Getting closer to price and volume

[rocky9281]

I used to be a swing trader.Used to hold positions from weeks to months. I presented some of my analysis in a thread that was actually started by Easytrader.

Thanks to Easytrader for that.

As days passed , it appeared to me that I can make better trades by trading Intraday.As a matter of fact, it appeared to me that smart money activity can most readily be tracked by someone who tries to decode supply and demand matrix within the intraday frame. Experts please share your remarks regarding this thaught.

As a result, I tried to go deeper into the facts and figures of day trading.I am still studying it.In this thread, I will discuss and try to present what worked for me and also seek help from experts on those things which are still a mystery for me.

I don't know whether this thread will prove to be useful to majority of traders here, because in a country like India, Stochastics, MACD and MA s are worshipped like god. Whereas, in this thread , I will try to concentrate solely on price and volume.

Experts and Seniors please guide me.

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How to update Metastock without any software:
http://www.traderji.com/end-day/467...-eod-data-without-any-software-metastock.html

Profiting from the order book:
http://www.traderji.com/technical-analysis/1015-art-tape-reading-part-1-a.html

 

[rocky9281]

The first thing that needs to be understood is why prices move:

As I was trying to find out the answer to this question, I came to the following conclusions:

1.Stock prices don't move up because they have good fundamentals. For example,lets suppose,many of us think that Unitech quotes will go up faster than DLF because the former is constructing a new class of apartments, in which, it will provide free rolls of tissue paper in the toilets for next 5 years , which DLF isn't.That is a very funny and superficial assumption.

I can show you tonnes of examples where prices plunged down in spite of good fundamentals.

2.Stock prices don't move up because the stochastics have crossed, or the MACD and EMA are flirting with each other. This is another dangerous and funny assumption.

I can show you tonnes of examples where prices plunged down in spite of good indications from these mechanical indicators.

There may be many other reasons that make us think that prices are going to move up or down because of this or that.

I urge all of you who are interested in this thread, to present their thoughts on why prices move.

Waiting to hear from you.

-----------------------------------------------------------

How to update Metastock without any software:
http://www.traderji.com/end-day/467...-eod-data-without-any-software-metastock.html

Profiting from the order book:
http://www.traderji.com/technical-analysis/1015-art-tape-reading-part-1-a.html

 

[AW10]

Topic of the thread makes me interested in this. Looking for more input here.
By the way, What is the timeframe under consideration. Is it next tick, next few minutes, hourse, days or months..
IMO, fundamentals etc do not play important role in shorter term and price might deviate from them.. but eventually, price will start reflecting fundamental. When ? After how much of lag ? that is a big question.

In shorter term, orderflow, sentiments, news etc has higher impact on the price action, IMO.

happy trading.

 

[rocky9281]

1.By the way, What is the timeframe under consideration. Is it next tick, next few minutes, hourse, days or months..

2.IMO, fundamentals etc do not play important role in shorter term and price might deviate from them.. but eventually, price will start reflecting fundamental. When ? After how much of lag ? that is a big question.

3.In shorter term, orderflow, sentiments, news etc has higher impact on the price action, IMO.

happy trading.

Thank you for your post AW10. I have divided your post into 3 parts (hope you don't mind) , and try to concentrate one at a time.

1. I am trying to keep things Intraday. However, lots of other concepts from other time frames must also come to play here.

2. Prices are driven away from fundamentals by a group of uninformed traders. After that has happened, a group of traders, referred to as value traders/investors (who calculate the intrinsic value - inspired by Warren Buffet), immediately recognizes that the stock is trading under the correct fundamental value. This encourages them to buy hoping that they are buying undervalued securities. Their buying induces buying pressure that moves the stock towards the actual fundamental value. This is why in the long run, prices reflect fundamentals.

How long will it take to reach there?
According to market microstructure, we can divide all the traders into informed traders(value traders/investors come under this) and uninformed traders(gamblers come under this).

How fast price will reflect fundamentals is decided by comparing the buying power of these value traders to the COMBINED selling power of the uninformed group.

More aggressive the value traders (giving market buys instead of limit buys), faster the price will move towards its fundamental value.

So again, prices are not controlled by fundamentals, but by supply-demand imbalance.

Please correct me if I am wrong

3. Orderflow, sentiments, news-I agree with you on these . And I think the best tools that can detect them are the Order book(L2 unavailable in India) and T&S.Lets start discussing on how to use these tools. Shall we?

 

[darkstar]

hello, rocky i am with you i am die hard intra day trader trading in NSE CASH NIFTYFUT, BNKNIFTY. Basically i am TAPE READER secondary i use AMIBROKER . for last 2 year i not even carry my trades to next trade what happen to my positions i squareoff around 3.20 pm. it is my thumb rule it gave me lot of discipline , confidence in me. at same time i had maximum 4 position may be less. It depends on your personality but i find more appropriate than swing trading.

 

[rocky9281]

hello, rocky i am with you i am die hard intra day trader trading in NSE CASH NIFTYFUT, BNKNIFTY. Basically i am TAPE READER secondary i use AMIBROKER . for last 2 year i not even carry my trades to next trade what happen to my positions i squareoff around 3.20 pm. it is my thumb rule it gave me lot of discipline , confidence in me. at same time i had maximum 4 position may be less. It depends on your personality but i find more appropriate than swing trading.

Thanks darkstar for your post. Can you please elaborate on the process of tape reading?

Waiting to hear from you.
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Why prices Move: The Mystery Uncovered

Prices are moved by Large Market orders (Not limit orders).

