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Why it is possible to predict price movement?

  • #61
  • May 2, 2012 11:09pm May 2, 2012 11:09pm
Quoting katrooo
hello jeanlouie,

I must tell that most of your assumptions are wrong, I work on a FX desk in a bank as a trader and I know how this stuff with orders works and it is not in a way as you described,

orders on futures are not so important because they are relative small and they are not affecting the spot price that much, the thing that really matters is orders on spot FX market which is decentralized OTC market so that you dont see the orders and transactions.....only thing you see if you work as a spot trader in institution are your own orders...
Thanks for shedding some light on approach of the banks, I already thought that having a DOM from a otc fx broker wouldn't be very helpful as you don't see the entire market, but would be helpful to a scalper on a centralized exchange for eg stocks, even if a pending order is a fakie it still moves the market and a scalper for ticks can ride that.
  • #62
  • May 3, 2012 2:06am May 3, 2012 2:06am
Quoting katrooo
hello jeanlouie,
when buying 500mio u just cant afford to buy it on the support level where is no liquidity at all
I'm kinda interested in this comment. What are you saying katroo? If support and resistance levels don't provide the most liquidity, where are you going to find a place on the charts with more?

The most liquid orders will be found when everybody is buying into a resistance. And in this case, I suppose, you are the one providing resistance with your 500mio. Am i wrong in saying that? I kind of not understand your logic.
  • #63
  • May 3, 2012 2:59am May 3, 2012 2:59am
Quoting thelws
I'm kinda interested in this comment. What are you saying katroo? If support and resistance levels don't provide the most liquidity, where are you going to find a place on the charts with more?

The most liquid orders will be found when everybody is buying into a resistance. And in this case, I suppose, you are the one providing resistance with your 500mio. Am i wrong in saying that? I kind of not understand your logic.
From how I read what you said, you have the opposite logic

At a support level, there will be many competing buy orders eating up liquidity, because there is not enough liquidity to satisfy the demand at that level, price rejects it and moves away from it as all the sellers are bought up with a surplus of buyers.

Flip your logic the most available liquidity will be when you are trying to sell into that support.
"Don't Panic..."
  • #64
  • May 3, 2012 3:24am May 3, 2012 3:24am
He's saying they will sell into the S/R buyers, overpower them, trip their stops, then take the other side of the stop loss orders with limit buy orders. At least that's what I gather.
Cautiously optimistic. . .
  • #65
  • May 3, 2012 4:04am May 3, 2012 4:04am
Ok let me rephrase.

I am big boy with a 500 mio sell order.
The price is moving up.
The best place to place my order should be right before a resistance point. That is when the liquidity is at it's highest.
My action of selling into these buy orders near a resistance is where I will get my best price fill.

Is this logic right? Is this what katroo is saying?

Or is he saying that once we reach a resistance area in an uptrend, there will be no more liquidity because that is where everybody is competing to sell.

If what katroo meant is the latter... where can you ever fill your 500mio?
  • #66
  • May 3, 2012 4:22am May 3, 2012 4:22am
Quoting thelws
Ok let me rephrase.

I am big boy with a 500 mio sell order.
The price is moving up.
The best place to place my order should be right before a resistance point. That is when the liquidity is at it's highest.
My action of selling into these buy orders near a resistance is where I will get my best price fill.

Is this logic right? Is this what katroo is saying?

Or is he saying that once we reach a resistance area in an uptrend, there will be no more liquidity because that is where everybody is competing to sell.

If what katroo meant...
Just bellow resistance there will be fewer market buys and more market sells, as the resistance breaks and price moves up quickly there will be more market buys and fewer market sells, you want to get your offer in there.
  • #67
  • May 3, 2012 4:33am May 3, 2012 4:33am
Quoting thelws
... where can you ever fill your 500mio?
In the likely pool of buy stop loss orders just beyond the resistance would be a good place to target (dependant upon other factors).
  • #68
  • May 3, 2012 6:25am May 3, 2012 6:25am
ok. now that explains a lot thx
  • #69
  • May 3, 2012 6:58am May 3, 2012 6:58am
If major banks/dealers didn't use S/R levels, I suppose there wouldn't be any since it's mainly their orders that create what we see as price action.. Perhaps the difference is in the way banks/institutions exploit these price levels as opposed to smaller traders.

Here's a quote from a guy who's worked with banks for over 20 years (http://www.forexfactory.com/showthre...49#post3096449)

"Rest assured, people everywhere cook with water - the only real difference is speed and size of execution that separates the institutional from the retail crowd - and very often a bunch of excellent programmers who work on short-term solutions - otherwise its trading based on trends, high's, low's and S&R as usual." http://www.forexfactory.com/showthre...70#post3101270
  • #70
  • May 3, 2012 8:19am May 3, 2012 8:19am
Quoting 96flavors
If major banks/dealers didn't use S/R levels, I suppose there wouldn't be any since it's mainly their orders that create what we see as price action.. Perhaps the difference is in the way banks/institutions exploit these price levels as opposed to smaller traders.

