[firewalker]

Note: Dbphoenix & gassah, you are the moderators here and if you guys should feel this thread belongs more in the Psychology forum, I perfectly understand if moderators move it over there.
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Below is a quote from Soultrader posted in another thread, but I thought it was more appropriate to take the discussion here. Although I don't want anybody to think this is strictly Wyckoff related, it might encourage a discussion about "The Basic Law of Supply and Demand".

Originally Posted by Soultrader »

... higher prices will attract more buying. Its simple human pysch. Demand does not even have to be present... human greed is so easy to exploit, all you have to do is jack prices up high to lure in all the greedy public suckers. Its just how the game is played.

A lot to think about in only a couple of sentences there. I'm not sure that price can rise without demand, as Soultrader says... If there's no demand for a product/good/stock, the suppliers will have to lower price because in each auction process the purpose is to find an equilibrium point so a transaction can take place, right? VSA talks about "no demand" and "no supply" and we often read traders talking how "price fell of itself". So price can fall of itself (lack of demand), but how many people say price rises without demand (lack of supply)?

What Soultrader is saying touches some of the very foundations of economics 101 imo. We've all been taught price rises because demand outweighs supply and vice versa. Marginalist economic theory tells us that consumers will try to reach their most preferred position, a point where any further increase in consumption of a specific good (or service) no longer provides them extra "utility". So why would they buy at increasingly higher prices if previously the same good/utility/stock was available for them at a lower price?

Soultrader wrote "higher prices will attract more buying", so he's saying that price itself has an impact on what buyers and sellers do. Does the 'law' of supply and demand no longer works because people don't act rationally? The demand for goods and commodities is generally thought of as the result of a utility-maximizing process... Micro-economics tells us, given any set of goods, each participant in the economic process/system will try its best to obtain the best point of equilibrium which means that the consumer will strive towards utility maximization.

But what if this isn't the case? What if the supply & demand in itself is only a factor in an economic system where some perverse mechanisms are at work to trick those participants? Some empirical research into the field of behavioral economics tells us that there are psychological causes behind many types of not-so-smart financial decisions (plenty of examples in this book).

I think what Soultrader is saying here, touches some of the very foundations of economics 101. We've all been taught price rises because demand outweighs supply and vice versa. Marginalist economic theory tells us that consumers will try to reach the most-preferred position, a point where any further increase in consumption of a specific good (or service) no longer provides them extra "utility".

Now... you're saying that price itself has an impact on what buyers and sellers do. Does the 'law' of supply and demand no longer works because people don't act rationally? What if the supply & demand in itself is only a factor in an economic system where some perverse mechanisms are at work that make us humans make decisions that are far less than optimum? Are these elements that influence our decisions subconsciously in a sense that we can't control them? What about traders self-sabotaging their plan?

Back to supply and demand, does the so-called anchoring effect (where people's decisions are overly influenced by specific information or value or a bias towards any of those) come into play? Some experiments seem to imply that we -sometimes- let our objective measures of 'value' be influenced by seemingly unrelated elements.

How about the experiment (described in this book) where students were asked to write down (a) the last two digits of their social security number and (b) the maximum price they were willing to pay for a bottle of wine, a book and a box of chocolates. Surprisingly, the security numbers had an influence on their bids and there was a clear pattern! The higher the numbers, the more the students were willing to pay. In that case, price was not being determined by the interplay of supply and demand but - as Ariely wrote - "determining itself".

So how about the 'basic law of supply and demand', are there holes in the micro-economics package that teaches us this is the reason why price fluctuates?

[Trader333]

In my view it will ultimately be time dependent. Prices will only fall when there is a lack of buying support rather than lack of actual increased demand. We saw this with the dot com boom as the true demand was not real and as a result the price eventually collapsed. I think that oil is doing the same at the moment because there is a reduced demand compared to 8 months ago when prices were below $80 so why has it suddenly gone up in price when demand has stayed the same or reduced and supply has stayed the same ?. I recently read that there are tanker loads of oil just sitting around in the Gulf states with no imminent need for it.

