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Random Line Theory
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Random Line Theory

  #161 (permalink)
Market Wizard
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trendisyourfriend View Post
It's always interesting to hear about other people perspective. If your analysis is based on supply/demand then there is no reason why it should not work but maybe i am missing something.

Supply and demand is an interesting concept. Any point where there is 'resistance' on a chart - you might conclude that this is an area where supply overwhelmed demand. Some people call this an area of supply.

The actual reason for this resistance will either be
- buyers reduced their buying
- sellers increased their selling

In either case, there is no guarantee that the same thing will happen when price reaches that point again.

'pure' analysis of supply and demand doesn't cater for the fact that markets are manipulated and the ES is one of the most manipulated markets out there. Markets like this cannot be manipulated for days (unless you are the govt) but they can be nudged around by big players for short periods of time. There also are some market conditions where it's simply not possible.

So - to play a level, you have to first be aware that a common thing to happen at a resistance level on the ES is for price to move there, pullback somewhat (to entice in sellers) and then move through the level to take out those new sellers stops. They exit against the sellers stops and break out traders entries. At that point, the people that took out those stops are probably done and there's often no longer anything to hold the market up. Alternatively, a level may be defended vigorously and price reverses straight down. Only DOM/Time & Sales will help you see which.

So - we have supply, demand and manipulation and you also have trigger happy reactive players who are looking to jump in to the market on a whim. These are the people that you see buying the volume spike at the end of an up move and THEY ARE MANY!

Finally, you have targets. People are setting targets. If you were sitting on 10 cars short coming into yesterdays low, you'd at least take some off there. Targets have the same impact as new entries because they generate counter trend trades.

Of course, I didn't even answer the question yet... but this is my theory about what will happen at a key level.

By observation, the key levels I watch on the ES are:

1 - The open. This is often a key revesal point, for instance if price moves up off the open, then comes back to re-test it, if you see large players buying and clear resistance on the DOM, then it's a good buy as long as it's not accompanied by overwhelming selling.
2 - Yesterdays Close. This is the target for gap traders as well as people that will fade a fill. There's no real good reason I can think of that a reversal should occur here but it's one of the places I'll look to the DOM/T&S to see if there is something happening.
3 - Overnight High/Low, Yesterdays High/Low. My opinion is that these are both targets and places that people will expect to see a reversal. It would also fit in with the traditional 'supply be here' or 'demand be here'. Certainly these are areas that attract a lot of short term manipulation.
4 - Current High/Low after a retracement. Same as 3.

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  #162 (permalink)
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It's around 9:00 EST and i was surprised to see how easy it was to predict some targets today using the simple Fibonacci tool:

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  #163 (permalink)
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trendisyourfriend View Post
It's around 9:00 EST and i was surprised to see how easy it was to predict some targets today using the simple Fibonacci tool:

You can just use Fibonacci Expansions, even simpler and it would have told you the first target as well.


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  #164 (permalink)
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Many years ago (1985BC (Before Computers)) people traded on value, they held positions for days, sometimes even weeks. They did this to remove something called 'Noise' .

Today we live on noise and ignore value. I personally think Mike has just proved that to you all.

If I am Shell and sell 1500 CL in the near date I might move the market 30-40 pips, 15 minutes later China Steel buy 2000 contracts and move the market 50 pips higher. All the Bull S*** indicators out there will have you thinking Mars is in line with Jupiter and that's why that happened, you will also be better in bed tonight as the Moon is crossing Saturn. Unless you work at a Bank or Fund you are not seeing the order flow so you are guessing what will happen next, Indicators work on previous market activity so they are well behind the curve.

We need to remove the noise in this market again try the old ways they represented value.

Many years in this industry has shown me one thing, pixels on screens can make you believe in anything, they are evil things. I also believe the DOM Trader is the devils own creation but that's another story.

Adam

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  #165 (permalink)
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h4cked View Post
Many years ago (1985BC (Before Computers)) people traded on value, they held positions for days, sometimes even weeks. They did this to remove something called 'Noise' .

Today we live on noise and ignore value. I personally think Mike has just proved that to you all.

Value has always been relative. Your salary is high, if you earn more than your wife's sister's husband.

Noise is created by smaller time frame traders, as seen by large time frame traders. Larger time frame traders need smaller time frame traders, as they provide for liquidity.


h4cked View Post
Unless you work at a Bank or Fund you are not seeing the order flow so you are guessing what will happen next, Indicators work on previous market activity so they are well behind the curve.

We need to remove the noise in this market again try the old ways they represented value.

Many years in this industry has shown me one thing, pixels on screens can make you believe in anything, they are evil things. I also believe the DOM Trader is the devils own creation but that's another story.

Adam

You are right, price is driven by nothing else than order flow. Technical Analysis is a pseudo-science trying to figure out, when feedback kicks in. Feedback is the behavior of other traders reacting to price by using Technical Analysis, LOL.

If you remove noise altogether, the market will be illiquid and you need market makers which engage in making two-sided quotes. That is the reason that trading in the good old times was much more expensive.

The DOM has been invented by the brokers to make it easier to place orders, so it is indeed increasing temptation. The devil likes it and laughs.

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  #166 (permalink)
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h4cked View Post
...Today 'we' live on noise and ignore value. I personally think Mike has just proved that to you all.

I don't personnaly think Mike has proved that but i'd be interested to know how can 'we' expect to beat the odds if 'we' trade the very short term since noise seems to be associated with short time frame ?

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  #167 (permalink)
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Jury is still out for me if they provide liquidity. Like the algo systems whenever a days range out plays 2 standard deviations overall liquidity is worse than ever as these guys pull orders. This causes bigger moves as players still need to fill orders. We then get much bigger moves than you would expect.

We could talk about liquidity and short term guys till the bottle runs dry, I know in London it's still the cause of many a large bar tab.

I only started in the markets in 1994, was a weird time actually computers and humans ran side by side so I saw both sides of the coin. I watched the brokers in the FX Market literally die. At the time I was 16 and didn't know my what day it was but looking back I learnt alot of instinctual lessons that keep me above the water line today.

Most new traders don't see how things were, like if you lift the hood of your car these days it's just s fancy plastic cover saying 4.3 supercharged and a USB socket you have no idea what makes it tick......but we stick fuel in all the same.

Adam

You have to enjoy it.
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  #168 (permalink)
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You can't beat the odds if you trade short term. Your own mind will kill your account if that doesn't the brokerage will.

You have to enjoy it.
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  #169 (permalink)
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h4cked View Post
You can't beat the odds if you trade short term. Your own mind will kill your account if that doesn't the brokerage will.

That's a bold statement.

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  #170 (permalink)
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Not really if you believe 95% of people are losing money. I would assume the other 5% are using that liquidity the short term guys are providing to take their money.

I'm not a negative person honestly

You have to enjoy it.

Last edited by h4cked; March 26th, 2011 at 08:27 PM.
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