What Determines PRICE?

[bobcollett 10]

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

But is this really true?

Why did the buyers stop at a certain point?

Why did the sellers enter at a certain point?

 

"The current price of a stock is determined by what analysts believe is the current value of future earnings"

.So if a stock is undervalued, the price will rise , and visa versa.

 

Value.... its all coming back to value.

I cant change the Law of Supply and Demand,but, digging deeper,its appears to have another level.

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

All comments welcome.

bobc

[PrymeTyme 10]

HI

 

 

Isnt value an individual perception , of each and everyones own parameters ?

 

wich take into account entry , take profit and stopp loss ..

 

 

even a stopp loss then turns into value ? for both partys (its fair to sell the stock @ xx as iam wrong)

 

while the other side thinks, now thats a fair price as my indicators turned green ?

 

cheers

[TheNegotiator 13]

Well, the truth is we never really know what has moved the markets with absolute certainty. With this in mind, I think it's important to embrace the uncertainty as a trader and not try to dissect things too much. Analysis paralysis is not good. If you see what the market is doing regardless of why it is doing it, it's possible to make money if you have a good plan with solid money management rules. You don't even have to be 'right' to make money in fact.

[PrymeTyme 10]

and therfore...

 

 

isnt price allways in search for liquidity ? hence advertizing itself all the time ?

 

 

*sorry forgot to ad this to my previous post ...

 

cheers

[bobcollett 10]

HI

 

 

Isnt value an individual perception , of each and everyones own parameters ?

 

wich take into account entry , take profit and stopp loss ..

 

 

even a stopp loss then turns into value ? for both partys (its fair to sell the stock @ xx as iam wrong)

 

while the other side thinks, now thats a fair price as my indicators turned green ?

 

cheers

 

Hi Pryme Tyme

You must be in the broadcasting business..

Yes, value is an individual perception.

But do you think retail traders perception of value can influence the market?

Against the mighty instutions?

Kind regards

bobc

[bobcollett 10]

Well, the truth is we never really know what has moved the markets with absolute certainty. , :

 

Hi Neg,

And thats my question.

And answer.

VALUE!!!

regards

bobc

[TheNegotiator 13]

I would add one thing on your original remark Bob about price being determined by value rather than supply and demand. I think PT is saying this too. Value is about perception. But then perception of value across different tf's creates supply & demand which in turn determines price. Do you need to know value to anticipate supply and demand? Yeah it certainly helps. But without seeing the changes to supply and demand, you won't know which perception of value will win out in your tf. Anyway.

[PrymeTyme 10]

Hi Pryme Tyme

You must be in the broadcasting business..

Yes, value is an individual perception.

But do you think retail traders perception of value can influence the market?

Against the mighty instutions?

Kind regards

bobc

 

Hi bobc

 

Sure it does! As it wouldnt be in the eye of the instituions to drive price

Therfore the need to push the herd from a cliff to get the ball rolling

So in a form retailers are usefull and a play a part in the mechanics

 

 

@neg

 

I like that u added TFs to this discussion, as they do play a big part in this

Who will puke first? The small or big TF traders ?

Where does price attract bigger TFs and therfore trade against smaller TFs ?

And how will that play out?

 

I would have some more to say but iam not at my pc atm , and typing on a smartphone

Sucks ass

 

Catch ya guys tomorrow

 

Cya

[BlueHorseshoe 10]

I think it's important to remember that there is a difference between knowing the answer to this question, and knowing how to utilise this understanding. Supposing the very simplest model of supply and demand were to pertain . . . How you'd exploit this is still a big problem. Essentially you'd still need to make some sort of 'prediction' ahead of the current time.

 

Not that I object to the thread topic, of course!

 

BlueHorseshoe

[bobcollett 10]

I think it's important to remember that there is a difference between knowing the answer to this question, and knowing how to utilise this understanding. Supposing the very simplest model of supply and demand were to pertain . . . How you'd exploit this is still a big problem. Essentially you'd still need to make some sort of 'prediction' ahead of the current time.