I agree with you though that long term the law of economics will prevail and what often causes prices to keep going up is the frenzy you often see when price and volume spikes on a chart before it goes back down. This is usually everyone panic buying because they think everyone else is onto something.


Paul

[DbPhoenix]

Originally Posted by firewalker »

Note: Dbphoenix & gassah, you are the moderators here and if you guys should feel this thread belongs more in the Psychology forum, I perfectly understand if moderators move it over there.

ST appears to be defining "demand" differently than Wyckoff does. However, you're welcome to conduct your discussion here.

[MC]

The missing piece of info is WHO is showing demand in James example.
To profit it's not about what retail or other dopey investors do, it's about what the smart money did.

Demand isn't defined by volume alone, it's what's being done with that volume. The retail demand was there simply because the prices moved higher. That's why volume itself doesn't always dictate demand by definition.

JMHO

[DbPhoenix]

From a practical standpoint, it really doesn't matter who is moving price or why they're doing it. What matters is that price is moving. The key to profiting from that movement has less to do with how and why and who than with being attuned to the relative strengths of the buying and selling waves as they relate to previous buying and selling waves, i.e., support and resistance. Allowing oneself to become enmeshed in the who and the why does nothing but add another layer of unnecessary and irrelevant complexity.

[MC]

Originally Posted by DbPhoenix »

From a practical standpoint, it really doesn't matter who is moving price or why they're doing it. What matters is that price is moving. The key to profiting from that movement has less to do with how and why and who than with being attuned to the relative strengths of the buying and selling waves as they relate to previous buying and selling waves, i.e., support and resistance. Allowing oneself to become enmeshed in the who and the why does nothing but add another layer of unnecessary and irrelevant complexity.

I respect your opinion and agree, though I'm not sure I see it 100% the same.

Either way you slice it, we're looking for a continuation or dried up volume leading to a reversal. The reversal allows the auction to reverse and seek out higher perceived value through waves or cycles. That's the part I think we agree on.

I don't agree that looking to see where professional money (big volume) is NOT playing is complex. This is the simple pattern James showed earlier...it shows when big money has offloaded their position to the retail herd. This test, or a similar test with lower volume is built into your TA though it seems you make an effort to not think about the "why" behind volume having dried up. Same result, different mindset is all.

Big money drives supply and demand so to ride their coattails is the wise thing to do IMO.
If they deem a price level too high, and therefore sell into a price. And that price then tests again on low volume showing pros aren't backing it, it's logical to short that price. Again, we are saying the same thing, I'm just adding the thought of WHY behind it where you don't worry about the why.

[DbPhoenix]

Originally Posted by MC »

I don't agree that looking to see where professional money (big volume) is NOT playing is complex. This is the simple pattern James showed earlier...it shows when big money has offloaded their position to the retail herd. This test, or a similar test with lower volume is built into your TA though it seems you make an effort to not think about the "why" behind volume having dried up. Same result, different mindset is all.

My comments have to do with the two sentences that FW quoted. I have no idea what pattern you're referring to nor where the VDU is occurring. As I said, demand is nothing more than the willingness to pay the ask. If the discussion is instead about volume patterns, perhaps FW could clarify.

[MC]

Originally Posted by DbPhoenix »

My comments have to do with the two sentences that FW quoted. I have no idea what pattern you're referring to nor where the VDU is occurring. As I said, demand is nothing more than the willingness to pay the ask. If the discussion is instead about volume patterns, perhaps FW could clarify.

Sorry, I'm referring to the original thread FW has quoted from. James depicted a double top basically, with traits showing smart money had sold out of the move.

I see demand as smart money's willingness to continue to participate (aka not sell into) prices auctioning higher. Typical traders (aka dumb money) just see higher prices as demand and jump in with no thought of distribution. To them that burst of volume (which was in actuality pros selling) was "demand" and was bullish. That was James original point as I understood it.

I guess in thinking about this... Do you believe there is only one S&D chain in the market?