smwinc

Couldn't agree more. I think the single biggest advantage a trader at a firm has over an independent trader is the sampling rate. New traders get shown basically to just spin their wheels as much as they want/can. Hundreds of trades a day. The whole point of it is so it becomes complete instinct to click the button when you see an opportunity. Brett Steenbarger discussed this concept comparing it to the Military and training soldiers to fire weapons rain, hail or shine. It doesn't matter if you're up ten grand or 5 ticks from your daily loss limit: 1. see opportunity. 2. Click button. Practice in all trading scenario's is what builds that.

The best comparison I can think of to trading is that it's similar to driving a car. It is completely irrelevant if you have been driving safely for the past 10 years - it only takes one split second of deciding to look away while you are driving, and your entire life is completely ruined. One loose trade. One trade you decide to just "hold". One trade you have "conviction on". That is all it takes.

LOL man that is classic

This sort of thing is interesting, but I just have never found the need for it to make money.? The only need I've seen for tools like these is working with institutions who make an impact on the market they trade. Mathematically, it changes the game for your trading decisions, because you're no longer making a trade based on the market, you are making a trade based on how the market is AND how you assume it will remain once you make your trades. Interested to hear more information. Like Atto said, keen for a discussion but we probably need to nail it down to something specific.

Interactive Brokers.

Agree 1,000%. If you don't have good trades that are losing trades, you're probably not a trader. You will also have plenty of profitable trades, they aren't good trades. They are called "luck". All the best

Agreed SunTrader. Please note that I made this post back on the 9th June 2008, referring to the Monday of the 9th June 2008. Not EVERY Monday there-after

There is no one way to profit from a spread between the bid and offer. Plenty of people just sit on the bids and offers all day and make their living doing that, constantly getting flicks in and out. In different situations, spreads are created by locals to profit from stop-market orders. E.g. When you are trying to bust a high in the DAX, the purpose is just to get those stop-market orders coming in. What happens is a high is busted, and simultaneously locals pull & hit the bids. The goal is to create a spread even for a few seconds - the high is busted and stop-market orders come flowing in and cross the spread for you, filling you on your take profit / sell orders on the offer. There is honestly thousands of examples that aren't really fitted for trying to detail in a forum. As a whole, manipulating spreads are about a) manipulating Market orders and b) trying to scare weak holders.

Fantastic post .. you're right even though trading has been my income for 6 years, clearly I should go and take up a job in real-estate. I can see the logic there. :rofl:

Let's take a step back. The first problem we are keeping it simple, and everyone is going to see the ES as something different. That's another inherent problem - As an intraday trader, a lot of how I trade is based on patterns. In my view, each pattern throughout the day is a different product. I will always Buy (Demand) certain pattern within the market depth, and I will always Sell (Supply) certain patterns in the depth. Price is utterly irrelevant. If I had to compare the ES to an item, I would compared it to Lego blocks (the plastic blocks that connect to each other for any poor soul who has never seen lego). Throughout the day, it remains Lego. It is always $50 x S&P 500 . However, it constantly forms different objects, which I base decisions off - I demand / supply these objects. Once the object is 'created', imagine a corresponding D&S curve is created. A 'double bottom' at 1300 after the market has fallen for a week, is a different object to a market which has rallied all week to hit 1300.

