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mikeynero

Help Me Understand Who is in Control?

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Hello all, I am a relatively new trader, and am trying to understand who is in control.

 

Most literature I’ve read on rising and declining prices, declare that if prices are rising the bulls are in control, and when declining the bears. Also stated is that when prices rise to a level where sellers overwhelm buyers (supply) prices begin to fall, and when declining to a level where buyers overwhelm sellers (demand) prices begin to rise. I am struggling with this concept and trying to understand. Although this seems logical on the surface, the idea seems fundamentally backwards to me – hear me out:

When prices are rising: If I am a buyer and demand is so high that my bid to buy a security is not met, and I am “forced” to raise my bid to buy the security, then in my thinking the seller is in control not the buyer.

When prices are declining: If I am a seller and supply is so high that my ask prices to sell the security is not met, and I am “forced” to lower my ask in order to sell, then in my thinking the buyer is in control not the seller.

Therefore when prices rise to a level where buyers are no longer willing to bid up for the security, then buyers have overwhelmed sellers, “forcing” them to ask less and the price declines. When prices decline to a level where sellers are no longer willing to ask less, then sellers have overwhelmed buyers forcing them to bid up and prices begin to rise.

I realize that the conventional thinking is that buyers want prices to go up, and sellers want prices to go down. The dichotomy is that as a buyer I only want prices to go up AFTER I purchase, and as a seller want them to go down AFTER I sell.

So the battle is with the active buyers and sellers.

Ok, so I know the real key is understanding support/resistance supply/demand. I am just trying to get a handle on all of this.

Thoughts?

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dont get too caught up in terminology....as its always different, for different markets, different players and different focuses.

 

In most markets, when they are in a downtrend its often said that its a" buyers market" meaning that buyers are getting the best deals. Hence your confusion.

 

When the buyers are in control in many futures/equities markets, it just means its trending up, and that the buyers will support the dips. The prices will rise and the sellers either shorted and are hurting, or have sold too early. The sellers dont have control as they are the losers (for want of a better word) in this scenario.

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Talking about terminology, what about when we hear something like..." they are bidding up de stock"...?

 

If we want do sell, now, we need to accept markets price, whatever the bid is at that moment, correct?

 

So when we hear something like bidding up makes no sense.

 

I've always found difficulty in understanding the terminology used by the markets.

 

Isn't this much more simple to understand:

- If I want to buy, I need to buy from a seller.

- If I want do sell, I need to sell to a buyer.

 

Well, maybe Bid and Ask are easy to understand, the problems is the way they are explained to the world :doh:

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its all about position,capitalization and personal risk of ruin to determine the players and their focus and perception of future value to determine the directional bias

 

these are the variables at play

 

everybody claims how the markets have change recently

well nothing has changend

 

i think that this is a claim as ludicrous as saying the world has changed and there will be no more war and the rich will donate their money to the poor...

 

if you play by the rules as a small investor you will get your banana

if you develope your skills to the max as a day trader you will get your banana

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when price is going neither up nor down but moving sideways (consolidating), buyers and sellers are in agreement on price...generally regarded as a period of indecision. price can stay in this 'range' for short or extended periods. at some point information becomes available and the agreement dissolves. one side views the information as a buying (or selling) opportunity. buyers will agree to pay the higher 'ask' price. demand takes over and price is pushed up. this is the result of buyers willing to pay higher ask prices, not by sellers raising the ask price. buyers (demand) are in control here...

you may be caught up in the 'what came first, chicken or egg' dilemma.

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then there is the old grinder move up where you get prices trickeleing up all day on light volume this is is mostly just fueled by new shorts (weak ones) and there stops are the market orders that make the new highs. repeat over and over and you have a trend day.

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I just skimmed and didn't see anyone answer the original question.

 

The reason why more buyers drives the price up is due to the mechanics of the market.

 

Imagine that your ES matrix looks like this

 

Price Short Contracts Available

1240.00 25

1239.75 19

1239.50 22

 

If market participants think that the market is going to go up, they establish position at the current level. Let's say they buy 40 contracts at market price.

 

Suddenly, all the contracts at 1293.50 and 1239.75 have been snapped up and the only available contracts are at 1240.00. The price has gone up $.50. The dynamics get complicated, but imagine that general sentiment/momentum is positive... lots of triggers will get fired because they see the move up and more of those shorting contracts will get bought. The price continues to rise.

 

When demand from buyers increases, supplies decrease, prices go up.

