[s&r levels] How Are Turning Points Created?

[humble 10]

Each day the ES market creates several reversal points, where price turns as buyers step in and take control from sellers and vice versa. What are the mechanics behind how these reversal points occur? I assume that they are created by large traders who have the deep pockets to change the direction of price, but what, specifically, must happen at these points in order for prices to reverse?

[phantom 16]

Each day the ES market creates several reversal points, where price turns as buyers step in and take control from sellers and vice versa. What are the mechanics behind how these reversal points occur? I assume that they are created by large traders who have the deep pockets to change the direction of price, but what, specifically, must happen at these points in order for prices to reverse?

 

Sell orders dry up at a bottom; buy orders dry up at a top.

 

Pretty simple, heh?

 

 

Phantom

[humble 10]

Sell orders dry up at a bottom; buy orders dry up at a top.

 

Pretty simple, heh?

 

 

Phantom

 

Yes, I understand that very basic part of it, I'm looking more for how a large trader or group of large traders makes this happen. What sequence of events must occur at, just prior to, and soon after these reversal points?

[steve46 12]

Reversals happen because the market is dominated by professional interests and when price drops significantly, they take out their shopping lists...practically speaking, they look to lower their average cost for the inventory they currently own...If for example an institution or fund owns IBM at $140, when the market drops they check the price for IBM....if it looks like they can buy it at a signficant discount, they start to buy....on the institutional and fund side of the market this is done with basket execution (buying a group of stocks). As you can imagine, if a group of professionals all think the same way (and they do) and they act to buy at specific points the effect is a reversal....these "specific points" are what we call "nodes" and they exist on the charts (you can see examples on my thread if you look it up)....Those nodes are examples of supply and demand....places where institutions and funds have decided to "go shopping" when prices are attractive (no differrent than when you go shopping because something you want is selling at a good price)...

 

One more item of interest....when basket executions (also known as automated executions) take place.. there are other professionals who maintain systems that have access to the order flow milliseconds BEFORE the rest of us...those systems "see" those orders as they come into the market and they also activate additional buying as they try to front run those basket orders...the net effect is a strong move of at least 3 points on the S&P futures...

 

Steve

Edited July 27, 2011 by steve46

[phantom 16]

Reversals happen because the market is dominated by professional interests and when price drops significantly, they take out their shopping lists...practically speaking, they look to lower their average cost for the inventory they currently own...If for example an institution or fund owns IBM at $140, when the market drops they check the price for IBM....if it looks like they can buy it at a signficant discount, they start to buy....on the institutional and fund side of the market this is done with basket execution (buying a group of stocks). As you can imagine, if a group of professionals all think the same way (and they do) and they act to buy at specific points the effect is a reversal....these "specific points" are what we call "nodes" and they exist on the charts (you can see examples on my thread if you look it up)....Those nodes are examples of supply and demand....places where institutions and funds have decided to "go shopping" when prices are attractive (no differrent than when you go shopping because something you want is selling at a good price)...I hope this helps

 

Steve

 

Pretty good answer, but did you have to be so rude before you delivered it???

Edited July 27, 2011 by MadMarketScientist
language

[StockCoach 10]

Each day the ES market creates several reversal points, where price turns as buyers step in and take control from sellers and vice versa. What are the mechanics behind how these reversal points occur? I assume that they are created by large traders who have the deep pockets to change the direction of price, but what, specifically, must happen at these points in order for prices to reverse?

 

There are endless reasons for any markets or stock price reversal, from technical inflection points, but I assume you are referring to unanticipated turns in the markets and stock prices. Here's my take - it's all about market maker, market mover trickery.

 

Not necessarily based on fundamental or technical analysis, but trickster analysis.

 

Check out my website for more content on this. You should be able to find the URL with my profile area.

 

Good luck,

 

John

Edited July 27, 2011 by MadMarketScientist
removed number

[StockCoach 10]

Sell orders dry up at a bottom; buy orders dry up at a top.

 

Pretty simple, heh?

 

 

Phantom

 

Hi Phantom - think trickery - see my answer to prior post.

 

John

[humble 10]

My interest is not so much in why prices turn where they do, as much as it is in how it is achieved. In other words, what are the mechanics of how larger traders create a turn or reversal? And by the nature of having to turn a large number of contracts, are there footprints of it left behind that give clues as to when this is happening?

