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I have a few thoughts about the market moving by pushing and absorbing in order to move a particular way.
The push are orders that hit the bid or offer. Absorbing occurs as limit orders are lifted to soak up counter moves.
A solid move in one direction occurs when, for example, buyers hit the offer and raise the price. Absorbtion then occurs as buyers lift their limit orders to cap the move down.
So in your chart buyers are hitting the market and moving it up combined with the use limit orders to absorb any down moves. Limit orders and hiting are used by aggressive parties to move the market.
What I have been struggling with is a clear way to see this on a chart. It can be seen on the time and sales and Blooms Tape is my shape thread covers alot of material about order flow (which side is moving, which is weakening).
Any chart ideas would be welcomed - and thanks for sharing your chart. Great topic and ideas.
"Successful trading is one long journey, not a destination" Peter Borish Former Head of Research for Paul Tudor Jones speaking on conversations with John F. Carter
this is dead and gone but interesting none the less...
It is a simple misunderstanding really. There most certainly can be more buyers than sellers just as there can be more sellers than buyers. Example one seller with a thousand contracts as compared to 10 buyers seeking 100 contracts each or the other way around. It happens every day.
However, it is not the number of sellers that is relevant.
What is very relevant though is the number of contracts that are available to buy or for sell.
We can think this a little farther if you like as well it is not even more buy orders that causes price to rise nor is it more sell orders that causes price to decline.
What causes the price to move up or down is an imbalance in orders on a particular side. Meaning in order for price to rise there must be a precise price point where there is some amount of buy orders and zero sell orders with which to match those buys. At that precise price and moment in time price will then increase to the next level where there are in fact sell orders.
The same is true for a downward move in price. At some price point where there is some amount of orders to sell and there is zero orders to buy then and only then will price move down.
Neither case depends on the number of sellers or buyers but instead on the number of unfilled orders on the books.
The more important question though is where do we find these buy and sell orders and how do we then make some money off of them. Not how many people are selling and buying which ones.
what you are seeing on the order books are limit orders. You are seeing one thing for sure and maybe a couple things at the same time. One thing you will not see on those books are large institutional market orders consuming those limit sell orders. The other thing you may be seeing at the same time is called an iceberg. An iceberg can be a limit or market order. Either way all that is ever shown is the initial order of an iceberg not subsequent orders.
If you subscribe to futures data and have access to a market DOM package you will witness for example on a blood red day where the maket is getting trampled, you will see like double or more the number of buy orders getting filled as you will sell orders. This is again because the institutions generally would not use limit orders but use market orders and again what we see on the order book and time and sales is those limit orders being filled by the invisible market orders of the larger institutions as well as the previously mentioned icebergs.