For the record, I believe we were previously talking about different things here. (A) That statement is assuming that the good remains the same. I.e. a Demand & Supply curve might be drawn for a Basketball. The good remains the same throughout the curve. The big question is whether a market is the same "good" at different prices. I would argue not. As the price of a basketball is increased, it remains the same basketball. As a technical trader, the market (the "good" ) is constantly changing. Price is linked to the actual dynamics of the good. For example, imagine a strong double bottom with the S&P at 1300. As the price increased, the double bottom is confirmed and the good has CHANGED in my mind. Price has increased, but we are now talking about a different good. It would be like comparing a D&S curve for a basketball, that then changed to baseball, beachball, tennis ball, etc as you moved along the curve. In addition, Price can go out the window with futures. I have the same limits to buy/sell X quantity of S&P contracts, whether it's at 1300 or 1800. It makes no difference to me. A tick is still worth 12.50. I might be a buyer (Demand) at a test of Yesterdays Close. It is completely irrlevant what price the S&P is trading at. I'm thinking as I write here, but what does make more sense if you were striving to apply this law, is Price with regards to % movement. E.g. I know for a fact certain funds have automated trading based around various % up/down. It is not the price of the good, but rather the price of the good with respect to prior prices. E.g. 1% down on YC, 1% down on YL, etc. etc. Hence, rather than thinking of a D&S curve with the price of the good on the Y axis, it might be more accurate to have %+/- YC, for example. (B) Yes, I think this applies day in day out. Market moves to facilitate liquidity. I.e. We move the market towards where "producers" are willing to step in - in the form of Supply (at highs in the market) or Demand (at lows in the market). © This is happening every time there is a transaction. In a thin market, you can watch the process occur as the spread moves without transactions occurring, as equilibrium is attempted to be found. (D) & (E) - Yes, that's an easy one I think. (F) - Not realistic in the real world. They teach this one in Economics 101. The whole assumption of "participants will behave rationally" complicates it. We all should be able to think of at least 10 trades where we didn't behave rationally. In addition, we are only ever guessing in the market - we take actions that we 'believe' will maximise benefit. After all, you wouldn't buy if you didn't think it would go up, while simultaneously someone is selling it to you, thinking it will go down. We are both striving towards utility maximization, however one of us will quite simply be wrong. Clearly it gets more complex, I am keeping it simple here too.

As a whole, the behaviour of groups in specific situations can be predicted. This is an accepted theory, and fairly obvious. As long as you can correctly identify the situation, you can put the odds in your favor of predicting the outcome. The problem becomes individuals. The action of a unknown individual can NOT be predicted. A "black swan" event is often when the action of one individual exceeds the affect of the masses. This can include government intervention, the death of someone important (like a CEO), a fat finger trade, etc. Knowing this inherent weakness, a trader should attempt to mitigate the risks by trading in markets that are less able to be impacted by one individual. A thin market will always be less predictable than a thick market over the short term. One stock will always be less predicable than a large index. You can also mitigate the risks by certain times that you trade during different markets. E.g. In a thin market, the last 10 minutes is often very hectic as brokers force through late orders. This often will be completely random. Or perhaps more accurately, the degree of randomness outweighs the degree of predictability for most trader's risk tolerance. Etc.

Update: Sold out 80% position on the gap fill, got filled @ 6.90. Why 80%? Magic risk-free number. Assuming 100 shares: 100% * 5.25 = (525) - Initial Purchase 75% * 6.9 = +517 - Profit taking. 25% * 0 = +0 - Worst case scenario company goes bankrupt. Net Result = -7.5 At 80%: 100% * 5.25 = (525) 80% * 6.9 = +552 20% * 0 = +0 Net Result = +27. Now in the position where the last 20% can go to zero, and I still come out on top. I don't do many stock trades, but when an opportunity knocks, worth taking I think . . Cheers

(I know this is the Candlestick thread, but I'm just answering the question honestly) Tax Loss Selling Period + Quadruple Witching Day (Friday) Quad witching day is one of the most reliable pay-days on the market calendar. Add in some Tax Loss Selling and the technical's of where the markets are make it a no-brainer. Edit: I know there are a few people who treat fundementals like they are a disease, but bluntly these two things were marked out for you literally a year in advance. I too ignore most fundementals analysts pull out after the action, but when it's a specific event, you gotta take the freebies the market throws at you.

To be honest I don't have much to add, Hopefully a few other people will provide some comments.

