Why does price move in waves?

[Shakone]

I'm not necessarily talking about Elliot waves because I know very little about them (but you can answer that if you believe in it strongly enough). I'm wondering why price moves in these typical waves that I see day in day out. Sure, occasionally price moves straight up or down without blinking, but that is exception rather than the rule. It is usually up a bit down a bit less, up a bit more, down a bit less etc. until a reversal. Higher highs, higher lows and so on.

What is causing this? Why has it been recurring for so long. You can see it decades ago.

 

[LiamH]

I'm not necessarily talking about Elliot waves because I know very little about them (but you can answer that if you believe in it strongly enough). I'm wondering why price moves in these typical waves that I see day in day out. Sure, occasionally price moves straight up or down without blinking, but that is exception rather than the rule. It is usually up a bit down a bit less, up a bit more, down a bit less etc. until a reversal. Higher highs, higher lows and so on.

What is causing this? Why has it been recurring for so long. You can see it decades ago.

I just assumed it was the big boys scaling in and out of their positions? Or maybe that is just what happens when you have so many market participants doing their own thing..

I suppose it would be pretty difficult to find out exactly.

 

[Shakone]

This is what I was thinking too. But then why does that necessarily have to be in waves? And when you're dealing with major forex, how big do these big boys have to be so that scaling and out causes this?

 

[MrGecko]

This is what I was thinking too. But then why does that necessarily have to be in waves? And when you're dealing with major forex, how big do these big boys have to be so that scaling and out causes this?

Well, if they didn't move back and forth, they'd only ever go up (or down). Better to think why that doesn't work IMO.

 

[Pento]

the market is an equilibrium. on breaking news its hardly going to move 5% in a straight line in 30 seconds and then just sit there until the next bit of news or data comes out. the wave process is the markets attempt to find the equilibrium and true price whilst factoring in all information.

 

[Prawnsandwich]

When price starts to move up, potential buyers get emotional about being left behind and jump on board bidding price further up.....

when price has risen a bit some of those buyers get a bit worried about banking profits, and sell to lock in profits, and at the same time other participants feel a top has been reached or price is "too high" and look to short....this causes a temporary drop in price against the predominant trend..

when weaker longs have been shaken out, and more longs enter on the retrace of the overall trend, price gets pushed back up again, and then you get short covering adding to the next leg up.....and repeat....

its all about the emotional swings of crowds

 

[FuturesDog]

It's possible that at least in short term the waves are only a random variation. Otherwise you could use them for you advantage or no?

 

[scose-no-doubt]

the market is an equilibrium. on breaking news its hardly going to move 5% in a straight line in 30 seconds and then just sit there until the next bit of news or data comes out. the wave process is the markets attempt to find the equilibrium and true price whilst factoring in all information.

lol

 

[itmtrading]

It is quite common to hear someone say "This stock has got to go up!" or "This stock has got to go down!" In such cases, the trader has made a prediction that the stock should move a certain way based on research or analysis and is ignoring the facts about what the stock's price is saying right now.

 

[helen82]

it depends on many factors such as materials, demand, Additional fee...All of them create waves of price.

 

[natureboy]

in Hank Pruden's book Three Skills, he likens financial market behavior to the fashion cycle.. made sense to me. you've got the innovators, you've got the early majority, by the time the middle to late majority is buying, the innovators are getting out.. Emotionality/Perception plays a big role in price behavior.. the people buying near the top DO think the issue will keep appreciating, they just lack the knowledge of the true market position, as does pretty much everyone, but they also lack knowledge of the probable market position. News plays a role too, as a catalyst for behavior. But really, prices move in waves because the price action reflects human decision making and group dynamics. someone wrote earlier in this thread the different buyers and sellers and their different perspectives for entering and exiting, and this alone forms a compelling argument for why the waves are there.

price action can be detached from the fundamental supply demand or supposed value. and it is considerably non-random, see Andrew Lo. filtered waves are excellent for seeing this behavior on a chart; mine are blue

 

[SanMiguel]

I'm not necessarily talking about Elliot waves because I know very little about them (but you can answer that if you believe in it strongly enough). I'm wondering why price moves in these typical waves that I see day in day out. Sure, occasionally price moves straight up or down without blinking, but that is exception rather than the rule. It is usually up a bit down a bit less, up a bit more, down a bit less etc. until a reversal. Higher highs, higher lows and so on.

What is causing this? Why has it been recurring for so long. You can see it decades ago.

Trend movement, then retrace from profit taking, either get back in on trend or others get in on it - why should the market be so symmetrical sometimes...no idea?
It's a common theme that the stock market in a bull run should retrace 10% - no idea who gave it 10% but that's the "group think".

 

[sneville]

I'm not necessarily talking about Elliot waves because I know very little about them (but you can answer that if you believe in it strongly enough). I'm wondering why price moves in these typical waves that I see day in day out. Sure, occasionally price moves straight up or down without blinking, but that is exception rather than the rule. It is usually up a bit down a bit less, up a bit more, down a bit less etc. until a reversal. Higher highs, higher lows and so on.

What is causing this? Why has it been recurring for so long. You can see it decades ago.

my 2p worth

First think what price is and what makes it change. Price in market terms is commonly thought of being the value of something or the worth of something but not actually what it is worth but what people think its worth.

Price goes up or down when the market participants think that something is under or over valued and then buy or sell that something in the anticipation that the something will change price according to its real value (what is the real value is only of the opinion of the individual) . What moves the price is basic economics supply an demand.

Why the market moves in waves is because the majority of the market participants dont change their opinion at the same time or even at all. Market participants hold different views at different times its only when the majority think the same thing does the market move accordingly.

 

[charles roberts]

Causes day traders. Im beginning to hate day traders I aiways buy for the long term, day traders are distorting the markets they are going up and down like yo jos,and companies that should rise because they have down well stay below what they are worth because day tradersare buying and selling for short term profits making the markets go up and down to fast slso a lot of the big boys are snapping up large amounts of cheaper shares like RBS and buying and selling when there is a relatively small increase and making large profits and also distorting the markets, there should be a large Tax on short term profits maybe this will help to take the the rippals out of the market and stabalise it a bit. This only my own opinion.

 

[SanMiguel]

Causes day traders. Im beginning to hate day traders I aiways buy for the long term, day traders are distorting the markets they are going up and down like yo jos,and companies that should rise because they have down well stay below what they are worth because day tradersare buying and selling for short term profits making the markets go up and down to fast slso a lot of the big boys are snapping up large amounts of cheaper shares like RBS and buying and selling when there is a relatively small increase and making large profits and also distorting the markets, there should be a large Tax on short term profits maybe this will help to take the the rippals out of the market and stabalise it a bit. This only my own opinion.

LOL1
I bet that's just what the day traders in 1900 thought too.

 

[masnachu]

Causes day traders. Im beginning to hate day traders I aiways buy for the long term, day traders are distorting the markets they are going up and down like yo jos,and companies that should rise because they have down well stay below what they are worth because day tradersare buying and selling for short term profits making the markets go up and down to fast slso a lot of the big boys are snapping up large amounts of cheaper shares like RBS and buying and selling when there is a relatively small increase and making large profits and also distorting the markets, there should be a large Tax on short term profits maybe this will help to take the the rippals out of the market and stabalise it a bit. This only my own opinion.

Yea it's day traders mate, luvin the way your dealing with reality there.....