 

Not that I object to the thread topic, of course!

 

BlueHorseshoe

 

Mr Horseshoes,(As Petuca refers to you)

You are on the right track

Determine the analysts concensus view of Value and trade accordingly

regards

bobc

[TheDude 10]

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

But is this really true?

Why did the buyers stop at a certain point?

Why did the sellers enter at a certain point?

 

"The current price of a stock is determined by what analysts believe is the current value of future earnings"

.So if a stock is undervalued, the price will rise , and visa versa.

 

Value.... its all coming back to value.

I cant change the Law of Supply and Demand,but, digging deeper,its appears to have another level.

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

All comments welcome.

bobc

 

This is how it works (according to me )

 

THEORY1:

Price falls - buyers step in to buy cheap at a lower cost

Price rises - sellers step in to sell at a premium profit

 

This process keeps price 'in value', keeps mean reverting traders happy, keeps school teachers happy as it seems simple enough with an example of a grocery store. Simple Keynesian (did I spell that correctly )

 

 

THEORY 2:

Behavioural Finance suggests when prices rise, it attracts more buyers who seek to take advantage of the rising prices with a view to profit - likewise, when price falls, sellers come in and cut their losses quickly, perhaps hoping to buy back later at a better price if they have an economic need for the product.

 

So T1 models what happens in normal times when we have balance. The market forms its economic function. T2 model comes in in times of economic shortage/surplus. Both models exist, but not at the same time. There are perhaps TWO laws of supply and demand.

 

Market Profile is about identifying the transition between the 2 models - from value to trend in the search of the next value where fair prices will/can exist.

 

ES is unfortunately stuck in T1. It has all week. It must move to T2 soon though - but will need some news to push it there.

 

This asks the next question: Do the markets dictate the news, or does the news dictate the markets?

 

Edited September 19, 2012 by TheDude

[bobcollett 10]

This is how it works (according to me )

 

THEORY1:

Price falls - buyers step in to buy cheap at a lower cost

 

 

Dear Dude

Did buyers step in to buy because there were no more sellers. Or did they see Value?

regards

bobc

[UrmaBlume 10]

Bob,

 

As Pryme suggests - value is subjective and volume/orderflow/balance of trade is objective.

 

We trade nothing but automated systems and all of them are based on order flow. I see every day that changes in the balance of trade drive changes in price and that in many, if not most, instances these changes in order flow occur BEFORE the change in price.

 

Almost anyway the value of a stock is calculated, the result is something that doesn't usually change during the course of a trading session. At the same time it is for damn sure the price of the stock changes during that session and those changes are the result of the surges of buying and selling that occur throughtout the session.

 

While value, like beauty, is in the eye of the beholder, it is still the buying and selling of these stocks, futures, etc., that drive/motivate their price.

 

cheers

 

UB

 

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

But is this really true?

Why did the buyers stop at a certain point?

Why did the sellers enter at a certain point?

 

"The current price of a stock is determined by what analysts believe is the current value of future earnings"

.So if a stock is undervalued, the price will rise , and visa versa.

 

Value.... its all coming back to value.

I cant change the Law of Supply and Demand,but, digging deeper,its appears to have another level.

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

All comments welcome.

bobc

[BlueHorseshoe 10]

This is how it works (according to me )

 

THEORY1:

Price falls - buyers step in to buy cheap at a lower cost

 

 

Dear Dude

Did buyers step in to buy because there were no more sellers. Or did they see Value?

regards

bobc

 

Buyers don't neccessarily need to step in. The number of buyers willing to cross the spread just needs to remain the same while the number of sellers willing to cross the spread and the number of sellers at the ask fall.

 

I think this effect is most pronounced in equities and equity indices. There is always a 'buy-side' bias to these instruments in my opinion, and selling is as likely to be associated with profit taking or loss cutting as it is active shorting. Strip away all the retail day-traders, the prop shops, the HFTs, and the billion dollar hedge funds, and you're left with . . . a residue of buy-and-hold investors who are only ever long an equity.

