House of If You Can Draw A Straight Line

[k p]

If one stops casting every movement in terms of eager buyers and crafty sellers, he may find it easier to focus on price movement rather than the drama behind it. Granted I'm guilty of this myself. It makes the trading more fun. But it can't be allowed to interfere with trading decisions, not unlike pilots who kid around when there's nothing to do but watch the plane fly itself but who snap to when the need arises.

The business of traders is trading. Whether buyer or seller or short-seller, everybody's looking for a trade. Buyers don't try to "push" price higher, even though it seems that way; they are merely paying the ask, and if sellers quote the ask at ever-higher prices, buyers aren't "pushing" anything, they're just paying the ask. And if sellers can't find any buyers to take the ask, they have to lower their prices in order to get rid of whatever it is they're trying to get rid of. So price turns.

Unless buyers are stupid, and many of them are, they don't want to pay high prices for something unless they're convinced -- or have convinced themselves -- that they can sell it later at a higher price. On the other hand, sellers don't want to take any less than they're asking. So to say that sellers want price to fall and buyers want price to rise makes no sense, unless you're the sort who goes to the grocery store and wishes that bananas were more expensive (if you own shares in a banana plantation, sure; otherwise, no). Go check out some garage sales this weekend and see how many buyers push the sellers into taking more money than they've asked for.

Therefore, rather than look at this as buyers and sellers, look at it in terms of "traders" and focus primarily or even exclusively on price movement. The buyer/seller thing can be addressed later.

Me

This is a great reminder Db. Two questions if I may therefore that arise from this.

You talk a little bit about if traders are willing to pay the ask, and its been suggested somewhere (I can't even remember where now), that watching to see if more contracts are taken at the ask versus at the bid is beneficial. (Truth be told, I have no knowledge of how to even display this). But aside from this, would you still say that the transaction price is still the most important? Both sides have to agree on the price, or else there would be no transaction, so is this bid/ask stuff important or does the final price that shows on the right tick still trump all of this?

Second question.. which still refers to this, is the introduction of the quality of buyers/sellers by fortydraws. I have worked through quite a bit off Wyckoff in the past few days and he talks about the big players putting feelers out in the market to test buying and selling interest. So it appears that although contracts may be offered at lower prices to test for selling, the ultimate goal is to shake out any longs so that the strong hands can pick up more contracts at a cheaper price or vice versa. (My testing shows without a doubt that any penetration below a support level for example must absolutely be followed by a reaction... a chance for some buying to step in, to see how far buyers can bring price back up before a short could even be considered because these minor price drops can be nothing but pokes to run stops). But can you say something about the quality? If there is no continued selling below the poke/penetration of a support level then clearly too many traders still want to keep buying... but how does this in any way point to "quality"?

 

[dbphoenix]

would you still say that the transaction price is still the most important?

Yes.

can you say something about the quality?

I don't think about it.

 

[k p]

Perfect.. thanks Db.

 

[gears]

...The business of traders is trading. Whether buyer or seller or short-seller, everybody's looking for a trade. Buyers don't try to "push" price higher, even though it seems that way; they are merely paying the ask, and if sellers quote the ask at ever-higher prices, buyers aren't "pushing" anything, they're just paying the ask. And if sellers can't find any buyers to take the ask, they have to lower their prices in order to get rid of whatever it is they're trying to get rid of. So price turns.

I've been trying to wrap my arms around this concept for quite some time, so thanks for stating it so simply in removing the drama.

In my head, I've been thinking of an actual auction where someone could yell out to the auctioneer, "I'll give you $500" when the price was only at $300 in order to attract attention or raise prices. Due to trading being electronic, I couldn't figure out how all of this pushing was happening.

 

[dbphoenix]

As per Wyckoff when we want to buy we look at the down wave and when we want to sell the up wave.

Well, no. To do so results in counter-trend trading. Buyers buy on both upwaves and downwaves just as sellers sell since each transaction requires both. Their motives, however, will be different according to circumstances. Professionals, for example, will buy declining prices in order to support them. Amateurs will buy in an effort to catch a falling knife. But whereas professionals will tend to hold onto what they've bought and accumulate a position, amateurs will more often panic and throw their shares back onto the market as sellers. This helps fuel the cascade.

There are all sorts of misconceptions about supply and demand and buying pressure and selling pressure. I've attempted to correct a couple. But for the purposes of this phase of plan development, let's just say that the idea of demand overwhelming supply does not mean that buyers are beating sellers into submission and wresting the shares or contracts from their death grips; it means rather that buyers are more than happy to pay whatever sellers are asking because they anticipate being able to sell what they've bought at a higher price. Why else would they buy in the first place? Sometimes buyers are manipulated into paying ever-higher prices. Sometimes sellers sell too soon and smack themselves for having done so. There's really no way of knowing until the music stops and you have a sort of Wile E. Coyote moment where there's nothing under buyers to support them.