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Yes, that is all about terminology. Let's say one morning, I decided to go for a market (which is a couple of blocks from me) to buy a ... fresh wild salmon, for expl. (then you put it in a glass bowl + salt + one shot of wiskey, wait for three hours, then a piece of bread + butter + slice of salmon, mmmm..., but this is the other story). Having come there I realized that there are just 5 sellers with 5 fresh wild salmons and 10 guys like me looking for them (high demand). So, who is raising price, buyers or sellers? I would say sellers (not me, I want to buy cheaper), so they are in control, right? However, on the other hand, I want salmon so desperately, that I am ready to give the higher price than other guys. From this position (more buyer than sellers), you could say that buyers are in control of the market (= in control of the prices?). This is a textbook's variation. However, they are not, they do not and can not control prices. So, in my humble opinion, termin "in control" is not appropriate, because it is confusing. But the rest are simple and understandable: high/low demand/supply and more buyers/sellers, so let's go with that.

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many reasonable ways to look at life...lots of different viewpoints...helps perspective.

 

you are in a tug-of-war over price AND price is going in a direction favorable to your team.

one could reasonably argue that YOUR team is in control .

 

bottom line...

if you are not making any money trading you are doing something wrong. all you need to do is figure out what you're doing wrong and stop doing it.

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I would say that it is an issue of WHAT controls the market, not WHO. It may seem like I'm splitting hairs here, . . . I am. To use the word "who" controls the market, automatically excludes some other factors that influence the market; like earnings, or economic reports. Those are not "who" factors. All I'm saying, is that if you want to understand the influences on the market, then there are a few things you need to look at, not only buying and selling. For example, let's say that a lot of investors made a really stupid decision, and then realize they are on the wrong side of the trade. How are you going to know that? I don't think there is any way of knowing that. You will see the consequences of it, after the fact. But if all you look at is buying and selling, and the people who are doing the buying and selling made a really stupid decision, and you follow them, that's not a good situation. Sometimes the market influences that are affecting price get it wrong. That's why the market will see a "flash crash" when unexpectedly bad news comes out. The market influences got it wrong. What I'm saying is, that buying and selling influences on the price, and the fair price of the market isn't always right. And if you follow the herd that is wrong, the price will correct at some point, and it could do it in a matter of seconds.

I'm just trying to provide some thoughts here in hopes of providing a few more pieces to the puzzle. I don't know the whole picture myself. I'm not saying that I understand all the market influences myself. But news and earnings affects the price, and speculation and hedging affects the price. I don't think it's just pure buying and selling.

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everything you say is true...many factors do influence the market.

the key is how those factors are 'interpreted' by traders.

an earnings report comes out...

some will see a buy opportunity while others will see a reason to sell.

same information different intrepretations. it has to be this way for the market to work.

a battle ensues and the side with the strongest 'conviction' wins.

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A man with a watch knows what time it is.

A man with two watches is never quite sure.

 

Rising prices on a smaller time frame provide an opportunity to sell on a higher time frame where the trend is down etc etc.

 

It is not so much whether the buyers and sellers are in control so much as it is whether you are in control of yourself and your strategy and even then understanding that your strategy is based upon probabilities.

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When the market is rising, traders are deciding that they no longer want to wait to buy lower. So, either a long is aggressively buying at the offer, or a seller is dumping his short by either getting stopped out or simply buying at the market.

 

When the market is dropping traders are deciding that they no longer want to wait to sell higher so they are either entering their short aggressively at the bid or they are exiting a long because of a stop or are hitting the bid with a market order.

 

Each scenario will continue as long as there are orders to be filled.

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IMHO, it is critical to trade congruently with Order Flow. If you don't trade with Order Flow, you are fighting the tape...and that is never fun.

 

Here are some free real-time charts that publish Buy Program & Sell Program dominance in the electronic futures markets...there are also lessons on how to interpret this information and also free real-time trading signals that are generated by divergences between the Micro-Momentum of price and Order Flow Momentum.

 

 

 

Hope this helps.

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IMHO, it is critical to trade congruently with Order Flow. If you don't trade with Order Flow, you are fighting the tape...and that is never fun.

 

Here are some free real-time charts that publish Buy Program & Sell Program dominance in the electronic futures markets...there are also lessons on how to interpret this information and also free real-time trading signals that are generated by divergences between the Micro-Momentum of price and Order Flow Momentum.

 

 

 

Hope this helps.

 

 

Hi AlgoFutures.

 

Where are those free real-time charts published?

 

Regards

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There is one thing you are ignoring. There can be both buyers and sellers in control. On, say, the 1 minute timeframe buyers can be in control and on the 10 minutes time frame the sellers can be in control. It's important to trade the trend of the chart you are trading from. That is THE trend.

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Hello all, I am a relatively new trader, and am trying to understand who is in control.