 

I've had this debate elsewhere with DB, though in the context of volume analysis. The ES tends to bottom on high volume (as buyers step in at value), and top out on low volume (as buying interest is depleted) - but noteably NOT not on high selling volume. Obviously this is a tendency rather than a rule. Think about it this way: - I have an Uncle who has been long half a dozen stocks for about ten years; I don't have an Auntie who has been short half a dozen stocks for ten years.

 

Look at something like a currency and you're just as likely to get ACTIVE short selling as you are ACTIVE buying, so that's a different ballgame.

 

And all of this is just my opinion, and just something to think about.

 

Mr Horseshoes

[SIUYA 11]

What determines price.....The perception of value determines the amount of supply and demand. It is the transaction that determines price.

 

But value means different things to different participants.....and in different instruments and types.

A value investor idea of value is different to a scalpers idea of value.

One value investor may also sell to another value investor in a higher level in the investment chain - eg; the first is a venture capital investor, the second a small cap investor, who then sells to a large cap investor if the price rises further.

a value investor may value a mining stock differently to a banking stock, a speculator may not discern any real difference between a currency or a stock - their value being risk reward focused on price action.

A farmer will have a different measure of value to an agricultural company to a speculator.

 

Often even if the perception of value is a long way apart - the need or desire to transact by one or both parties overwhelms their ideal value, and they become a price taker rather than a participant based on what they might consider a price of good or fair value.

 

In other words - its a market with varying participants with varying motivations.......

would much be different if you had an auction system whereby everybody had 30 secs to trade once a day as opposed to a wide range of prices throughout the day?

[ForexTraderX 10]

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

But is this really true?

Why did the buyers stop at a certain point?

Why did the sellers enter at a certain point?

 

"The current price of a stock is determined by what analysts believe is the current value of future earnings"

.So if a stock is undervalued, the price will rise , and visa versa.

 

Value.... its all coming back to value.

I cant change the Law of Supply and Demand,but, digging deeper,its appears to have another level.

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

All comments welcome.

bobc

 

Aright Bob, if you all don't mind, i'm gonna grab my teachin cap, and do my best to help tie various ideas together for you. Be forewarned, this is going to be a long post, and I'll do my best to keep it as simple as possible, but no guarantees. I'll stick with just the points and questions you bring up here, and then we can do question/answer and futher the depth of discussion as conversation requires.

 

First off, you seem to frame value to some extent in opposition of supply and demand. These things are better viewed as "cause and effect", than they are viewed as two seperate factors that influence price.

 

"value" primarily has one of two distinct contexts:

 

1. Regarding capital markets, value as seen from the individuals perspective is the "perceived worth" of an underlying financial instrument that trades in a free floating exchange. Value is seperate and distinct from price in this context, as an individual can feel a financial instrument may be priced too high or too low for the value that this individual may assign to this financial instrument.

 

2. Regarding capital markets, value as seen from the AGGREGATE perspective of market participants is more complex, but it is most simply viewed as a range of prices where willing buyers and willing sellers are able to transact with each other at will, with little to no impact on available liquidity in that range of prices. When liquidity is no longer available for either buyers OR sellers, the market will move until it has found a now price range where there is adequate liquidity for both buyers and sellers.

 

"Supply and Demand" on the other hand, is how value beliefs of various individuals as well as aggregate market participants express themselves in a free capital market. Lets take value from the individuals perspective for starters. If an individual looks at a stock currently trading at $20.00, he is observing price. However, if he feels the VALUE of the stock is actually $25.00, he may place a order to buy at market price, because he feels he is able to buy something priced at $20, that has a value of $25. In this case, lets say he decides to buy 100 shares

 

His "bid at market" order will be for 100 shares of this stock, and this 100 shares hits the marketplace in the form of "demand". When his order is executed and filled, he will have absorbed 100 shares of "supply" out of the available liquidity at whatever price the trade was transacted at (probably about $20)

 

So you see, opinions of value are what dictate the various prices that bid orders and offer orders are placed in the marketplace. So it's an individuals perception of value that ultimately determines what price they place a bid or offer in the market.