Here's a quote from a guy who's worked with banks for over 20 years (http://www.forexfactory.com/showthre...49#post3096449)

[i]"Rest assured, people everywhere cook with water - the only real difference is speed and size of execution that separates the institutional...
Major players have to utilize liquidity in some form or another and they have to be good at it. The sheer amount of volume they need is a major headache.

I'm sure they use some support resistance levels. Honestly I don't care what they use. But for sure, they need to be good at finding places where they can load/unload positions without losing too much.

@vorbis and rooicol:
This is a little out of topic, but I'm curious, what happens if in an uptrend, the resistance never breaks. What if there was some other major player unloading ahead of you. In that case, you might never get to the stage after the resistance.

In that case, wouldn't you be worse off? Your competitor just unloaded all his positions and now you are left with no liquidity.

And if the uptrend was so strong to begin with (that it can break through a resistance), you might not want to exit/enter a position after the break of a resistance. Reasons being:
1)If you were in a long position already, you would want to ride it out. You could potentially make more profits/
2)If you were out of a position, and you want to enter a short position, you could be selling the low.

Is my logic flawed?
  • #71
  • May 3, 2012 9:00am May 3, 2012 9:00am
Quoting thelws
Major players have to utilize liquidity in some form or another and they have to be good at it. The sheer amount of volume they need is a major headache.

I'm sure they use some support resistance levels. Honestly I don't care what they use. But for sure, they need to be good at finding places where they can load/unload positions without losing too much.

@vorbis and rooicol:
This is a little out of topic, but I'm curious, what happens if in an uptrend, the resistance never breaks. What if there was some other major player unloading ahead...
I think you are making it more complicated than it is. Imagine it like this, if you are trading 100's of millions, and you don't want a lot of market order slippage, then you simply use limit orders. Problem solved.
  • #72
  • May 3, 2012 9:19am May 3, 2012 9:19am
Quoting jeanlouie
Wait, here's a question kk007, you've asked why it is possible to predict price movement, and you've received a bunch of responses which revolve around repeating patterns, where big traders places their orders and none of it seems to be satisfying your query...how about we flip the tables and ask; "What would price movement have to look like to you, for it to be impossible to predict?"
OK. The answer I consider partly explain why price movement may (sometimes) be predicted (with higher probability) is that we can sometimes predict how some major traders react in some situation.
  • #73
  • May 3, 2012 10:46am May 3, 2012 10:46am
according to Kahneman and traversky and professor Shiller from Yale University
as well as personal experience and research I have made.

this is why EMH breaks down and the markets become inefficient
1) Wishful thinking
2)Attention anomalities
3)Anchoring
4) Representativeness hearistic
5) gambling behavior
6)Magical thinking

and to top it off we distort probabilities in our head according to failing to understand our marginal utility.

most of us over estimate our ability to predict the market, not only that but we over estimate OUR strategy as the BEST one for this case.
we could make a comparison with religion, on the irrationality and lack of logic but I believe this forum is not actually open that discussion.

However the mechanisms and faith based believes with no logical reason behind them still correlate well to trading.

what statistical study do we have that say that S/R brings an edge?
what constitutes a break in S/R? and how to differentiation a fake break?

what most people here discuss is mostly technical analysis and I have even read posts regarding the uselessness of Fundamental Analysis, can this be because it is easier to learn to plot lines on a chart than to study macro economics? are this posts biased?

do we wish the market was more predictable and accepting the randomness is unacceptable?

I invite you to read "the market micro structure" by Georgetown University.

sometimes accepting reality and THEN coming up with a better more rational solution to the problem would be more effective than rejecting the random charts just posted here, and continuing to believe that YOU CAN PREDICT the market.

in conclusion my opinion is that the market is a weak random walk as stated by Efficient Market Hypothesis driven by real time economic data (not just announcements on PMI,PCE,NFP, etc... but aggregate supply and demand of imports and exports, investments, etc..)