 

Most literature I’ve read on rising and declining prices, declare that if prices are rising the bulls are in control, and when declining the bears. Also stated is that when prices rise to a level where sellers overwhelm buyers (supply) prices begin to fall, and when declining to a level where buyers overwhelm sellers (demand) prices begin to rise. I am struggling with this concept and trying to understand. Although this seems logical on the surface, the idea seems fundamentally backwards to me –

 

Great question,

 

you are correct by not taking this bull/bear-cud for true. With this kind of scepticism you'll sort out very quick those that haven't grasp the price discovery process and capitalize from this, by taking the appropriate actions in the market.

 

I completely understand your post. A lot of the so called authors really think they have something to share, but only reveil oneself at least as an absolute nitwit. It can be very difficult for a newbie to have confidence in ones opinion, considering the great majority who delude the public, deliberately or reckless with this.

 

Be very aware everytime you think: "Everyone is believing this, this must be true." But I believe this can't happen to you, which is very good.

 

Keep your path, I wish you all the best.

 

Regards,

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There is one thing you are ignoring. There can be both buyers and sellers in control. On, say, the 1 minute timeframe buyers can be in control and on the 10 minutes time frame the sellers can be in control. It's important to trade the trend of the chart you are trading from. That is THE trend.

 

Hi Electronic Local,

 

I think that you bring up a very important point....Codifying whether buyers or sellers are in control has a dependency on the time frame in question.

 

What is important is to understand what time frame a trader is comfortable trading, and making sure that they are aligned within this time frame.

 

There are so many valid time frames to trade...Swing Trading over a couple of days, day trading from 2 minutes to 2 hours...or scalping within 2 - 20 seconds.

 

All work and all are great...but it is important that you and your software is attuned to the appropriate time frame.

 

That being said, if the larger time frame shows an up trend, and I was scalping...I would not want to counter-trend short scalps.

 

Carl

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I notice in your explanation you use the word "bid" while not including anything about the word called "ask" in the same sentence although elsewhere. My point if you're trying to understand supply/demand via such a way...it's difficult.

 

There are many ways to explain who is in control via supply demand analysis and using "bid/ask" references is just one way out of many although not my favorite. By the way, there are other explanations here at the forum @ http://www.traderslaboratory.com/forums/f131/ and you can then use that to further your research outside the forum into other areas of supply demand analysis if needed especially when you get into more trade strategy specific discussions.

 

Also, pay attention to what electroniclocal said...

 

There is one thing you are ignoring. There can be both buyers and sellers in control. On, say, the 1 minute timeframe buyers can be in control and on the 10 minutes time frame the sellers can be in control. It's important to trade the trend of the chart you are trading from. That is THE trend.
Edited by wrbtrader

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That being said, if the larger time frame shows an up trend, and I was scalping...I would not want to counter-trend short scalps.

 

Hi Carl,

 

I maybe wrong though, but could it be that you contradicted with your statement what electroniclocal said?

 

Could this larger time frame/shorter time frame thing also be the same cud as the before (#20) mentioned bull/bear-thing which mikeynero questioned correctly?

 

How about a further explanation attempt (at best impartial) regarding this? I am very curious to read if you have taken this for granted like the majority, or have spend some time to think about this. You'll most probably be taken aback.

 

Wish you all the best.

 

Regards,

Edited by idetsc

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Hi idetsc,

 

Counter-trend is brutal....If the program trading, which IMHO, is the dominant factor in price discovery is dominated by Buy Programs, and you are trying to scalp each new high...that is simply not going to work.

 

You can write a strategy and back-test it and tweak it so that it shows you a decent P&L...but, once you put this strategy into production, your fills will be very challenging if you are fighting the tape....and your P&L will erode.

 

We do this by monitoring order flow within the electronic futures markets...This information will tell you what the longer term trend is (we define longer term trend as 2-3 days).

 

This may shed some light. Don

 

All the best,

Carl

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There's just too many different situations where worrying about which (buyers or sellers) is in control becomes just another philosophical discussion because whatever time frame someone is using to make a trade decision...

 

A different time frame used by another trader at that exact same moment could show just the opposite about who is in control. Further, even if someone had the resources to know what every hedge fund, institutional trader, high stake professional retail trader, corporate traders et cetera was doing at one particular moment in time in a particular trading instrument along with knowing what their goals were for the position...

 

You can't exploit such as a retail trader, let alone via technical analysis by itself (this question is posted in the TA section), although it makes an interesting discussion for some. The markets is just too dynamic to explain via technical analysis alone although such falls under the facade of keeping it simple.

 

Thus, to echo what someone else said...don't get caught up with this type of questioning unless you had the resources to see it occur in a particular market at a particular moment in time.

Edited by wrbtrader

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