I'm clearly missing a few brain cells, because I don't get how any of these examples don't illustrate Supply & Demand. I was also hoping for more practical examples? These theories are interesting, but like anything to do with trading, you have to keep it practical or it becomes an endless road of theory. If it doesn't apply in the real world, leave it to analysts, who tell us why something happened 4 weeks after it happened. At the end of the day, most of what goes on intraday is a game between a whole stack of people who either understand what is going on or don't. "That's fine but I trade longer term" I can hear people say. Just remember though the intraday action creates the daily result, which creates the weekly result, which creates the monthly result. It's not like there is a separate trading session for daily traders only. I love these studies by academics who have never traded before. How long was the look back period? It was done in 2006, probably looking back almost 20 years - Australia underwent one of the greatest bullmarkets it's ever seen, taking up nearly the entire history of it's futures market. That is the entire definition of an up trend - valuing what you buy at a higher price than what you bought it. Heck, why ELSE would you buy something if you didn't think you could then sell it at a higher price?! I don't quite understand how this is an example not illustrating S&D? I think the relationship can not be obvious when you are not watching tick by tick data. I generally live in a very short term world, I trade a lot during the day. The market actually executes a chain reaction extremely quickly. Today I was trading the DAX before US initial jobless claims came out. The market was making new highs. I'm bearish as hell on Europe. Yet I look in the depth, and someone keeps chucking size on the bid. Who cares, I'm a buyer. Buy Buy Buy, get on the bandwagon. New high, new high, new high. We rallied 30 points (60 ticks). I see implied demand, I become demand. Supply induced demand is my favorite one. Two scenario's: (1) A really thin bid, and a really thick offer. Everyone wants to sell, no one really wants to buy. Interesting. So what do the big traders do? They hit into the offers. Why? Because there is all these willing sellers - so we can get a nice big position on. Somewhere up here sellers who have gotten too eager to sell will be forced to cover (more demand) as we push up the market for no real reason. (2) Someone throws an abnormal amount of size on the offer (Supply) suddenly, attempting to push the market down, and someone comes right back and takes all of it, and then sends it bid. They are the best trades. That's like a trader's way of saying "Yep. F*** off, I'm still here, and now you're max short and I'm going take you to the cleaners." The market will then go up because we all know there is a buyer in there now, and there is at least ONE person who is short a lot, and about to be offside a lot. It actually happened pre-market today in the S&P.

Sorry, I didn't mean to just blow the discussion off. The big "black swan" in the mix is IMPLIED demand & supply. All of my examples I wrote in apply, and there would be plenty more. Implied can confuse traders, because they might look at their market, see no demand and the market start going up. It will be going up from implied demand from another source. Understanding pressure points in a market can also help you to work out where traders will be more sensitive to implied demand. Simple example: If a market has been in a downtrend, and begins reversing and making new-intraday highs, there will be so many scared shorts that it takes hardly ANY implied demand to send the market higher. Imagine you are sitting there maximum short watching your profit evaporate, or worse, a loss accumulate - if you even 'hear' of a buyer coming you're going to be running for the exit button. What often happens is: Implied demand comes in --> You cover your Short position --> You CREATE the real demand: You are the person hitting the offer, becoming a Buyer (Demand). Rather than just talking theory, give me some examples of where there is confusion about the applicable nature of Supply & Demand and we'll go through them. DBPhoenix has posted an entire thread of very good, practical uses of supply and demand using his boxes. Think about the mechanics of why a box "works" - it's highlighting an area of past congestion - a compressed range where an above average number of trades is likely to have gone through - the market will be likely to encounter resistance in the form of demand/supply. Bigger trades use these points like 'boxes of liquidity'. They push the market to a liquidity source, and can unload their position. The logic of why a "Box" will be useful to a trader is exactly the same as a Point of Control, or a reversal at a false break of a high/low, a Pivot Point, a MidPoint, a Gap Fill, etc. It is ALL about liquidity, demand/supply, implied demand/supply, and if you like "expected" demand/supply. (expected referring to if a large trader needs to close out a position, they will attempt to push the market to a potential liquidity source - e.g. a new high/low, gap fill, pivot, etc.)

I have to admit, I don't quite get why there are so many questions about supply and demand? It is a very simple concept. It just takes discipline, conviction & an attention to detail to really study what goes on. In thinner markets, you often need a good memory as well to remember the process of price-discovery / testing for demand/supply that has happened. Implied demand/supply can get a little more complex depending on what you trade. It can come from correlated markets, synthetics, different month contracts (e.g. yield curves, periods of roll-over), and most commonly size in the depth. Honestly, there isn't much more to it other than practice, practice, practice.