daytrader, katroo, have also stated that the banks are just like us, trying to exploit inefficiencies, not the big bad wolf that people here make them out to be with powers of manipulation and fooling us....this is due to ignorance on how they operate.
AVT INVENIAM VIAM AVT FACIAM
  • #74
  • May 3, 2012 4:00pm May 3, 2012 4:00pm
hi thelws,

actually, tact1cal, rooicol and halifax answered your questions,

there is no liquidity for big seller at resistance level because mass is trying to go short there with limit/market orders and much less people want to buy at resistance.....so in order to execute the order there must be the forced move above the resistance (aka stop hunt) to trigger buy stops which are faded by heavy selling by big seller - actually its not always done by a stop hunt, there are more ways to do it (fading "good" news, fading "another" leg in a trend)

tact1cal - it is not done via limit orders (notice the spikes when price fade), but with market orders (but with good average prices, because you are selling when everybody is buying)

within investment banking industry it is called "spoofing"

but it is very tough because this stuff depends on current market conditions and what positions are being held etc etc .... and a lot of market knowledge(macro fundies,sentiment,upcoming events) and experience is needed to know when to fade
  • #75
  • May 3, 2012 4:00pm May 3, 2012 4:00pm
Quoting the redlion
in conclusion my opinion is that the market is a weak random walk as stated by Efficient Market Hypothesis driven by real time economic data (not just announcements on PMI,PCE,NFP, etc... but aggregate supply and demand of imports and exports, investments, etc..)

daytrader, katroo, have also stated that the banks are just like us, trying to exploit inefficiencies, not the big bad wolf that people here make them out to be with powers of manipulation and fooling us....this is due to ignorance on how they operate.

yes and no while the overall picture does still adhere to those principles more and more volume is taking it only partly in consideration. the timeframes that are driven by it are getting less and less.

i agree on the banks though. whenever i read about the retail stophunts of the big bad banks ... people get real... just because you suck at trading doesn't mean you need to get paranoid.
  • #76
  • May 3, 2012 4:12pm May 3, 2012 4:12pm
Quoting unknown4x
yes and no while the overall picture does still adhere to those principles more and more volume is taking it only partly in consideration. the timeframes that are driven by it are getting less and less.

i agree on the banks though. whenever i read about the retail stophunts of the big bad banks ... people get real... just because you suck at trading doesn't mean you need to get paranoid.
can you rephrase your answer please. You quoted me but I do not understand your statement.
AVT INVENIAM VIAM AVT FACIAM
  • #77
  • May 3, 2012 4:57pm May 3, 2012 4:57pm
Quoting kk007
This sounds a simple question, but it is not indeed. There are a lot of trading methods claim working. Nevertheless, I wonder in general what logic these methods based on in predicting price movement....kk007
Whether it is possible or not to predict price movement is debatable. The more important question is:

Is it possible to succeed without predicting price movement?

This question does not suppose that predicting price movement is not possible, just not necessary......

I would almost call this question rhetorical. Which begs the question, why are so many trader concerned with predicting price in the first place?
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #78
  • May 3, 2012 5:20pm May 3, 2012 5:20pm
Quoting the redlion
...
what statistical study do we have that say that S/R brings an edge?
what constitutes a break in S/R? and how to differentiation a fake break?
..
What kind of statistical study do you want? There are countless ways to trade S/R. Some people simply buy support/sell res., others wait for a break and trade retests - even here there are different ways to do this, some will trade breakouts of S/R, others exploit false S/R breakouts (again, there is no one way to do this), some look for traps/failed setups at these levels and take the other side...and we could go on.. What brings an edge? Your own experience.
  • #79
  • May 3, 2012 6:03pm May 3, 2012 6:03pm
Quoting 96flavors
What kind of statistical study do you want? There are countless ways to trade S/R. Some people simply buy support/sell res., others wait for a break and trade retests - even here there are different ways to do this, some will trade breakouts of S/R, others exploit false S/R breakouts (again, there is no one way to do this), some look for traps/failed setups at these levels and take the other side...and we could go on.. What brings an edge? Your own experience.
I understand how to trade S/R and the rationale behind it.
But do you have any evidence that the market actually follows this?
any statistical objective study that states that 68% 80% or x% of the time when price reaches this S/R, S/D area it actually reverts to the mean?

that is what I mean
AVT INVENIAM VIAM AVT FACIAM
  • #80
  • May 3, 2012 6:38pm May 3, 2012 6:38pm
Quoting katrooo
hi thelws,

actually, tact1cal, rooicol and halifax answered your questions,

there is no liquidity for big seller at resistance level because mass is trying to go short there with limit/market orders and much less people want to buy at resistance.....so in order to execute the order there must be the forced move above the resistance (aka stop hunt) to trigger buy stops which are faded by heavy selling by big seller - actually its not always done by a stop hunt, there are more ways to do it (fading "good" news, fading "another" leg in a trend)

tact1cal...
Thanks for the feedback! Good post too, current institutional traders are hard to come by in this sea of shit.
Cautiously optimistic. . .
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