Thread: Hey...what about Volume?

Originally Posted by ;

quote You poked the bear, so I must chime in. I would like to start off by reiterating that for every buyer there's a seller, also for every seller there's a buyer. Anytime you hear statements such as, The market went UP because there were more buyers than sellers., or, The market went DOWN because there were more vendors than buyers., they're completely false. A trade can not occur with no buyer and a seller. What goes the market is determined by the AGGRESSION of one side versus the other. Let's have a closer look:...

What HiddenGap has explained here is how a normal auction market will do the job. But in our markets we have the market maker who must take the other side of the transaction as they're paid to provide liquidity and quote the bid / offer spread so there will always be a seller to every buyer. They will take the other side of a buy trade by way of instance if they believe that price will go down. If they dont believe price will go down they will let the other market participants fill the order or they will pull their liquidity and start quoting higher prices.

What occurs is that the market maker senses that there are lots of aggressive buyers entering the market (they could observe the orders hitting their order book and who they are from) they understand that value is higher they won't wish to take the otherside of those orders because they will make a reduction so what they will do is pull their liquidity from the market and begin quoting at large prices hence shing price higher. Its the market maker who affects price.

The market maker makes money where there's high volume but it ought to be two way volume, when it becomes standardized that they pull liquidity.
This is the reason why markets range for the majority of the time and only trend once worth has shifted or if volume disappears and market makers pull away liquidity to the prior area of high volume close to where current worth is.


From the chart the black line is that the value lineup for the EUR. The market goes up on low vol from the first red box also assembles value higher, however when volume starts to drop down here the market makers will want to go looking for business again. As it went up on low volume they'll want to check the high volume area (POC) under the market again to see whether there's still two way business there.
As price goes down it does so on low volume they understand business has dried up. They will have accumulated a long novel as price goes down as they must take the other side of this transaction. If they wish to get rid of their buys they need to find sellers. To find vendors they need to take prices higher and as worth is above the market this is where they'll move price. Volume increases as it move up (green boxs) and this pattern repeats itself because we work through the chart.

Originally Posted by ;

quote What HiddenGap has explained here is how a typical auction market would do the job. But in our markets we have the market maker who must take another side of the trade as they are paid to give liquidity and quote the bid / offer spread so there will always be a seller to each buyer. They will take another side of a buy trade by way of example should they believe that price will return. If they dont think price will return they will let another market participants fill out the order or else they will pull their liquidity and start quoting...

would you please supply more illustrations based on that logic?

Originally Posted by ;

quote would you please provide more illustrations based on that logic?

Sure will you be more specific, not sure Just What you want an example of

Originally Posted by ;

quote sure can you be more specific, not sure precisely what you want to have an example of

I mean that you talked about the logic that MM brings out liquidity so markets shift off. Could you please provide examples of setups where you believe that type of activity took place?

Originally Posted by ;

quote I mean you spoke about the logic that MM pulls away liquidity so markets shift away. Can you please give examples of setups in which you believe that type of action happened?

Great instance on CL yesterday.
Price making lower lows everyone believing that the market will go lower. However two clues show that this is really a lengthy accumulation.
One is a slow mill down and just two the deltas are favorable.

The MMs have accumulated a very long novel, and will need to come across Sellers so they will need to take price to an area of liquidity. They'll come across sellers above previous swing top.
They pull bandwidth as you can observe in both red boxs from the green upward bars. See the way the market thins out to the sellside.

As soon it as struck they bandwidth region they offload their longs to the sellers. They do a nice two way company until the sellside quantity gets two large, and so they pull their liquidity to beneath the market and you can observe the buyside volume fades from the box.

If you dont have orderflow applications you can observe withdrawels of bandwidth in your charts with long bars on comparatively lower quantity for the magnitude of the bar.

The are just two reasons why MMs will withdraw their liquidity. Either there's an order imbalance that comes into the market and they dont need to be on the otherside of the trade or they're searching for liquidity and are attempting to run stops (GC is a great market to view stop runs)

Just to go back to this auction market process...

If a vendor comes in and see that 10 buyers stick their hands to buy it, then they are not going to sell at the price, he will pull off the price away until there is just one buyer he/she begins to get worried that other sellers will probably come in at that high price and he will miss his chance to eliminate his stock.

Think about it. You own a TV to market and you provide a price and get an overwhelming response, lots of individuals start clamouring to buy your TV. Are you going to let it go at that price? Whatever you will try to market it for a far higher price.

Same factor in the markets, the sellers won't quit price going up if they believe they can sell at a high price.

Originally Posted by ;

Just to return to this auction market procedure... If a seller comes in and see 10 buyers stick up their hands to buy it, they aren't likely to sell at the price, he will pull the price away until there is only one buyer left or he starts to get worried that other sellers will probably come in at that high price and he will miss his chance to get rid of his stock. Consider it. You have a TV to sell and you offer a price and find an overwhelming response, lots of people start clamouring to buy your TV. Are you really going to let it go at that price? ...