Wow, sucks to be B&B Chief Phil Green. His holding's in B&B were worth around $440 million at the peak in 2007. Currently it stands at around $67 million. Ouch. (Disclaimer, I am now long in stock/CFDs since the close Friday 13th). Personally, I couldn't ignore this as a trade. At 5.25, we should at least test the IPO price (from 4 years ago!) at 7.60, which would be around a 40% gain. You're maximum risk is that the company goes bankrupt (5.25 at the close on Friday). Unless someone is hiding something seriously big (never underestimate that possibility), but I think it's a little unlikely. It's likely there was a severe overreaction as nearly everyone on a margin-loan who owned shares would have been squeezed out once we took out the IPO price from 4 years ago. Worth having a look at. I'll post the updated charts over the next few weeks.

MC - What exactly IS "Up volume" and "down Volume"? I.e. How is the broker calculating this? Is it: If a trade occurs, and price at T+0>T-1 = Up volume? I.e. an "up tick"? and vice versa for Down volume (a "down tick")? Cheers

Great post. I think it's important new traders (and old traders) realise how much there is to do for point #4. Do you have an plan for when your trading software goes down? What about when the exchange goes down? Do you know how to hedge your trading instrument/size and do you have the excess capital available to? Do you have another brokerage account if you can't access your current one? PC Crash? Internet Crash? Your local phone exchange crash? (Yes, I actually have had that happen, and yes I was in a position.) Power outage? Godzilla? You get the drift.

Fronting large contracts, or 'leaning on size' is where you are looking in the price ladder (displaying the bids and offers). If you see someone come into offer an abnormally large amount at a price, you offer to sell 1 price below. Better for thinner, more volatile markets - DAX, Taiwan, Singapore, Hang Seng, SGX Nikkei (leaning on the arb size) etc. For the record, I don't really agree with doing that unless you are in an environment where commissions are low. The price ladder is an entire world of it's own, with it's own pyschology, rules and dynamics. Generally, the idea behind showing large size is to scare weak holders. If there are no weak holders, clearly it doesn't work. Imagine if your sitting Long in a trade, 30 ticks on-side, and someone offers a large amount to sell suddenly. You don't really "care" - even it moves 10 ticks down, your still in profit 20 ticks. If there aren't enough weak holders, what often happens is people front the size, but then someone takes the large order and reverses it to sending the market bid at that level. Then everyone who fronted the larger order is now offside, creating new weak holders to cover, sending the market higher. However, if you were sitting 5 ticks OFF-side, you're sitting their nervous, watching every tick, hand on the trigger to get out. Suddenly someone offers a large amount to sell, and you go "$#* I need to get out" and sell. Others do the same, and cause a mini move down. It is ALL about the pyschology of the market at each point.

Exactly - I understood what you were referring to. :thumbs up:

It depends how you trade. Some people find it useful. A fair wack of quant, spreading, etc. is based around looking at the behaviour of a given set of variables (e.g. a market in relation to movement, or another market) in the past, and what that implies for the future.

"Friday's decline of 3.24% for the Dow was the first -3% day since February 27th, 2007, and just the third of the bull market (if it still is one) that started in October of 2002. Below we highlight all -3% days for the Dow Jones Industrial Average post WWII. The average change on the day following the 60 prior occurrences has been 0.11%, while the average change over the next week has been 0.28%. Going back 10 years, the average performance on the next day has been 0.63%." (Bespoke Investment Group) "With the S&P 500 currently down 1.88%, the index is set to have been up more than 1.5% yesterday and down more than 1.5% today. Over the last 50 years, this has happened just 30 other times. The average change following these 2-day whirlwinds has been 0.14% on the following day and 0.56% over the following week. During the current bull market (since 10/9/02), the occurrence has happened 5 times, and the index has been up more than 1.2% the next day every time for an average change of 2.17%. " Source: http://bespokeinvest.typepad.com/ This isn't a prediction - I'm not going to be long and turning my computer off, but I like to keep it in perspective. On the otherside of the coin, if we do sell off, it will hold even greater significance. Have fun