searching for holy-grail.. is this theory true?

[tar]

the most ignorant comment on here so far, including the OP, & all of mine.

besides the context was the apple market, as an analogy to the fx market.

+1

 

[barjon]

Still going on, eh?

The issue here, is the "supply and demand" guys have that as their catch all for retrospective analysis, yet nothing deeper than that.

"Price went up there, so demand must have been greater than supply" - so then what? If we get back there demand will STILL be greater than supply? Is that it? Is that all your explanation of market moves gives you?

The markets (unless you had not noticed) are auctions. In real world auctions, an auction will soften tart off at a low price, yet there is no demand. Then someone makes a bid and the auction starts and higher prices generate more buying, often to extremes way past any price that could be deemed sensible for the item on sale. In fact, some of the bids are not bids at all, just made up by the guy running the auction.

We see high prices generate more demand for the item. Financial markets are similar but different, we still get the same 'bubble' dynamics but it is not because people demand the item on sale but simply because they think the price will rise and they can offload on someone else later.

This speculative model is very simple and way ahead of the "supply and demand" catch-all that has been described here. Once you understand the behavior that drives people, you then can understand

- how they will act when price moves their way
- how they wil act when price moves against and where their pain point is
- that everybody that got into a speculative long trade is now a seller
- that everybody that got into a speculative long trade is one less future long to get into the market

As for finite supply (stocks) and infinite supply (markets) - well even someone that believes in supply and demand should be able to explain how 2 distinct market types would act differently.

Alas no, no more fruit is on the tree of "supply and demand" - it is the answer, the whole answer, it provides no additional clues, yields no wisdom on the probability of futures price moves.

It just is.

As the world once was flat.

Seems to me that for stocks there is a tangible product - a share in the company - and that the concepts of supply and demand are entirely valid as people seek to own or dispose of that product.

In the futures market there is no tangible product and thus the speculative model is valid. That doesn't stop you thinking of it in supply/demand terms though. For example, you say how they wil act when price moves against and where their pain point is and you might equally say that is where you expect supply/demand to come in.

You can also say that the futures reflect the supply and demand taking place in the underlying stock market, but that leads us into the knotty chicken and egg question of what's leading what

 

[tar]

So apparently the actual, perceived, or projected supply of a commodity has no effect on prices??

Peter

Exactly ! Thats why oil prices doesn't move at all after inventories figures !!

 

[Joules MM1]

Exactly ! Thats why oil prices doesn't move at all after inventories figures !!

sometimes price does move on inventory release.....it may little to do with the inventory release

you are both right

the context of when and where is the key

if the inventory has shrunk to such a level as to actually effect economic scale then likely a trend has already formed and price will move with that trend and if it spikes against trend that is merely opportunity to get set in the larger trend.....

not always the case of price being already written into the event.....not always the case that price wont move.....the set-up may come several days prior......for example, options, expiration(s) of contract(s) date(s).....

what needs to be discussed is this area of strategy.....imho...

 

[robster970]

Exactly ! Thats why oil prices doesn't move at all after inventories figures !!

I disagree and this is why:

Exactly ! Thats why oil prices doesn't move at all after inventories figures !!

 

[Liquid validity]

I disagree and this is why:

I like this, will appropriate this for myself and will never give any credit to you or the original poster for it's provenance.

 

[DionysusToast]

What amuses me about this thread is this.

100% of the people in this thread are speculators.

95% of people in here think that "supply and demand" drive price change and not speculation.

So you have 95% of the people in this room speculating that supply/demand will exist at certain points in the market with the absolute conviction that the rest of the market are NOT doing the exact same thing they are doing.

Then you have a small proportion of people in this thread - say 5% that think that speculation drives the market. That speculators either provide or consume liquidity in the course of speculation and that is what leads prices to change.The 5% think speculation drives the market because they know that the overwhelming majority of trading is speculative in nature.

The image attached shows how you can get an idea for where speculators are positioned, if one side is getting shaken out and where stops will be.

 

[DionysusToast]

Exactly ! Thats why oil prices doesn't move at all after inventories figures !!

Ahead of inventory figures, the liquidity dries up which ensures that any trading post release will be more volatile.

The thing is - there are 2 ways to look at these post release moves.

1 - Professional hedgers, upon hearing the new inventory picture, are in total shock because they had absolutely no idea that the numbers were going to be so bleak/great. In fact, they live in a bubble most of the time without their ears to the ground or any clue what is going on in the US and that is why the numbers are such a shock to them most of the time.

2 - Speculators, upon hearing the inventory picture, try to guess how other traders will interpret the news and end up causing the post-release moves themselves. Other traders fade the news and if enough of them do that, they end up causing the end of the move and having the market go back to exactly where it started.

Now - I've not met any professional hedger that consistently has his pants pulled down with unexpected news.

On the other hand, I know a fair amount of prop/ex-prop guys that take pot shots at news releases.

Plus - you have to admit - when price of oil goes up 60c on a release and then immediately down 60c to where it started in 60 seconds, that is absolutely NOT a reflection of a change in the demand or supply of oil in the same 60 second period.

 

[DionysusToast]

perhaps a direct approach might assist in the convo....perhaps someone could refer to this chart and open a dialogue on the pitfalls/upside of how supply/demand equation worked for them or, better still, how would S/D side assist in proposing the current price activity...if someone wants to put up a diff chart, say, of the es or any instrument, a real dialogue can kick off.....

Last hours of the day, last day of the month....