 

Thus, individual perceved value is what determines supply and demand, or the lackthereof.

 

Ok, so we have that cleared up. This next part is more complex. I really would need to spend a few hours with you to properly explain it fully. However, I will do my best to keep it as simple and straightforward as possible.

 

Now, as far as what you were taught with supply and demand, I think you may be overlooking some very important distinctions, conceptually speaking. Here is what you said:

 

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

First of all, every single transaction has both a buyer and a seller, so using deductive logic, price rises or falls based on an equal amount of buyers and sellers making transactions that influenced price. If a stock goes from $10 up to $13, there were not more buyers than sellers who were making trades that influenced price to move up to $13. There were in fact the exact same number of buyers and sellers who were collectivly responsible for moving price up from $10 to $13. At first thought, this seems like some sort of paradox or impossibility. However, the actual mechanics are that there are actually two distinct types of bid orders (buy orders), and two distinct types of offer orders (sell orders). Making 4 types of orders available in the capital markets, not just 2.

 

There are active buy orders (which would be a "bid at market" order), and passive buy orders (which would be a "bid at limit" order)

 

There are also active sell orders (offer at market), and passive sell orders (offer at limit).

 

There is also a "bid/ask threshold".

 

I will assume you are familiar with these concepts already, so I will go on for simplicity sake. however if I am wrong, please do ask me to clarify and I will happily do so.

 

So, in our example where the $10 stock moved up to $13. THere were exactly the same amount of buyers as there were sellers who made the transactions that moved the stock up. The DIFFERENCE is that there was a great deal more ACTIVE BUYING, and PASSIVE SELLING. (again, assuming you know why this makes a difference and how price actually moves as well as how market and limit orders affect price in their distinct ways, etc, but if you don't i'll go into more detail).

 

This is important because it relates to two of your questions: first, the "why did the buyers stop at a certain point?" etc. And then, the statement of

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

 

 

So, first off, neither buyers nor sellers ever do stop at a certain point. Ever. What DOES stop is ACTIVE buyers and ACTIVE sellers (orders placed at market, as opposed to limit(

 

As far as volume goes, it can provide some very powerful clues as to what THE OTHER GUYS believe is "value"

 

I will just give one very simple example, and then wrap it up. Then ask away and i'll address those specifics as I can.

 

Say you believe the value on a stock is $20. It just broke out from $10, and went very quickly to $15, where it has just stalled for the past 2 trading sessions. This is where volume can help be your "radar" to "hone in" on large players and what they feel value is for them.

 

If you see price consolidating just under $15... but you see high volume each time as it makes a little run up towards $15, and then suddenly, you see volume climax as it attempts to brek through $15 but fails to do so. If this happens for a period of time, it is reasonable to conclude that a large player such as an institution has a rather large offer at limit order at the $15.00 price point. In other words, this institution is a passive seller around $15.

 

But how do we know it's a rather large order? Well, this is where the volume comes in. As volume spikes when price charges towards $15, a reasonable assumption can be made that the driving party behind the charge towards $15 were Active buyers who were finding passive sellers continuing to pull their sale price up with each transaction that takes place. This creates a long green candle, and it clearly shows that there was a lack of sufficicent liquidity on the supply side to fill all the active buy orders (otherwise, we would have no long green candle of course).

 

But suddenly, we get to $15, and we see high volume, but now, price no longer advances.

 

The only way this is possible is if a large amount of active buyers suddenly came to a price where there was enough liquidity to absorb all of their buy orders (for the moment anyway). Then, a short while later, another "rush" occurs, and price shoots into $15, and volume again shows many transactions... but, price again fails to break over $15.