What you said and revealed until now is absolute logic and well clarified. You gave a new view about auction procedure but I would like to ask something it is crucial too. Lets say that this field of long accumulation was an area of a X market manufacturer who went long. Price now in CL went so everything is right. But I want your view/opinion and of course everyone's else on this particular threat.

Question:
MM purchased on this area price went up because?
A) He continue the buying and probably the pulling/spoofing of limits
b) He do not buy anymore (perhaps only absorbs any retail traders attempts to the short side) and lets the retail continue buying since technical analysis point up (moving averages etc. ).)

Hello again Friends...I have really enjoyed reading the discussion that is present here. There are a few very seasoned traders chiming in and I appreciate your input very much. Today I want to talk about the next market construction component:

Market Structure Element #2: Order Flow Dominance
there's been a fantastic deal of discussion heretofore about what moves the market and I must say I agree with all of it. It's all true especially here in the spot FX market. However, lets start at the previous element: It takes two to tango.

We all know that there should be two sides to every trade we also know that participants whether markets makers or retail traders should participate in the same way. . .by putting orders. These orders are streaming into a machine called the market. The market's job is just to meet orders by price. This is where the quantity difference of opinion comes into play greatly. If one player passes an order for a market, that is larger in size (volume) than other participants around the other hand, their orders will be consumed like a sponge before the larger volume was matched. So lets say the price has dropped sufficient to attract a larger participant who wants to buy 100 lots (standard). So he wants 100 lots of vendors to step up to match his/her order. If these participants are smaller retail traders (let us say trading miniature lots), that's a LOT of selling this large trader can consume. We can recall that each trade produces a tick in the tick quantity. So tick quantity will rise. . .YET price won't react, because this one major order is still left handed...

Now lets assume there wasn't enough volume to fulfill that 100 lots buy order. . .what happens when no one else is prepared to step up and market? Price starts ticking higher. All those vendors that were consumed are now LOSING. The only way to halt the loss would be to input another order in the same direction (buy) as the larger quantity. . .this creates what I refer to as Dominance.

The buying orders continue to be incomplete and the machine matching orders (the market) is searching for sellers to finish out the over whelming dominance on a single side of the order flow. When it does not happen quickly, an increasing number of sellers will get out of their positions, and flooding the market with much more buying orders. This will create exactly what my mentor affectionately called, a whoosh of price movement in the direction of desire.

Recall the previous talks. . .aggression (individuals hitting the ask, or buying the market quote). What does a stop loss order do? When that price is triggered, it converts your order to a MARKET order. . .that means you get in the rear of the line with all the additional market orders and it will be filled as it comes your turn. Envision that price is moving quickly as it is searching for sellers and you just added even more buying to the buying dominant order flow. . .this is why your broker can't guarantee your discontinue...

So lets recap: Order flow is always streaming into the market being matched as opposing orders what consent on price. Larger lot size could consume smaller lot size (volume) and consequently stall price or even reverse it. Dominance is recognized when one side of the order flow remains unfilled and the market ticks in the direction of the negative waiting to be filled. This dominance makes a cascade of similar orders as smaller (or weaker positions) leave the market using stop (or market) orders. So from a tick quantity point of view. . .lots and lots of transactions are happening creating an increase in the tick quantity amount, indiing dominance was established on either side of the market.

In terms of Liquidity I think of it like this. The Liquidity of a market are literally orders from big institutions, that are set at specific price levels. If those orders are in place, they'll absorb all opposing new market orders (at the level) before the liquidity is consumed. After the market makers transfer their orders or cancel them (frequently seen in the news events), the market becomes volatile because there are a surplus of orders streaming into the market from one side, and cannot be filled. That is why the spreads widen because the market makers are reluctant to risk their capital until the quantity calms down.

Originally Posted by ;

, I found the indior on a different site and enjoy it. But I really don't know about the calculation, this is your indior. file file

OK...I looked at this document, but do not really understand what it's calculating. I am NOT a programmer although I did some mq4 return in the days that I believed I could make a robot think like that I did....

Any of you coders out there. . .can you tell me what this is calculating?

I flipped trough that LRA publication and discovered that a major problem with the assumption of this writer's methodology. The author supposes that trading of futures is handled through market manufacturers. In the old days it was the circumstance. However, in the world today the primary manner for futures trading is direct electronic routing of orders to the central exchange. When a trader places a buy order, that buy order is delivered directly into the central market at CME or NYMEX and can be matched to a market order from a different trader through auctioning performed by computer based on FIFO principle. Those huge banks no longer do much market earning for futures trades, though they nevertheless act as market makers for spot Foreign Exchange transaction.