Look at the hypothetical order book here. I am illustrating only with the ask side here.

we can see that there are:

1. 100 shares for sell at 10
2. 50 shares for sell at 11
3. 150 shares for sell at 12
4. 200 shares for sell at 13
5. 300 shares for sell at 14

the orders must be arranged in the sequence as above, because it is a rule that asks at lower prices must be executed before asks at higher prices. The exchange has made this a rule to ensure that the buyers get the BEST (lowest) price first.

Now let's suppose a market order to buy 10,000 shares arrives. What will happen in this case?

1. 100 shares will be sold at 10 (LTP=10, shares left to be bought=10,000-100=9,900)
2. 50 shares will be sold at 11 (LTP=11, shares left to be bought=9,900-50=9,850)
3. 150 shares will be sold at 12 (LTP=12, shares left to be bought=9,850-150=9,700)
4. 200 shares will be sold at 13 (LTP=13, shares left to be bought=9,700-200=9,500)
5. 300 shares will be sold at 14 (LTP=14, shares left to be bought=9,500-300=9,200)


Can you see the price has increased from 10-14?? 40% gain!!


Let's repeat this statement again (like kindergarten children do), the orders that move the price must be characterised by :

1. Abnormally large size (that has the capability to absorb all the offers on the ask side of the order book)

AND

2. It has to be at the market (So that it can jump from one seller to the next seller-thus displaying aggressive buying)

--------------------------------------------------------------------------------------------------------------------------------------------

How to update Metastock without any software:
http://www.traderji.com/end-day/467...-eod-data-without-any-software-metastock.html

Profiting from the order book:
http://www.traderji.com/technical-analysis/1015-art-tape-reading-part-1-a.html

 

[darkstar]

Thanks darkstar for your post. Can you please elaborate on the process of tape reading?

Waiting to hear from you.
-----------------------------------------------------------
Why prices Move: The Mystery Uncovered

Prices are moved by Large Market orders (Not limit orders).

Look at the hypothetical order book here. I am illustrating only with the ask side here.

we can see that there are:

1. 100 shares for sell at 10
2. 50 shares for sell at 11
3. 150 shares for sell at 12
4. 200 shares for sell at 13
5. 300 shares for sell at 14

the orders must be arranged in the sequence as above, because it is a rule that asks at lower prices must be executed before asks at higher prices. The exchange has made this a rule to ensure that the buyers get the BEST (lowest) price first.

Now let's suppose a market order to buy 10,000 shares arrives. What will happen in this case?

1. 100 shares will be sold at 10 (LTP=10, shares left to be bought=10,000-100=9,900)
2. 50 shares will be sold at 11 (LTP=11, shares left to be bought=9,900-50=9,850)
3. 150 shares will be sold at 12 (LTP=12, shares left to be bought=9,850-150=9,700)
4. 200 shares will be sold at 13 (LTP=13, shares left to be bought=9,700-200=9,500)
5. 300 shares will be sold at 14 (LTP=14, shares left to be bought=9,500-300=9,200)


Can you see the price has increased from 10-14?? 40% gain!!


Let's repeat this statement again (like kindergarten children do), the orders that move the price must be characterised by :

1. Abnormally large size (that has the capability to absorb all the offers on the ask side of the order book)

AND

2. It has to be at the market (So that it can jump from one seller to the next seller-thus displaying aggressive buying)

--------------------------------------------------------------------------------------------------------------------------------------------

How to update Metastock without any software:
http://www.traderji.com/end-day/467...-eod-data-without-any-software-metastock.html

Profiting from the order book:
http://www.traderji.com/technical-analysis/1015-art-tape-reading-part-1-a.html

If some one wanna introduce him self or her self to tape reading i wanna he or she will first read that short , important article written by linda bradford most successful women trader of our time . www.traderslog.com/tape-reading

 

[comm4300]

excellent thread and discussion going on....

while tape reading continues to fancy many traders.....i doubt if it applies to Indian scenario....where you CANNOT trust the 5 bid and ask displayed in quote screen of ODIN....

a continuous observation of the volume and price change would reveal that all is not as it appears to be on the bid ask market picture screen.

a little info here....
http://www.traderji.com/commodities/51477-manipulation-crude-oil.html

 

[mubzaveri]

yes rocky,
u r absolutely right,
market is the palce of sentimental war(bulls v/s bears)
stronger psychology wins the game
the only way to understand it is price & volume analysis.
good work,
THANKS.....

 

[AW10]

excellent thread and discussion going on....

while tape reading continues to fancy many traders.....i doubt if it applies to Indian scenario....where you CANNOT trust the 5 bid and ask displayed in quote screen of ODIN....

a continuous observation of the volume and price change would reveal that all is not as it appears to be on the bid ask market picture screen.

a little info here....
http://www.traderji.com/commodities/51477-manipulation-crude-oil.html

I can't think of any reason why tape reading doesn't work in indian mkt (for that matter in any trading market). That is the basic foundation of price movement i.e. fine balance of demand supply.. Forget the exchange, it works in our vegetable market too.

What you are refering by order book is not tape.. order book = non-executed orders waiting in the queue.. whereas tape = executed or filled orders.
There is difference between them. Orderbook is manipulated everywhere (by market maker or by smart algo-trading computers), but the print on tape is about actual traded price which can't be manipulated. Tape is the fastest way to get the price feedback. In otherwords you can very well say that you are trying to decipher a chart that prints more than 5 to 10 bars per second. 1 minute chart becomes higher timeframe here.

Happy trading.