 

The only way this can happen is if there is a large, passive seller, who just keeps placing Limit offers (limit sell orders) at $15.00. And they have to be large, because price has made several attempts to breach $15, and even though large volume is transacted, it does not breach $15. Obviously, a large passive sell order is sitting at $15

 

If this happens over a period of minutes or hours or days, each time volume is met with a lack of penetration through a level... it literaelly is "big boys" tipping their hand as to where they see value at. And you may see value at $20, they obviously think $15 is overvalued, and thus they will sell their shares there.

 

So, now you have some very good clues as to what your opponents belive value is. Moreso, this is a big player, because only a big player would be able to absorb that much volume, and not have price break out to the upside.

 

Volume is good for more than this of course, but volume can proovide a very important piece of the puzzle... it can tell you where the "smart money" believes value is in terms of price, as well as whether something is overvalued or undervauled., based on how price and volume act when they reach a particular price,

 

The obvious conclusion is regardless of what price you feel is a good value, or that a market should be valued at... if there is a seller who may be unloading a great deal of stock or whatever at a price LOWER than what you feel value actually is... well, the market will never trade up to your price until this large seller either sells every single share that he wants, or until he changes his mind on value (thus canceling his large sell order)

 

To sum it all up:

 

1. value is what an individual determines something is worth. Or it can be an appropriate description of a price range that the aggregate of market participants are able to trade without any problem with liquidity.

 

2. supply and demand are the "effect" of value. A market participant believes that the value for a market is higher than the current market price, they will then place an order in the market to buy. That bid they place to buy that market is the "demand" side of "supply and demand"

 

3. price in free markets does not move up because more buyers enter the market place. it is because more ACTIVE buyers are willing to make a transaction over a specific range of prices than active sellers in that range of price. The sellers filling their orders are passive sellers. Anytime you have "Active buyers/sellers" matched with primarily "passive buyers/sellers", you have an impulse move.

 

4. In the markets, you only make money if someone, somewhere, loses money. Volume can be a very helpful tool to determine at what price large institutional orders are, and thus, you can then know what price and direction large institutions are currently seeing as a good value for them to sell or buy at. This can help you adjust your own view of value to accomodate the situation, rather than to determine it for your own self. In fact, I would argue that If I know at what price a very large institution will find a market to be "overvalued" or "undervalued", this in itself will help me determine value.

 

I do hope this helps. it may create more questions than answers, but that's fine. ask those questions, and maybe we can get a really good discussion going here.

[SIUYA 11]

From Steve46.....(I thought we could oblige as you kindly ask, and while this may seem like an attack, its not (there is a little dig lower down, but I think its mandatory), it just raises some questions - as you feel the rest of us mere mortals dont get it you might be able to help clarify......it also might open up a whole other can of worms....but what fun)

 

http://www.traderslaboratory.com/forums/e-mini-futures-trading-laboratory/14045-steves-basic-system-retail-traders-25.html

Post #197

 

"I notice that there are discussions about value on other threads (ROFL)...value is subject to interpretation by participants "based largely on time frame"....with the longer time frame participants viewing higher prices as "fairly valued"....why? because it is the longer time frame participants who view price in terms of the forward value of projected earnings of the asset....while short time frame participants see value predominatey in the present value of assets.....As always I enjoy the comedy routine these deep thinkers are posting.....

 

by the way....for those who think it might be appropriate to use this thread as their battleground for more silly comments about "value"....I invite you to copy my statement from the above and paste it into your own thread....thanks..."

 

''''''''''''''''''''''''''''''''''''''''''''''''

In keeping with the comedy theme and the deep thinking let me point out a few 'truisms Not!" that I think might be be interesting for discussion......

 

"with the longer time frame participants viewing higher prices as "fairly valued"....why?

EXCEPT - when they think markets are over valued.....then fair value might be lower.

Plus many longer term participants actually have mandates to consider, and they might be forced to buy or sell as opposed to what they perceive as value. Many cannot short because of mandates, or the instruments.

 

"because it is the longer time frame participants who view price in terms of the forward value of projected earnings of the asset".....EXCEPT those assets that dont have forward earnings (eg; gold, negative bond yields)......clearly no long term holder would ever buy those, as it explains why the retail money is clearly paying some governments to keep their money......plus there are also those who have to make relative judgments on some investments, even if none of them have forward projected earnings.

