Question about spikes...

K

k p

I am curious about what is going on behind a spike. I am not sure if this is a behavioral question since I am studying price action, or if this is a technical question.

My attached image shows a 30 second chart on the left, and a tick chart on the right. I am curious as to why price drops like this so quickly. I would imagine that there are buyers at every tick on the way down, at least it so appears on the DOM (not that I am really watching this, I just find it nice for order entry). Since trading is about supply and demand, when price doesn't go higher, it is because there are no more buyers willing to pay the higher price, and the price has to drop to a lower level where a buyer would want to buy. Why are so many levels skipped in an instant when it appears there are people waiting at every level?

In the image, it appears that price hit 3720.50, and then dropped 3 whole points in perhaps just a couple of ticks. I am not sure if that steep diagonal line on the way down in the tick chart is just the line going to the next tick 3 points away or if perhaps some trades were done on the way down. But I would still think that given the volume of NQ, there should be many more trades on the way down.. no?

Update: Just before posting this, I decided to increase the spacing on that tick chart and it does appear that the diagonal line down does stop at every tick on the way down (2nd attachment). So does this mean that when price hit the highest point, there just weren't any more buyers, and what buyers there were on the way down was not enough to keep the price from dropping 12 whole ticks in a matter of seconds? It turns out this initial drop of 3 points took 7 seconds.

Thanks for reading.
 
Someone holding a large long position panicked when price started to drop.

Well, actually... Looking at my charts... Looks like that move hit a pocket of trailing stops. Doesn't really matter which it was. Same results.

Oh, re-read your question. Liquidity on the L2 is mostly false. Just HFT orders that get instantly pulled. Check the volume on the move to confirm... Vs how many orders there "appeared" to be per level.
 
KP

Your example is purposefully created price improvement for entering long

If you want me to break it down Sir..., say so.... and I'll PM you this evening

RN
 
Redneck is right of course. If you look at a little longer time frame it becomes clear (see attached chart). Buyers spent all of yesterday hammering on the 3723 level trying but were unable to break through. Price opened this morning and made two more attempts to move higher.

The smart money wants to get long for cheap and drive the market higher. The easiest way to do this is to wash out all the weak longs, take their positions and allow their covering to push them to profit.

So there are stops from 3720 - 3714. The smart money causes the selloff around the ISM Non-Manufacturing PMI news release, get all the weak longs out of the market and the market goes up. I suspect that there will be a selloff below the morning low and into the gap this afternoon. (Starting as I type this). Smart money washes out the longs, drives the market up causing a bullish sentiment and then sell their long holdings for the bigger move lower.

Its easier to see after the fact but this is the basis of all price action - where are the stops? - where does the smart money want to go?
 
"Smart Money" is one of the biggest and most widely accepted myths out there.

There are big prop traders and bank trading desks that pull in steady money, but they are not smart money. They are just skilled big traders.

Most of the big orders hitting the market that people try to track are dumb money. Eg... Hedge funds, mutual funds, etc... They have a 95%+ market under-performance rate.
 
MedianVelocity said:
"Smart Money" is one of the biggest and most widely accepted myths out there.

There are big prop traders and bank trading desks that pull in steady money, but they are not smart money. They are just skilled big traders.

Most of the big orders hitting the market that people try to track are dumb money. Eg... Hedge funds, mutual funds, etc... They have a 95%+ market under-performance rate.
More...

Agreed. The "smart money" thing is pretty much a con that's been sold to beginners for at least a decade. "Big", yes. "Smart", not so much.

Incidentally, a tick chart should not be drawn as a line chart. Otherwise one is sort of missing the point. No pun intended.
 
dbphoenix said:
A
Incidentally, a tick chart should not be drawn as a line chart. Otherwise one is sort of missing the point. No pun intended.
More...

You lost me there Db. I'm not sure what other options I have to plot it, but I will look to see what other options I have to plot it. I have seen examples from 40D posted like this so thought it was appropriate but I'd love to be corrected.

I stretched it out in my second example to see if price simply jumped a few levels or perhaps it did hit each tick on the way down.

Most importantly, I am not sure what this should be telling me. Were there no buyers or not enough buyers on the way down and hence price had to drop 3 whole points before there were enough orders to buy to halt the decline?
 
dbphoenix said:
A tick represents a transaction. It's a dot. It has no high and low. It's a price, not a range.
More...

Thanks Db, I see what you mean. But MedianVelocity is right in that visually the line chart is much easier to see.

But you know, by plotting dots, it would be very obvious if transactions happen at each tick on the way down or not (I will have to try to plot dots next time I see a very fast spike like this.)

In the end though, I guess what is most important is that price dropped 3 points in just a few seconds and trying to figure out what that means.
 
You must log in or register to reply here.
Back
Top