[DbPhoenix]

Originally Posted by cunparis »

My original question is because the service I referred to calls a volume increase with price increase "selling volume". From my experience with IBD & O'Neil, when there is a big price move on big volume it means institutions are buying and it's positive. This is usually the criteria for entry using O'Neil's method. But this service is saying that such a thing means price is going down, which has been my experience the majority of the time when trading IBD's buy points!!!

Could it be that both are correct? That the market volume service is saying price will go down (short-term) and IBD is saying price will go up (long term)? That's the only explanation I can make of it.

I find the whole thing a bit confusing. Price goes up 5% on 2x volume. The optimistic person says "there are a lot of people buying". But the pessimist says "There are a lot of people selling". How do we know which side is right?

As I said, and as I've said a great many times before, a "lot of people" can't buy unless "a lot of people" are also willing to sell. Unless someone is willing to sell and also someone willing to buy, there can be no transaction. If there is no transaction, there is no volume.

Your "service" has come up with some half-baked half-truth in order to suck beginners into spending $100 a month. Forget about who's doing what and focus on price. If you're long and demand is driving price higher, that's all you need worry about. When demand can no longer drive price higher (lots of volume, no price progress), then you need to start looking for the exit, if not heading for it.

Originally Posted by AgeKay »

Market Microstructure: "Trading and Exchange: Market Microstructure for Practioners" (2002) by Larry Harris

Here's a preview/draft copy direct from Prof. Harris' website at USC:

http://tinyurl.com/6fy28u

-fs

[BlowFish]

Forsearch great find on the Harris draught!! I would urge everyone to give it a go. It can be 'difficult' but it tends to lead you in gently but quickly piles on information. If you have ever wondered exactly who/what 'composite operators' 'smart money' 'elephants in the room' are this clearly identifies the players and there modus operandi.

[snackly]

For example when dealing with equities, there are a number of known shares in the market. To an extent the volume traded can be measured with some relative meaning to the outstanding shares.

In futures and options there is no maximum supply, or even an effective maximum supply that there would be consensus on. One could buy as many lots of a future as they wish, no?

And doesn't Wyckoff's main principal pertain to the exhaustion of supply at a given price point in order to then force the price up so that smart money can proceed to sell into the bullish run?

Maybe I am missing something very obvious, I am new to this methodology.

Many thanks.

[Kiwi]

You are missing "willingness."

When the owners of Share X are not willing to sell at $100 then selling pressure at $100 has dried up. So buyers must raise there prices. If they are not willing to do so then price will stall (low volume) until members of one or other group are willing to move price.

So even though there might be hundreds of buyers or sellers, if none are willing to participate at the current price then supply and demand have both dried up. I think that's why the terms supply and demand are often replaced with the more obvious terms, selling pressure and buying pressure.

[Frank]

futures are a derviative of an underlying index and futures have an expiration date. at some point of buying, you would theoretically own the future delivery of the entire market. everyone else could short to you the futures -- with a mark-up (the 'ask') and then they could buy the underlying index to be fully-hedged...

at some point, there would be no more stock to buy and so they would simply not sell you any more contracts. instead, they just wait until expiration -- as 'they' would no longer be short an expired contract --- and now they simply deliver to you all the stock in the world. You would own all the stock and they would have made the arbitrage profit.

[lote_tree]

In futures and options there is no maximum supply, or even an effective maximum supply that there would be consensus on. One could buy as many lots of a future as they wish, no?

Firstly, futures and options are derivative instruments that track an underlying asset. E.g. the S&P 500 Index. The E-mini S&P Futures market is really tracking the S&P 500 index. You might see minor divergences from time to time between the futures and cash market but 98% of the time they are running in sync.

While theoretically there may not be a maximum supply in futures or options, fundamentally, all price movement is governed by two key ideas:

1. The resources available to buyers & sellers to trade at a certain price at a certain moment in time.
2. The willingness for buyers & sellers to trade at a certain price at a certain moment in time.

And doesn't Wyckoff's main principal pertain to the exhaustion of supply at a given price point in order to then force the price up so that smart money can proceed to sell into the bullish run?

Ok, so when talking about “exhaustion of supply” at a given price point, it’s really referring to a greater willingness of buyers to buy at that given price point. This could be called the accumulation phase when big institutions are buying up most of the limited amount of company stock.

Once the accumulation phase is complete the path of least resistance for price is up. This sends the S&P 500 Index up because there are few sellers left in the market due to the limited amount of stock available to sell (“resources available”). So if you were fortunate enough to buy 1 E-mini S&P 500 futures contract while the accumulation phase was in full flow in the cash market, your futures contract should start to go up in price with the index.

[snackly]

Originally Posted by lote_tree »

Firstly, futures and options are derivative instruments that track an underlying asset. E.g. the S&P 500 Index. The E-mini S&P Futures market is really tracking the S&P 500 index. You might see minor divergences from time to time between the futures and cash market but 98% of the time they are running in sync.

While theoretically there may not be a maximum supply in futures or options, fundamentally, all price movement is governed by two key ideas:

1. The resources available to buyers & sellers to trade at a certain price at a certain moment in time.
2. The willingness for buyers & sellers to trade at a certain price at a certain moment in time.



Ok, so when talking about “exhaustion of supply” at a given price point, it’s really referring to a greater willingness of buyers to buy at that given price point. This could be called the accumulation phase when big institutions are buying up most of the limited amount of company stock.

Once the accumulation phase is complete the path of least resistance for price is up. This sends the S&P 500 Index up because there are few sellers left in the market due to the limited amount of stock available to sell (“resources available”). So if you were fortunate enough to buy 1 E-mini S&P 500 futures contract while the accumulation phase was in full flow in the cash market, your futures contract should start to go up in price with the index.

So essentially the accumulators or smart money in the derivatives markets are buying the contracts at the low prices from the dumb money. At the point at which they've bought most of that they've effectively deprived the dumb money from selling further and from selling much of anything to each other both at the psychological level and at the material level since they've bought most of the contracts that dumb money had been holding? Hence at that point the price begins to rise as the smart money withholds their inventory?

What's to stop dumb money from shorting the contracts after they've sold the ones they held to smart money, further depressing the value? I guess it is just because its so unlikely for the composite dumb to think in that way where as the composite smart knows better?

Am I still wrong in thinking that the Wyckoff method or supply and demand have more demonstrable at the material level with equity issues?

And btw, I am talking about FX Futures although I suppose it shouldn't really matter.

And thanks to all who replied, much appreciated!