Why Do Charts move in waves?

[bottomdollar]

Hi All,
I know this seems like a silly or stupid question but why do charts move in waves like the waves in a the sea? I am thinking in terms of trading psychology..
For example in an uptrend you will get a lot of buyers who push the price up, then the buyers exhaust and then is it the sellers who then push the market down? Or does the market naturally fall? Then what is it that causes the buyers to come back in a buy again causing a further push...
Also, in a consolidation phase.. what is going on in the mind of buyers and sellers?
Anyone have any theories?
Thanks
BD

 

[stevet]

market prices are moved on purpose in response to buying and selling pressure and a result is the wave formation as higher and lower prices are constantly tested - and the wave formation appears in all time frames from minutes through days

 

[FTSE Beater]

Hiya BD

On every up wave you have buyers, and as soon as the market turns they look to sell out for a profit. This then creates selling pressure and as the price moves lower and lower you get more and more sellers. Once the short-term sellers have dried up, it's down to the buyers again to pick things up "at a better price than at the top of the wave"

As price falls, your actually seeing levels of stops getting fired.

HTH

 

[waqr]

Because Mr Elliot sez they should.

 

[fudgestain]

You have to go to the seaside to see waves. What you do see, though (ie Dow), are the gyrations of a zero sum game.

 

[al-motor]

As the above say, the price moves up, but at some point people will need to take profits, and become sellers, and thus the mkt will start coming down temporarily until a point that the buyers will again see value in the mkt- these points can be on the basis of previous supp/resis.

Consolidation is where he buyers and the sellers are in a fight trying to push the mkt in their favourable direction- The greatest problem with consolidation is that u will never realise this stage, until sometime afterwards !! when it first starts out, u will think that u are still in a trend !!

 

[madasafish]

Consolidations are easy to spot: the waves get lower.. Very noticeabel if you trade an indes and plot a 20ema in 2 mins: when it turns horizontal the waves get smaller..

I exploit wave sin day trading indices: just identify the start, hop on with a tight stop and a target less than the average height of the wave and 80% of the time you are out in under 5 minutes. DO that on Dax 20 times a day with 5 points each and that's 100 points. Only works with the trend and NOT trading consolidations.

Want to see the wave in action?
Plot a linear regression forecats 10 period weighted, 9, 5 in a 2 minute chart. That will show waves very nicely

 

[bonsai]

bottomdollar
have you thought about the alternatives ?
if it didnt move in waves, what shape might you expect to see ?

I can't think of any !

In an abstract sense, the market works because it is ambiguous.
i.e we dont know if its moving up or moving down.

To create this ambiguity,seems to me, it needs to continually
stop going up or stop going down.

Market makers hunt for volume. They dont give a damn about price. So markets tend to move to find optimum volume to maximise trade.

Open markets , that is. Not necessarily so in some markets which are closely controlled.

 

[al-motor]

Madasafish,

U mention to identify a consol, look for waves getting smaller, BUT in the beginning, you are still thinking that the mkt is in control, it is only when the hicher high fails and the lowere low fails as well, u know that there is a chance of consolidation.........

presumably in the dax, u are just risking about 3/4 pts and looking for quick 5 pts, which as u say, it will give u in minutes- But identifyng the trend and timing must be the tricky part here........... interesting.

 

[fudgestain]

A chart, and the waves that the world at large say they see on them, is no more than a particular and very very limited pictorialisation of the arithmetical data underneath.

Now if you prefer the wrapper to the cheese which came in the wrapper then for sure thats all you need.

So what if you want the cheese - you want to cut it up into big bits and little bits? This is when the arithmetical data underneath is next viewed through a prism: you need to look at as many orders/views of it as you can assemble and then just let your brain exercise its simplistic cognitive abilities.

You have now travelled deep inshore away from the seaside on your journey to the .. dare I say it .. the Holy Grail.

 

[madasafish]

al- motor..

If you take the premise that market equilibrium is reached when price = 20 ema in 2 minutes and 20 ema is flat - then you have a consolidation.

Why? Because everyone in short term trades off a 20 ema in 2 mins..

Now when price is well above or below 20 ema then it is out of equilibrium and will either continue or stop. For a stop either prices rise/fall or go sideways.

Now that means best trading opportunities are when price is furthest away from 20 ema.. (and if you look at standard deviations - eg bollinger bands - they are widest at tops and bottoms as prices reverse..(i.e the wave is changing directoion)..

Easy to recognise with
1. MACD: the bars will go from all red to all green or vice versa
2. A 10 bar Linear regression forecast line will curve over and either start going up or down..
3. Moving averages start to progressively corrover
4. 20 ema turns direction - eventually)