Supply and demand in stocks?

This is a discussion on Supply and demand in stocks? within the Technical Analysis forums, part of the Methods category; Originally Posted by Rhody Trader Something a lot of folks don't understand is that prices actually tend to move most ...

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Old May 31, 2010, 4:38pm   #16
 
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Re: Supply and demand in stocks?

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Originally Posted by Rhody Trader View Post
Something a lot of folks don't understand is that prices actually tend to move most aggressively in the absence of available opposing orders. For example, all it takes for prices to fall very quickly is for prospective buyers to pull their bids.
Bingo !
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Old May 31, 2010, 5:49pm   #17
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Re: Supply and demand in stocks?

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The availability of shares is just one side of the equation. There is another side and that is the availability of buyers/sellers at any specific price level. Stocks are different in that we have market makers/specialists who act as buyers/sellers of last resort. In normal circumstances, it is their job to take the other side of the trade and so there is almost always a person to trade with. This does have it's limitations so the dynamic is a blend of a regular availability of buyers/sellers with a sort of insurance policy buyer/seller of last resort who has some guidelines to give you a 'fair' fill but who will jump out of the way if things get too hot.
As they did in the recent crash pulling the bids despite being "in charge" of providing liquidity.

I think I was trying to get across the question of why support exists at a particular level.
Without a chart showing support at 93, how or why would the buyers come in at 93 again. The market maker is just there to fill their order and sell to them regardless aren't they?
Assume the institutions stop hunt the 93 level, what would possibly make buyers come in there again if all the stop hunts were SELL orders closing their original longs from 93 at break even.

Actually, that brings me onto a separate question, if everyone wants to sell pushing the market down and the market maker HAS to buy, don't they lose on the transactions or do they underwrite it in the market?
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Old Jun 1, 2010, 1:57am   #18
 
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Re: Supply and demand in stocks?

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As they did in the recent crash pulling the bids despite being "in charge" of providing liquidity.

I think I was trying to get across the question of why support exists at a particular level.
Without a chart showing support at 93, how or why would the buyers come in at 93 again. The market maker is just there to fill their order and sell to them regardless aren't they?
Assume the institutions stop hunt the 93 level, what would possibly make buyers come in there again if all the stop hunts were SELL orders closing their original longs from 93 at break even.

Actually, that brings me onto a separate question, if everyone wants to sell pushing the market down and the market maker HAS to buy, don't they lose on the transactions or do they underwrite it in the market?
I think the answer is "it depends". If someone has a large buy order to fill at a price point, then that will effectively act as support. So - in this case, over a relatively short period, the support will be definite and unsurmountable until those orders are filled.

If you consider a longer time frame, and an accumulation scenario. It's a different story. If the supply of stocks on the market has been constrained, then there is absolutely no reason to think there will be enough supply at a point of resistance to stop the up move that occurs as a result of the accumulation.

As for MMs losing money - sometimes they do, sometimes they don't. Overall they come out on top because their very existence on the order book moves the stock. Whenever I'm in a trade and UBSS come along, I know the price is going to shrink away from them. The fact that they are there showing an inclination to sell but are actually buying gives them quite an edge.
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Old Jun 1, 2010, 9:09am   #19
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Re: Supply and demand in stocks?

For price to make an uptick all the offers have to be consumed by a buyer, so that the next place he can find sellers to buy from is one tick(or however far?) up
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