have a different logic representing volume bars..
will show a red bar of volume if the closing of price is lower than close of previous period --> you see this as selling, in fact it can be a buying pressure if the current bar itself closed above it's own open (or also in my opinion, above the average or in it's top 1/3 price range)
and vice versa, will show a green bar of volume if the closing of price is higher than previous close --> you will see this as buying, in fact it can be a selling pressure if the current bar itself closed below it's own open (or also in my opinion, below its average price or in it's lower 1/3 price range)

so this is visually confusing.. but you software might have got this "corrected" somehow.. then i also found out that the underlying will have be under the struggle of 2 forces, selling and buying pressures.. which may have accumulated over a longer time frame .. comes a point there's very little of one vs the other, and the price rallies in one direction, up or down, or also comes a time when there's a "lock" or balance, and every time one force wins and a rally starts the other comes in and reverse it .. consolidation in my view is one of these price areas where there's a balance/lock of the 2 pressures..

will that explain it? do you have a way to view the balance of these selling vs buying pressures on your platform?
thx, RedK

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RedK View Post
as i've been studying volume action for the past few days, i noticed that some charting software have a different logic representing volume bars..
will show a red bar of volume if the closing of price is lower than close of previous period --> you see this as selling, in fact it can be a buying pressure if the current bar itself closed above it's own open (or also in my opinion, above the average or in it's top 1/3 price range)
and vice versa, will show a green bar of volume if the closing of price is higher than previous close --> you will see this as buying, in fact it can be a selling pressure if the current bar itself closed below it's own open (or also in my opinion, below its average price or in it's lower 1/3 price range)

so this is visually confusing.. but you software might have got this "corrected" somehow.. then i also found out that the underlying will have be under the struggle of 2 forces, selling and buying pressures.. which may have accumulated over a longer time frame .. comes a point there's very little of one vs the other, and the price rallies in one direction, up or down, or also comes a time when there's a "lock" or balance, and every time one force wins and a rally starts the other comes in and reverse it .. consolidation in my view is one of these price areas where there's a balance/lock of the 2 pressures..

will that explain it? do you have a way to view the balance of these selling vs buying pressures on your platform?
thx, RedK

Similar idea based on an article by Lance Beggs, they color based upon where it closes in relation to the current and previous bar's range, with nine possible outcomes depending on whether it closes in the upper third, middle third, or lower third of the current bar's range and whether it closes above the previous bar's high, within the previous bar's range, or below the previous bar's low.

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Fadi View Post
I don't really understand what you mean by "increasing selling and no buying" or vie versa...
How can you have people selling if there is nobody on the other hand to buy?

For each sell there is a buy, and for each buy there is a sell transaction.

I just refer to it as "aggressive buying" or "aggressive selling", in other words, if a buyer really wants it, they are willing to drive the auction higher and higher.

It's all about the auction process and what each individual perceives as value. Short term traders will perceive value drastically different than a swing trader, or a long term investor.

As prices move away from value, driven by the auction process as "aggressive" buyers or sellers shift the market towards one end of the spectrum or the other, then eventually the other end will step in because they perceive price to have moved sufficiently out of value from their perspective, and they will start selling (for example) to return it back.

I think Market Profile/Volume Profile offer excellent representations of this by way of the Value Area and the Point of Control. You could modify these tools to suit your time frame and trading personality, but most use 30 minute profile blocks and view them in a 1-day session.

As has been pointed out, there are never more buyers than sellers. It's easy to get caught up in this thinking, and I personally just say that there are more "aggressive" buyers than sellers at any given time, when the market is moving higher. It simply means the buyers believe the value to be more than the current auction price, and are willing to continue to auction the market higher, more so than sellers, at that particular time.

You always have to consider other time frames than your own when trading. When you see big tails in the market, unfair highs or unfair lows, also called single prints, they will be perceived differently depending on the context in which they are viewed. A scalper is going to view them differently than a long term investor. For example, the long term investor may see them as a discount, with price far away from value, and a chance to buy (or sell) that price at a "discount". Whereas short term traders would see this as counter-trend and may get "run over" if they try to catch the top or bottom of that tail, because they have a completely different view (context) of the market.

Mike

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Aragorn View Post
That is correct. For every buyer there is a seller and for every seller there is a buyer. However, in order for the market to move lower, as I understand it, every buyer, at a price level has to be filled. The market, to facilitate trade, must then auction lower in search of buyers to meet the increasing number of sellers willing to sell for less at a lower price. There must be more sellers than buyers. If they were always the same the market would never move. Sellers, hitting the bid price, drive price lower. Buyers, conversely, continually want to buy at a higher and higher price buying every seller at a price level driving the market higher. This is called lifting the offer. It is driven by a greater number of market participants on one side of the market over the other. gomi's volume ladder displays this information- the left side of the ladder displays the number of sellers who sold at the bid. The right side of the ladder displays the number of buyers who bought at the offer.

Since there is a buyer/seller for each seller/buyer, the above highlighted and bold statement is incorrect in my opinion. There is never more buyers/seller than sellers/buyers, only more aggressive buyers/sellers. The difference lies in the hitting the bid/ask versus those that use the limit orders that are willing to wait to be filled at their own price.

Just my 2 cents


Last edited by kulu; June 28th, 2012 at 08:04 PM. Reason: Note: Oops, exactly what Mike said
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kulu View Post
Since there is a buyer/seller for each seller/buyer, the above highlighted and bold statement is incorrect in my opinion. There is never more buyers/seller than sellers/buyers, only more aggressive buyers/sellers. The difference lies in the hitting the bid/ask versus those that use the limit orders that are willing to wait to be filled at their own price.

Just my 2 cents

It is not incorrect. Call it what you will there are more traders on one side willing to make the trade. There are the same number who make the trade but there is a surplus of one side or the other who are willing to make the trade until the opposing side becomes exhausted. Meaning, if there are 99 buyers and 100 sellers- 99 contracts will be traded but the market will downtick. Therefore, for contracts traded there are the same number, in this case 99 but as there were more orders on the sell side waiting to be filled as the buyers became exhausted (no more buyers) according to Auction theory the market had to drop lower in search of buyers.
You are confusing the statement with the number of contracts traded. Read what it says. There are more TRADERS either buyers or sellers on one side or the other. It says nothing of contracts or whether the trader got filled or not.


Last edited by Aragorn; June 28th, 2012 at 10:22 PM. Reason: Clarification
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