 

There are so many exceptions to these statements, I thought you might like to clarify, even if you do make a good point as others do about varying time frames of particpants.

 

''''''''''''''''''''''''''

In short......thanks for the contemptuousness comedy Steve --- i did not want to clutter up your thread as your own deep thinking is clearly gold. I would say that Steve is clearly an institutional type thinker with these deep insights, (is highly likely to outperform an index less his fees) and it would be well worth your while to PM him to ask why his wonderful distributions can show institutional value - which is long term, with a buy at a certain level, and in the same day, sell at a certain level which is lower - by the same institutions.....??? (my deep thinking cant go this deep - but my comedy bone was tingling - maybe when he decides to take on new students for his next course he will let you know - that for clarity was a dig, as my deep cynicism emerges.)

 

or

maybe its just a supply/demand distribution which has its own value with little relevance with what what we think others are doing but can actually take into consideration the multitude of time frames and market players, in which can pick up reasonable levels of intraday support and resistance without needing to understand who is doing what. (this for clarity is not a dig)

[Cruiser 10]

I believe that supply and demand is the ultimate market determination of price.

 

Within that context there are two major categories of drivers which I believe drive price.:

 

1) the Market Cycle (click here if you don't know what this is) which is driven by the ongoing business of the large institutions as they buy stock cheap and sell it high on different time frames.

 

2. Millions of traders trading on different time frames and giving the market reflex reactions to technical indicators and news events.

 

But all of the above is within the overall context of supply and demand which, along with everything else, is operating on different time frames.

[BlueHorseshoe 10]

I'm re-quoting PrymeTyme from the first page, because nobody has really addressed this:

 

isnt price allways in search for liquidity ?

 

BlueHorseshoe

[TheNegotiator 13]

I'm re-quoting PrymeTyme from the first page, because nobody has really addressed this:

 

 

 

BlueHorseshoe

 

Aren't we still talking about supply and demand (and changes to it)?

[SIUYA 11]

I'm re-quoting PrymeTyme from the first page, because nobody has really addressed this:

 

Originally Posted by PrymeTyme »

isnt price allways in search for liquidity ?

 

BlueHorseshoe

 

random thoughts.....

 

price is just the reflection of where some participants have found liquidity.

 

Its just that some participants are searching for liquidity at certain areas of value (deep value investors - usually purchase things when the price is already trading well below their fair value), while others dont have a preference (speculators who look at the value of their bets as opposed to what price it is), whereas others have no choice and have to either wait for price to come to them, or they will chase and influence/push prices in their desire for liquidity....

 

again each participant will have their own idea of liquidity and price.

 

As time, value, market participants, and news flow changes then so shall liquidity at that point in time.....just because someone is the worlds biggest buyer one day at $1, does not mean they will be there tomorrow or the next day at $1.

 

It could be argued liquidity chases/searches for a price, otherwise you may as well have a one off auction process once a day (I hope not) rather than a continual stream of prices reflecting changing levels of liquidity over points in time....

 

Or more than anything, throw it on its head....

 

price actively runs away from liquidity - thats how levels of support and demand and resistanced and supply form - when the buyers and sellers have areas that provide a lot of liquidity price will naturally move away from them......liquidity repels price.

 

EDIT: more like --- high liquidity repels price towards the next most highly liquid area

Edited September 20, 2012 by SIUYA

[TheDude 10]

This is how it works (according to me )

 

THEORY1:

Price falls - buyers step in to buy cheap at a lower cost

 

 

Dear Dude

Did buyers step in to buy because there were no more sellers. Or did they see Value?

regards

bobc

 

In Theory 1, because they see a good price according to their idea of value. They need some sellers there to trade with. If there are no sellers, you have an issue.

 

The clue is not to concern yourself overly with the others motivation. They dont care about yours.

