Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
thanks for this article and the analogy, DT. i enjoyed reading it, twice .. an eye opener for a bignner like me.. now have homework to research more about the topic .. but...
digesting this, doesn't this mean that again, "price action reflects everything", or that "all conditions are built-into the Price Action", lack of supply, demand, liquidity (providers/consumers), buyers uptake, sellers, news....etc. yes, in some cases, you may need to wait for few more candles to confirm if a move is a knee-jerk reaction to some news or a sustainable one, but again, it's all reflected "in the price action" itself? is that a correct statement from your expereince? cause in that case, a bigenner can then focus only on price action and related analysis and still be good to go?
Great posts, thanks. But CD can move up as market comes down, meaning limit sell orders (waiting for bounces as we go down) easily absorbing market buy orders. But the point that limit sell orders can only be above in terms of liquidity is well made.
I like your post on Sellers liquidity above the Ask and Buyers liquidity below the Bid - makes logical sense. I really do agree with what you have presented as it explains what I see. But you got me thinking too...
I came across this other site's scenario I have burned into my memory. Market moves are caused by large players and if you have to ask who is a large player, surrender to the fact you are not one. If a big player decides it’s time to trade, they do so. They do what they want, when they want – period. And if no other big player is against them, there’s a very high likely hood the market will do what they want. But if two of these players butt heads; one sees long, the other sees short, their egos kick into gear big time and crazy things happen. In either case, we little guys are out there trying to apply “logic” to their ego driven, anything but logical reasons.
It’s a known fact that humans like patterns. This may be simplistic, but look at the clouds on any given cloudy day and tell me what you see. We look for things. We look at graphs of digital data and say it moved to within a tic or two of that that prior tic - wow that's significant. Well of course it moved like it did, it’s measured in tics, it’s digital data. Look at peg board – can you draw lines through the dots – of course you can. We look for this because it helps us explain what is before us. We like to be able to succinctly define why something did what it did. Have you ever tried to define why your teenage kid did what they did?
Please don’t take me wrong, I really do agree with your presented logic of buyer and seller liquidity, but have you ever seen a chart where logic was perfectly illustrated, yet price did the complete opposite? We then say, well nothing always works, the best you get is x%, it's a numbers game.
I have come to consider I am trying to apply logic where logic does not apply. I am drawing/seeing lines becuase it's easy to do so being digital data. I have come to accept the closest thing to logic rules of the market are un-measureable, that being greed and fear. And here I go seemingly contradicting myself, consider the setup that was absolutely perfect yet it failed - I present the reason why is because of the un logical, un measureable market metric of greed and fear, the egos of head butting big players causing crazy things to happen. Why, because they can, it's what they/we do. It's what makes the market move.
I am reminded of the movie Pirates of the Caribbean, the rules are sort of guidelines.
There is no mathematically ridged, algebraic, calculus based, differential equation; no physics or economics based logic rule set that defines the market - otherwise it would have been automated by now.
It's more like the big penguin that jumps off of an iceberg and “busts” a move for all the other penguins. Why, becuase he wanted to eat some fish.
This does not mean trading is impossible. I believe successful trading is accomplished by taking advantage of momentum(not the indicator), of price action, of a sense of feel of the market - which you acquire over time. It’s like the “touch” required when fly fishing, the “instinct” of a talented athlete, the “presence” of a truly great leader. You cannot measure these things, which at times seem to defy logic. Yet you and I know them when we experience them.
Again, I really do like you most excellent post...
Although I get the semantical concept, liquidity (or lackthereof) doesn't move the market, buying and selling move the market. A lack of liquidity will allow the market to move further and faster, but make no mistake, without someone there to buy or sell, all the dead space in the world isn't going to move the price.
This is akin to explaining to people that there's no such thing as "cold" energy. There's only energy, which migrates from higher concentrations to lower concentrations. When you cool something off, you simply drive the energy (against it's natural state) to an area of higher concentration (which takes energy to do so).
The same is true for the concept of a "vacuum." Vacuums don't "suck" material into them, they simply create a space of lower concentration and when exposed to higher concentrations, particles migrate and push themselves into the void. Even the process of creating a vacuum requires you to "push" the particles in the space somewhere else.
Semantics yes, I know...but liquidity doesn't "draw" price into lower areas, there still has to be buying/selling in order to move the market.
I guess a more precise way to describe it is that under "normal" or sterile circumstances, the concentration of buying and selling determines which way price moves. More sellers than buyers and price drops. And vice versa.
But in the case of "pullbacks" the recent market movement has removed much of the market depth as you pointed out, so a lesser disparity of buying/selling is required to move the market back through the void created.
I guess what I'm saying is that if price is at xx.xx and there's absolutely no market depth above it, that alone will not move price higher, there actually has to be physical orders (buy) in order to move it.
But I like the way you laid out and explained the groundwork as to how/why pullbacks happen, which also will help us to better understand how to identify and hopefully predict when they're likely.
"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
I agree with your premise, but I think DT did not mean to imply that the vacuum itself moves prices, but that the relative lack of liquidity (the vacuum) makes it easier for a lesser amount of pressure for marketable orders to move price a greater distance than otherwise would be the case.
It's also the same concept that creates breakouts...when price stagnates, buyers and sellers, producers and consumers become impatient and the market depth begins to encroach and creep closer to the price, which creates a higher barrier to overcome, but once the barrier is breached, the relative depth behind it is less and so price tends to move relatively ununcumbered until the market can catch up to it and re-establish a more normal depth surrounding it.
"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
.. an eye opener for a bignner like me.. now have homework to research more about the topic .. but...