[UrmaBlume 10]

My interest is not so much in why prices turn where they do, as much as it is in how it is achieved. In other words, what are the mechanics of how larger traders create a turn or reversal? And by the nature of having to turn a large number of contracts, are there footprints of it left behind that give clues as to when this is happening?

 

There is a set of indicators, available to the public, that do an excellet job of spotting session extremes in real time.

 

The strongest extremes are formed when machine placed limit orders are replenished at a rate that exceeds human capability and exceeds the momentum of the market as plainly demonstrated below.

 

In the longer term there is a divergence between balance of trade indicators and price and in the millisecond time frame by spikes in trade velocity so strong that it can only be done by machines.

 

Below are sceenshots of extremes from today and the previous 4 days -the extremes are labeled by date and the times are PST. In almsost every instance, at these extremes, there is the divergence in the higher time frame and velocity spikes in the fastest time frame as shown below.

 

 

Just click to enlarge any image to read text and see dates & times

 

 

 

 

 

 

 

Bottoms are made by a bid bigger than the market and tops are made by an offering that is bigger than the market and the momentum that got price to the highs.

 

At least one of these signals happens almost every day as you can see happened in each of the previous four days.

 

cheers

 

UB

Edited July 27, 2011 by UrmaBlume

[humble 10]

There is a set of indicators, available to the public, that do an excellet job of spotting session extremes in real time.

 

The strongest extremes are formed when machine placed limit orders are replenished at a rate that exceeds human capability and exceeds the momentum of the market as plainly demonstrated below.

 

In the longer term there is a divergence between balance of trade indicators and price and in the millisecond time frame by spikes in trade velocity so strong that it can only be done by machines.

 

Below are sceenshots of extremes from today and the previous 4 days -the extremes are labeled by date and the times are PST. In almsost every instance, at these extremes, there is the divergence in the higher time frame and velocity spikes in the fastest time frame as shown below.

 

[/center]

 

Bottoms are made by a bid bigger than the market and tops are made by an offering that is bigger than the market and the momentum that got price to the highs.

 

At least one of these signals happens almost every day as you can see happened in each of the previous four days.

 

cheers

 

UB

 

Hi Urma,

 

I'm not sure I know exaclty what I'm looking at with most of these colored squiggly lines (although I must admit they are pretty), but I think I get the concept you described regarding the "trade velocity" and can see the velocity spikes your are referring to on your charts, which leads to my question...

 

On the last chart, there appear to be two distinct velocity spikes, one at 7:17 and one at 7:24. If these spikes are only created by machine placed orders that are larger than the market itself, and are indicative of large traders who want to turn the market, why did the spike at 7:17 fail?

 

And what about the turns that occur in the market without a velocity spike? Who is behind those reversals?

[phantom 16]

Let's see if we can clean this up a bit...

 

The "going shopping", as steve46 described, is a part of the accumulation side of the coin. Commercial interests must own such a large quantity of a stock, commodity, etc that the buy limit orders they place will exhaust themselves at a given price range. The retail, selling side of the trade cannot overcome the sheer number of orders at the given price range the large interests place their demand at. This is why the sell orders "dry up."

 

But because of the sheer number of orders that need to be filled, the buyers must buy in batches, and not "at the market," or they will pay too much to fill all the orders that they need to execute their trading plan. So, they execute in steps, with limit orders. When these "batches", or subsets of the entire order are filled, they must wait until the market comes back to the price area that they are okay with so that they can execute the next subset of orders. This continues until all their order requirements are fulfilled.

 

On the other side of the coin is the distribution of inventory that commercial interests hold. Batches of sell limit orders at the desired price ranges are systematically placed. Retail buyers cannot overcome the sheer number of sell limit orders that are stationed in the market. So the buying "dries up."

 

Since all the orders cannot be sold in a single price range due to the sheer number of orders that need to be filled, the selling is done in phases, or steps, when the market returns to the desired price range to meet the requirements of the commercial interests involved. Just as they do not want to pay too much to acquire the desired inventory in the accumulation phase, they also do not want to receive too little in the distribution phase for their inventory.

 

The phases of buying or selling create the "nodes" that steve46 referred to earlier.

 

 

Phantom