There's obviously going to be people trying work their way out of both intraday and longer term positions at that point in time. Given where the month started, I think we can say that 'window dressing' pretty much failed that day.

There's nothing 'pure' about trading at that particular time!

Sneaky chart that one Joules!

 

[DionysusToast]

I like this, will appropriate this for myself and will never give any credit to you or the original poster for it's provenance.

Some right gyppos on this site....

 

[DionysusToast]

ha you have a dark mind wsw - rods & liquids & sat nights, hmmm.

The Fast Show - Comptetitive Dad -10- Fishing - YouTube

PMSL but eerily familiar - I remember sitting in my cousins house in shock seeing his dad do pretty much this over some computer games. My cousin couldn't get a game in and his dad ended up offering to race us running because we won on the game.

My cousin ended up severely screwed up, in prison and on the sex offenders register.

 

[barjon]

.......Plus - you have to admit - when price of oil goes up 60c on a release and then immediately down 60c to where it started in 60 seconds, that is absolutely NOT a reflection of a change in the demand or supply of oil in the same 60 second period....

Not sure if you saw my earlier post, but does the above stop you thinking about it in demand/supply terms - not of oil itself, but of people willing to buy or sell?

From that perspective you might say:

Great news - first thought reaction is that "supply" (of sellers) dries up, the "demand" (of buyers) increases and buyers must chase the price to winkle sellers out - second thought reaction is that the news isn't that great, "demand decreases and "supply" comes back in, added to by those who just fade a sharp news move without further thought - back to where it started and the "supply/demand" imbalances ironed out and it trots along from there..

 

[robster970]

Great news - first thought reaction is that "supply" (of sellers) dries up, the "demand" (of buyers) increases and buyers must chase the price to winkle sellers out - second thought reaction is that the news isn't that great, "demand decreases and "supply" comes back in, added to by those who just fade a sharp news move without further thought - back to where it started and the "supply/demand" imbalances ironed out and it trots along from there..

Nah - that sounds too organised - I think it has more in common with a melee.

Anyway, I don't know really.

 

[new_trader]

In the futures market there is no tangible product and thus the speculative model is valid. That doesn't stop you thinking of it in supply/demand terms though. For example, you say how they wil act when price moves against and where their pain point is and you might equally say that is where you expect supply/demand to come in.

What do you mean Jon? There is a tangible product in futures markets where the underlying commodity is physically settled. Granted, not all futures are physically settled but that is beside the point. Supply and demand is a law that applies universally. Like people say about gravity, supply and demand isn't just a good idea, it's the law! :cheesy:

 

[barjon]

What do you mean Jon? There is a tangible product in futures markets where the underlying commodity is physically settled. Granted, not all futures are physically settled but that is beside the point. Supply and demand is a law that applies universally. Like people say about gravity, supply and demand isn't just a good idea, it's the law! :cheesy:

Maybe one step removed for commodities but what is the tangible product (in the way I described it in the post) for index futures?

 

[barjon]

Nah - that sounds too organised - I think it has more in common with a melee.

Anyway, I don't know really.

quite probably, yes. It was merely to illustrate the point that you could think of toasties speculative model in demand/supply terms. When he talks of judging the point where offside traders will puke out, isn't that pretty much saying where he thinks demand/supply will come in?

 

[new_trader]

Maybe one step removed for commodities but what is the tangible product (in the way I described it in the post) for index futures?

Nothing, index futures are cash settled. But it makes no difference, as you implied.

 

[cablemonster]

as Toast said every single price move can be explained by the catch all term 'supply and demand'. It may as well be up/down pull/push green/red. it's all about the why and the why is not simply 'supply and demand'.

 

[ForexLion]

Understanding supply and demand zones can simplify things a bit.

 

[Shakone]

as Toast said every single price move can be explained by the catch all term 'supply and demand'. It may as well be up/down pull/push green/red. it's all about the why and the why is not simply 'supply and demand'.

And every price move can explained by others as liquidity consumption or lack of liquidity. And by others as cycles, and by others as manipulation, news and others as random noise or statistical likelihood. Some of these concepts may have things in common with others, some may be useful.

As I've said plenty of times, I see nothing new in what has been written about consumption of liquidity, nothing that isn't already contained in the ideas of supply and demand. I don't dismiss consumption of liquidity as 'fook all to do with it' because it is part of supply and demand. I don't dismiss what traders will do if price gets here or there, because it is part of supply and demand. Yes it can sound like a catch-all catchphrase, but it's about a way of understanding something, or a law as New_trader and many of the quotes I gave point out.

Then there is an assumption that supply and demand is just a curve-fit historical explanation, rather than something which is looked at in real time and used to trade on. And despite dismissing it as rubbish and assuming that there is nothing deeper to it as DT does, he now wants to complain because nobody will explain any nuance or deeper understanding to him.

I guess the reason for using the new terminology and dismissing the old comes about because either it is not understood what supply and demand is, or because there is an agenda to sound like you're bringing something new to a very old table and to indicate that you have a better understanding - light years ahead of us I believe the quote was. Maybe you are, or maybe you've ran so far ahead of us, you've gone down the wrong street and got yourself lost. If you're happy with your understanding and your results, that's all that matters despite the semantic arguments we have.

If someone doesn't know what supply and demand are in an economic sense, I posted links to an MIT course on economics so one can find out. I doubt anybody bothered. If someone doesn't know how supply and demand might be applied to the markets, I quoted a number of 'traders' on supply and demand, and several of them have books which go into it, some in great detail. So one can find that out too if one wants. Or not.