This is much easier to see on a 1t chart. Those plunges you see so often, such as the one after the Fed announcement, can literally consist of empty space. If one is plotting a bar chart or a line chart, it looks like there are trades all the way down, but this is not necessarily the case. One transaction may be far below the last, but, again, unless one is looking at a 1t chart, this will be masked. This becomes not a matter of buyers supporting the price all the way down but rather there being no buyers at all.

Me

 

[fortydraws]

one thing that really impressed me when I was first studying Wyckoff's trading course was the notion that one should pay attention not merely to supply and demand, but to the quality of supply and demand

What I mean by that, in no small measure, is this:

Professionals, for example, will buy declining prices in order to support them. Amateurs will buy in an effort to catch a falling knife. But whereas professionals will tend to hold onto what they've bought and accumulate a position, amateurs will more often panic and throw their shares back onto the market as sellers. This helps fuel the cascade.

Imo, my keeping this in mind and watching how price acts it is tracked by supply & demand lines, how far it moves from the tracking level, how quickly and deeply it retraces back to the tracking level - all has helped me to sort out who is likely doing what when a failure looks immanent.

 

[k p]

As per Wyckoff when we want to buy we look at the down wave and when we want to sell the up wave.

Well, no. To do so results in counter-trend trading. Buyers buy on both upwaves and downwaves just as sellers sell since each transaction requires both. Their motives, however, will be different according to circumstances. Professionals, for example, will buy declining prices in order to support them. Amateurs will buy in an effort to catch a falling knife. But whereas professionals will tend to hold onto what they've bought and accumulate a position, amateurs will more often panic and throw their shares back onto the market as sellers. This helps fuel the cascade.

There are all sorts of misconceptions about supply and demand and buying pressure and selling pressure. I've attempted to correct a couple. But for the purposes of this phase of plan development, let's just say that the idea of demand overwhelming supply does not mean that buyers are beating sellers into submission and wresting the shares or contracts from their death grips; it means rather that buyers are more than happy to pay whatever sellers are asking because they anticipate being able to sell what they've bought at a higher price. Why else would they buy in the first place? Sometimes buyers are manipulated into paying ever-higher prices. Sometimes sellers sell too soon and smack themselves for having done so. There's really no way of knowing until the music stops and you have a sort of Wile E. Coyote moment where there's nothing under buyers to support them.

This is much easier to see on a 1t chart. Those plunges you see so often, such as the one after the Fed announcement, can literally consist of empty space. If one is plotting a bar chart or a line chart, it looks like there are trades all the way down, but this is not necessarily the case. One transaction may be far below the last, but, again, unless one is looking at a 1t chart, this will be masked. This becomes not a matter of buyers supporting the price all the way down but rather there being no buyers at all.

Me

I'm not sure where the original comment is that you reply to, but this jumped out at me because I just read it in Wyckoff the other day. It was from "Tape Reading and Active Trading".

In there he does state that its important to first develop a bearish or bullish view of the market, but then, if bearish, to "wait for the bulge in which to take your position" and this I assume would be selling at the top of the buying wave. Let me attach a screen capture of the page.

(I certainly understand though how one wants to put the sell order just under the top of the crest so that he is swept into the trade. I only bring this up because given that I just read this the other day, I wonder if who ever posted that original comment could have been thinking of this exact page from Wyckoff. I certainly understand your comment about counter-trend trading though.)

 

[Gringo]

I'm not sure where the original comment is that you reply to, but this jumped out at me because I just read it in Wyckoff the other day. It was from "Tape Reading and Active Trading".

In there he does state that its important to first develop a bearish or bullish view of the market, but then, if bearish, to "wait for the bulge in which to take your position" and this I assume would be selling at the top of the buying wave. Let me attach a screen capture of the page.

(I certainly understand though how one wants to put the sell order just under the top of the crest so that he is swept into the trade. I only bring this up because given that I just read this the other day, I wonder if who ever posted that original comment could have been thinking of this exact page from Wyckoff. I certainly understand your comment about counter-trend trading though.)

This is essentially what we do when price reaches the top or bottom of TC or TR. When price reaches the top we look to sell on weakness and when it reaches the bottom we look to go buy on strength.

SLA-AMT has encompassed all that theory into just one line: Wait for TC or TR top to short and TC or TR bottom to long.

Gringo

 

[MadeMan]

@Gringo

OTOH .. if one just focuses on price movement/behaviour it actually isnt neccessary to plot any line ... as u focus on price alone , so one could actually go long @ or near resistance if price movement dictates that it wants to move up... right ?

ture or false ?

if one follows price , drawing lines in the sand ie. trading in foresight isnt neccessary as u trade the now.. and not what one might expect ?

but one could come to conclusions if u incorporate the lines drawing in foresight.. ie

if price trades at a "resistance " level.. and u dont see any form of weakness in price behaviour or rejection ie .. the price of least resistance is up.. then one can come to the conclusion that it will breakout ... due to (tradiers psychology/behaviour) fullfilled vs unfullfilled expectations...

but then again cant it bee seen without lines drawn beforehand? ... ie start each trading day with a blankpage and just follow price.... pure and raw nothing more nothing less...

i guess the more u put into it the less u will get... or make it uneccessary complicated...

 

[dbphoenix]