@k p: I don't know what
@dbphoenix teaches. So, I cant speak for him. All I was trying to convey in my post was that there are too many "games" played by large positions that accurately determining 'supply' or 'demand' is almost impossible, in my opinion.
You are correct in stating that a large position that needs to liquidate (in my example) will need to buy a large number of contracts. But you are incorrect in assuming that it is 'demand'. Buying is not the same as 'demand'. In my example, the large position is really 'seeking demand'. As I mentioned in my earlier post, the large position, in my example, might be doing so hoping to get a following there by creating a momentum ignition (i.e, in your words 'demand' comes thru' eventually). However, there is no guarantee that it will happen.
It is my opinion that the market might become a little easier to comprehend if we leave out rationalizing events based on things we cannot be sure of. The words 'demand' and 'supply' invoke predefined responses in us. Using those words to provide a description of what happens in the market (when we cannot be sure of it) only complicates the analysis further -- we start expecting certain events to occur because of our framing, and when those events do not take place, we become confused even further. This game is difficult enough why make it more difficult?
Of course, all this is my opinion, and as with all other things in trading, others will have different opinions. It does not matter what one trader or another thinks, it is up to you to determine what works for you and what does not.
All the best.
Regards,
Monoid.
Though the course of an auction market is determined by the Law of Supply and Demand, you are correct that "buying is not the same as 'demand'". However, it became clear to me years ago that attempting to explore the ever-more complex levels of how the Law of Supply and Demand is manifested in the market -- i.e., market psychology, or what is nowadays called "behavioral" or "economic" finance -- was largely masturbatory: so few were interested that for all practical purposes one could say "no one". So instead I used terms such as buying/selling pressure and buying/selling interest, but I have no evidence that that did much good either.
What understanding came down to in the end was whether or not the student/learner/whatever had studied the material, the material in this case being Wyckoff, who explored all this a hundred years ago. Wyckoff makes the accumulation/markup/distribution/markdown cycle quite clear in terms of motives and mechanics, that, for example, "breakouts" are generally engineered by big-monied interests
who are already fully invested and want to profit from that investment. Therefore, they "ignite" a move above a level that is being monitored by at least some in order to attract the attention not only of those who have been monitoring the situation but of those who weren't paying any attention at all until the breakout occurred. This buying has nothing to do with "demand"; it is nothing more than an attention-seeking move. At this point, those who have engineered all this begin selling what they have accumulated. They have so much, after all, and do this so regularly and so often, that they don't need to make dozens of points. A few are sufficient. This accounts for the large volume one so often sees either at breakouts or shortly thereafter: it doesn't reflect "demand"; demand is unrequited unless eager sellers are willing to meet that demand; therefore, all that volume reflects a great deal of selling, together a great many transactions, which require both buyers and sellers. And who is doing all that selling? Those who had been accumulating whatever it is before the breakout. Only after they're done can the observer judge whether or not the buying interest was genuine or nothing more than an old firecracker that sputters and dies. This is what retracements are all about. If the interest is genuine, the retracements succeed and price advances. If the interest was not genuine, price falls back into what had been the accumulative base. Those who had been accumulating now have their money and can do this all over again for the benefit of those who have no idea what's going on -- which is practically everybody -- or they can move on to something else.
Nowadays I suggest that those who are observing price behavior determine whether or not buyers are willing to pay the ask. It doesn't get simpler than that. And one doesn't even need a chart to make that determination. Are they willing to pay the ask or not? If they are, price rises. If they aren't, it doesn't. They may be willing to pay the ask five minutes from now, or even seconds from now, but at this moment, they're not. And until they are, price ain't goin' nowhere, no matter what the trader hopes for.
The SLA has helped somewhat in this regard: either price crosses the line or it doesn't, and one needn't be a graduate student of the markets with decades of experience in order to make that determination. The challenge comes in deciding what one is going to do about it. Yesterday, for example, the NQ rose to 36/37, repeatedly, a level which it first reached during the overnight on Tuesday. Yesterday afternoon and evening it came within a few points of that level again. Early this morning, it broke above that level for a gain of ten points. Since then it has been working its way back to 36/7 in what may or may not become a successful retracement. Is it necessary to know why all this is occurring? Not really. All one needs to know is that price "broke out" and is now retracing that move. If one wasn't a participant in the breakout, he must now apply whatever criteria he has developed to determine whether he should buy this retracement or not. If he hasn't studied and has not therefore developed these criteria, whatever trades he makes will be more or less random, as will his results.
At the moment, the NQ is sitting dead on 37, and we have over two hours to go until the opening bell. What to do? What to do?
