There is a substantial risk of loss associated with trading Derivatives . Losses can and will occur. My methods will not ensure profits

Saturday, April 21, 2012

Trader Analysis

Market is a dual auction process where multiple buyers competing to buy from the market and multiple sellers competing to sell into the market.Price is where a seller and buyer agrees to transact.Price moves depends upon the demand and supply .Let me try to explain this with a DOM view of a trading platform

In the above example 23 lots are being offered at 10559. Nearest bid is 19 lots at 10558. Here no transaction will take place.Either the buyers should bid up or the sellers should quote lower.Suppose those who are willing to sell 23 lots at 10559 revises their order to 10558, 19 orders will get executed at 10558 and the remaining 4 offers will remain un executed at 10558 level

Now imagine somebody punching a market sell order of 275 lots . All the bids shown in the above example  will get filled and the remaining one order will get filled at a far lower price say 10300 where another bid exists.And it is a Flash Crash.

Price move is a function of demand and supply. Urgency or desperation of the participants move price.Any trading method which is not based on this reality will fail.

Successful trading is knowing where a big enough group of traders will succumb to fear and greed, and acting with or before they act, allowing their order flow to take our position to profit.

What we need is not TA ( Technical Analysis) but TA ( Trader Analysis)


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