Cause => Effect

[Tavurth]

I would like to start a discussion on cause effect relationships.

I'm sure that almost everyone here has bought a security or index, and then immediately saw price move against their position.
Lets take a look at some possible causes of this effect:

1. Price moved randomly
2. Price was turning before you entered the trade
3. Price moved to stop you (single trader) out
4. Price enticed you to buy, before moving against you

Lets take a more in depth look at each option.

1. Price moved randomly

Proponents of different styles of market analysis will say different things here.

Deterministic analysts will tell you that all market factors, no matter how small, have a reason and can be predicted.

Purely fundamental analysts will say that you can predict the general trend, but that the micro movements are beyond comprehension.
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2. Price was turning before you entered the trade

With this possibility we can say that your analysis of the market conditions were incorrect.
Perhaps someone had been distributing stock above the level you bought. Your buying into resistance did not help your situation, and so you took a loss on the trade.​

3. Price moved to stop you out

In this possibility we examine the probability that market makers see your order in the market place, move price against your position in order to reap the rewards from stopping you out.

With some market makers of extremely unscrupulous character, you may find this is true. For small market orders however, this is incredibly unlikely.

Large orders are often secure buyers, with huge amounts of capital in reserve. A small move will most likely not cause the reaction intended by the manipulator.

To influence the market to capitulation will most likely bring in more value buyers, and hence, competition.​

4. Price enticed you to buy, before moving against you

In my opinion this is the most likely of all options.

Price must entice buyers, and so in creating what seems to be a perfect opportunity for profit, actually lays a trap for unsuspecting profit hunters.

We see a new high, followed by a small reaction. Many Small investors buy, creating a liquidity pool.
Price then moves down, stopping out all traders and creating capitulation

Larger investors or, The Consolidated Operator use this liquidity to fill opposing positions. Moving price against weak holders is then a priority before refilling, and reloading positions at a great price advantage.
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I am interested to hear EliteTraders thoughts on this subject.

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[Turveyd]

Most losers are false bottom, market goes down, puts in a false bottom, has a little buying spike to make you think your missing it then back to direction ie down and fast to not let you and the 1000 others who fell for it get out.

Just remember market does not change direction quickly, so use spikes to enter a better price short

When it does change direction it will do it slowly, then it will just creap against you making it look like direction is still down, so you will short more, raise the sl then take a bigger loss.

Sometimes it will go down so got to short it, odds are out will continue, just don't fall for the creap move against you, exit early save your money.

Our enemy is smart, retail in general stupid do the opposite of how retail would react is how you make money.

 

[Turveyd]

Sorry didn't get a far as 4, 4 covers it well.

 

[eusdaiki]

3 and 4 are the same.

 

[Tavurth]

3 and 4 are the same.

Interesting point. It sounds like you are saying that every move in the market is a manipulation play?

My idea for 3 was to suggest that the market acts to disfavor one particular participant.
My idea for 4 was suggesting that the market acts to group participants, and then screws them en mass.

Do you support a generalized binary sort of market participants?

 

[eusdaiki]

Big players may shake the market when they have a large order to fill.
Listening to the squawk box and taking note of who is buying and who is selling what is a good way to get the sense of this. It is not uncommon to see a big buyer come to the market initially with a large sell order, get momentum going and then execute a very large buy order... or even to do 3 or 4 back and forths of this...
This process may generate both #3 where the market hits your stop and then moves back in your intended direction and #4 where the market seems to be breaking into one direction only to immediately turn back...
I think they are the same but seem from the lens of 2 different participants, one who starts flat and is fooled into taking a position and one that starts with a position and is shaken out of it.

I dont think that the market singles out any given participant, maybe back in the day when the trading was face to face, but nowadays there's too many measures to keep every participant anonymous...

I don't see the market participants as being just a couple of groups, seeing it that way could lead to excessive generalization. I see them rather as a heterogeneous mix of different investment horizons and goals, we could easily make 9 or 10 groups and we would be at risk of generalizing more than a bit.

 

[dbphoenix]

The market is not sentient. It doesn't lay traps. It's not out to screw anybody, at least not those who trade the size that is typical among retail daytraders.

Aside from the fact that buying at new highs is not particularly bright, moves out of consolidation, such as ranges, can be and usually are engineered. And those who are already in may and probably will take profits fairly quickly, given that they are trading substantial size. And note that I said "already in". Those who benefit from these breakouts are in well before they occur.

The trader who buys the breakout runs the risk of storming out onto the battlefield before discovering that there's nobody behind him. And unless he can think and react quickly, he stands to lose. But the only trap is the one he laid for himself. This is why so many traders wait for the first retracement after a breakout. If it fails, fine. They were never in. If it succeeds, they know that there is serious interest in whatever it is beyond the initial push and that there are buyers along with and behind the trader. And if fortune smiles, this move may turn into a trend.

The business of the market is to facilitate trades, not to play games. The games that we imagine are a result of our not knowing what we're doing and as a consequence losing money, or at least not making as much as we would have otherwise.

So I guess I'd have to pick "other".

 

[Tavurth]

The market is not sentient.

This brings up an interesting digression. Would the sum of binary predictions, of semi-sentient individuals not be the finest place to look for emergent forms of intelligence?

The business of the market is to facilitate trades, not to play games. The games ... are a result of our not knowing what we're doing.

Forgive the paraphrasing, it seems you view the marketplace from a viewpoint approaching assembly code, and for that I commend you.

You use the phrase game in a derogatory fashion, while I believe that viewing the market place as a flow of set-plays or set-pieces can do wonders for our overview.

 

[dbphoenix]

This brings up an interesting digression. Would the sum of binary predictions, of semi-sentient individuals not be the finest place to look for emergent forms of intelligence?

Semi-sentient? You mean retail daytraders? Possibly.

Forgive the paraphrasing, it seems you view the marketplace from a viewpoint approaching assembly code, and for that I commend you.

You use the phrase game in a derogatory fashion, while I believe that viewing the market place as a flow of set-plays or set-pieces can do wonders for our overview.

Sorry, I don't know what assembly code is and I don't know what you mean by "viewing the market place as a flow of set-plays or set-pieces". As for "games", I'm referring to mind-fucking.

 

[Tavurth]

Semi-sentient?

Homo Sapiens

What do you mean ...

Set-Piece: Variation on similar starting point.

As for the mind fuck, "Bulls ... & Bears make money, Pigs get slaughtered"?