Quote:
Originally Posted by Darkstar Think about how price change and the distribution of liquidity interact. Your looking for a disequilibrium in that distribution which should give you a highly predictable outcome. Trade with the anticipation of that outcome and you have the makings of a high probability system.
Once you manage to solve that, I suggest you start working on the concept of Episodic Volatility. It has opportunities that make stop hunting seem low rent by comparison.  |
episodic volatility; large price move within a short amount of time.
Here's my shot at understanding: We're looking for signs of transitory volatility; which episodic includes. Transitory volatility is strong price movement away from fundamental values by
uninformed traders. I relate uninformed traders to
losers. What's one way to show you lost your trade? Your stoploss order gets hit. Stop losses are one-way market orders, and along with uninformed traders using breakout market orders could easily move price away from fundamental values.
I'm unsure but do dealers accelerate their pulling of limit orders at extreme price levels, thus leaving less available liquidity which invites bid/ask bounces and the more chance for episodic volatility to occur? If so, do they then hope to deal with "informed" traders asap to know where price is going?
Would large orders seen on T&S in the opposite direction of the move during these volatility extremes be a sign that informed traders are entering the market?
Magic Trader I fully agree with your posts. Price tends to pivot across large order areas. Just when it gets to the very extremes and some, it comes running back the other direction.