The supply and demand curve

barjon

Legendary member
10,602 1,741
Hi everyone,

I've been using ta and trading shares non-professionally for over 25 years - for success or otherwise see my post to the "women aren't stupid are they" thread in the lounge!! In that time ta has developed from a simple graph paper, pencil and FT exercise to a complex operation where massive computer power means you can do anything and get so much information that it's difficult not to get overloaded. Nonethess the name of the ta game remains the same, basically to forecast future supply and demand over various timescales. To do this successfully relies on the accuracy of current and historic supply and demand as represented by price movements. It is here that I have concerns about some markets.

For example, an opening price set by mms well away from the previous close is merely a guess unless it properly reflects the state of their order books. Despite this the opening price is one of the crown jewels of ta and we draw much from it. The same may be said of intraday spikes which may owe more to the vagaries of the system rather than representing real trading. Again intraday high/lows are in the jewel box.

So for good ta we need to concentrate on the purest markets, that is those where prices and movements fairly represent real and genuine supply and demand pressure.

:?: Mirror, mirror on the wall which is the fairest of them all (can I hear Naz revving up?)

So far as FTSE is concerned I doubt the purity of many of the constituent shares. I can't think of a way to measure it and probably anecdotal experience is all we have. We might share good experience to identify the fairest but passing on thoughts about the unpure might get us into trouble (moderator to help here?)

There is also the problem of how much the explosion in short-term trading activity itself distorts the real investor supply and demand curve, but that's another story!

I hope I haven't bored everyone to death - be interested in your comments if not.

Good trading.

Jon
 

Glenn

Experienced member
1,040 118
Jon
If a MM marks up (or down) a price, nobody has to trade at that price unless they want to.
If they want to then that represents demand or supply.
If they don't want to then the MM has to adjust the price until buyers or sellers move in.
Most (all ?) data feeds/downloads nowadays show Traded prices rather than Quoted prices, so in a sense MM's can quote what they like but it won't appear on a chart unless someone takes them up on it.

From time to time spikes do appear, but these are either errors or real trades. The errors are removed if possible in the case of EOD data by the better suppliers.

Short term trading is good for everyone because it adds to the liquidity in the market and therefore makes it easier to get filled.
So in a sense, the 'purest' markets you are seeking are really the most liquid, because they contain the greatest volumes of supply and demand, which is then represented in the chart.

Personally I see no problem.
Glenn
 
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