[TheDude 10]

From Steve46.....(I thought we could oblige as you kindly ask, and while this may seem like an attack, its not (there is a little dig lower down, but I think its mandatory), it just raises some questions - as you feel the rest of us mere mortals dont get it you might be able to help clarify......it also might open up a whole other can of worms....but what fun)

 

http://www.traderslaboratory.com/forums/e-mini-futures-trading-laboratory/14045-steves-basic-system-retail-traders-25.html

Post #197

 

"I notice that there are discussions about value on other threads (ROFL)...value is subject to interpretation by participants "based largely on time frame"....with the longer time frame participants viewing higher prices as "fairly valued"....why? because it is the longer time frame participants who view price in terms of the forward value of projected earnings of the asset....while short time frame participants see value predominatey in the present value of assets.....As always I enjoy the comedy routine these deep thinkers are posting.....

 

by the way....for those who think it might be appropriate to use this thread as their battleground for more silly comments about "value"....I invite you to copy my statement from the above and paste it into your own thread....thanks..."

 

''''''''''''''''''''''''''''''''''''''''''''''''

In keeping with the comedy theme and the deep thinking let me point out a few 'truisms Not!" that I think might be be interesting for discussion......

 

"with the longer time frame participants viewing higher prices as "fairly valued"....why?

EXCEPT - when they think markets are over valued.....then fair value might be lower.

Plus many longer term participants actually have mandates to consider, and they might be forced to buy or sell as opposed to what they perceive as value. Many cannot short because of mandates, or the instruments.

 

"because it is the longer time frame participants who view price in terms of the forward value of projected earnings of the asset".....EXCEPT those assets that dont have forward earnings (eg; gold, negative bond yields)......clearly no long term holder would ever buy those, as it explains why the retail money is clearly paying some governments to keep their money......plus there are also those who have to make relative judgments on some investments, even if none of them have forward projected earnings.

 

There are so many exceptions to these statements, I thought you might like to clarify, even if you do make a good point as others do about varying time frames of particpants.

 

''''''''''''''''''''''''''

In short......thanks for the contemptuousness comedy Steve --- i did not want to clutter up your thread as your own deep thinking is clearly gold. I would say that Steve is clearly an institutional type thinker with these deep insights, (is highly likely to outperform an index less his fees) and it would be well worth your while to PM him to ask why his wonderful distributions can show institutional value - which is long term, with a buy at a certain level, and in the same day, sell at a certain level which is lower - by the same institutions.....??? (my deep thinking cant go this deep - but my comedy bone was tingling - maybe when he decides to take on new students for his next course he will let you know - that for clarity was a dig, as my deep cynicism emerges.)

 

or

maybe its just a supply/demand distribution which has its own value with little relevance with what what we think others are doing but can actually take into consideration the multitude of time frames and market players, in which can pick up reasonable levels of intraday support and resistance without needing to understand who is doing what. (this for clarity is not a dig)

 

LOL If you want more comedy from Steve - look at his thread on 'how institutions trade S&P' or similar name. Pure comedy gold I tell you!!!!

 

I'm sure you meant to add, but forgot (clearly Steve did), that many serious long term folk are looking at yield (dividend, coupon etc) as their primary reason for holding

 

still...

[jonnyfx 10]

As an economist,I was taught that Supply and Demand determines Price in any Free Market.

The price will rise as more and more buyers enter the market, until a certain point.

Sellers now enter the market and as they increase ,the price will fall.

Thus the continual ebb and flow........the ups and downs, searching equilibrium.

 

But is this really true?

Why did the buyers stop at a certain point?

Why did the sellers enter at a certain point?

 

"The current price of a stock is determined by what analysts believe is the current value of future earnings"

.So if a stock is undervalued, the price will rise , and visa versa.

 

Value.... its all coming back to value.

I cant change the Law of Supply and Demand,but, digging deeper,its appears to have another level.

Price in stocks is determined by Value .

Not by supply and demand.

And isn't that what we should be concentrating on, rather than volume?

All comments welcome.

bobc

 

the price is determined by demand and supply