Mark Douglas Trading Psychology 2/7 Order Flow
Summary
TLDRThe speaker discusses the unpredictable nature of market movements, emphasizing that no one can accurately predict what will happen next. They explain that market fluctuations are due to the imbalance between buy and sell orders, and that even professional traders cannot know the reasons behind every market move. The speaker shares personal experiences with trading, highlighting the dangers of assuming one can eliminate risk and the psychological challenges traders face, such as 'Mind Freeze'. They advocate for understanding market dynamics and the role of order flow to navigate trading more effectively.
Takeaways
- đ€ The unpredictability of market movements is a fundamental aspect of trading, as no one can accurately predict what will happen next.
- đ§ The belief that one can eliminate or reduce risk by understanding market movements is a misconception; risk is always present in trading.
- đ The lack of a direct correlation between a trader's analysis and market outcomes means that success does not necessarily indicate correct reasoning behind a trade.
- đĄ Understanding the true nature of trading involves accepting the inherent uncertainty and not overestimating one's ability to predict market behavior.
- đ„¶ Fear of being wrong is a primary concern for traders, but the lack of certainty means that being right or wrong is often out of one's control.
- đž The concept of 'Mind Freeze' occurs when traders overcommit based on confidence from previous wins, leading to significant losses when the market moves against them.
- đ Price movement is fundamentally driven by the imbalance between buy and sell orders entering the market, not by individual predictions or analyses.
- đŸ Hedgers and speculators have different objectives in the market; hedgers aim to mitigate risk through locking in prices, while speculators seek to profit from price movements.
- đ Commercial entities and large traders can influence market prices with their orders, which may not be related to the reasons behind typical speculators' trades.
- đ The lack of transparency in order flow means that the reasons behind price movements are often unknown or speculative, challenging the ability to analyze market behavior accurately.
- đ Despite the limitations, traders must develop strategies that account for the unpredictable nature of the market and manage risk effectively.
Q & A
What is the main theme of the transcript?
-The main theme of the transcript is the unpredictability of market movements and the importance of understanding that no one can accurately predict what will happen next in trading.
Why does the speaker emphasize that there's no way to know what will happen next in the market?
-The speaker emphasizes this point to highlight the inherent uncertainty in trading and to challenge the belief that analysis or experience can eliminate or significantly reduce risk in market predictions.
What does the term 'Mind Freeze' refer to in the context of the transcript?
-In the context of the transcript, 'Mind Freeze' refers to a state where a trader, after a series of winning trades, becomes overconfident and makes larger trades than their account size would prudently allow, leading to a significant loss when the market moves against them.
How does the speaker describe the relationship between a trader's analysis and the market's movement?
-The speaker describes the relationship as largely non-existent or unpredictable. Even if a trader's analysis leads to a correct prediction, there's no way to know if the reasons behind the analysis were correct or if it was just a coincidence.
What is the significance of understanding the nature of trading for a trader?
-Understanding the nature of trading helps a trader shift their perspective from fearing being wrong to accepting the inherent uncertainty and risk. This acceptance can lead to better decision-making and potentially more resilient trading strategies.
How does the speaker describe the process of price movement in the market?
-The speaker describes the process of price movement as a function of the imbalance between buy and sell orders flowing into the exchange. Prices move when there is an imbalance, with the direction of the movement depending on whether there are more buy orders or sell orders.
What is the role of hedgers in the market according to the speaker?
-Hedgers, according to the speaker, are market participants who don't want the price to move. They use the market to lock in prices for their commercial purposes, thereby eliminating their risk exposure to price fluctuations.
What is the speaker's view on the effectiveness of analysis in trading?
-The speaker suggests that while analysis is a part of trading, it is not always effective in predicting market movements. Over-analysis can lead to analysis paralysis, where traders become so overwhelmed by the number of variables that they are unable to make trades.
How does the speaker describe the experience of trading without knowledge of the reasons behind market movements?
-The speaker describes it as a challenging experience where traders must operate with the understanding that their reasons for entering a trade may not be the actual cause of market movements. This requires a level of trust in oneself and an acceptance of the inherent risk and unpredictability.
What advice does the speaker give to traders regarding their mindset and approach to trading?
-The speaker advises traders to let go of the fear of being wrong and to accept that they will never have complete knowledge or control over market movements. Instead, they should focus on managing their risk and developing strategies that can withstand the unpredictability of the market.
Outlines
đ€ Embracing Uncertainty in Trading
The speaker begins by discussing the fundamental uncertainty in trading and the futility of trying to predict market movements with certainty. They emphasize that even with thorough analysis, one can never truly know why the market moves in a particular direction. The speaker shares their realization that understanding this uncertainty is key to shifting one's perspective on trading and managing the fear of being wrong.
đĄ The Psychology of Loss and Mind Freeze
The speaker delves into the psychological aspects of trading, particularly the fear of being wrong and the emotional pain associated with losses. They describe the phenomenon of 'Mind Freeze,' where traders, after a series of winning trades, overconfidently increase their positions, leading to significant losses when the market moves against them. The speaker highlights the importance of recognizing and overcoming this psychological trap to avoid catastrophic trading errors.
đ± The Evolution of Trading Understanding
The speaker shares their personal journey of understanding the nature of trading, moving from the belief that one could predict and control market outcomes to accepting the inherent uncertainty and risk. They discuss the concept of order flow and how price movements are simply a result of imbalances between buy and sell orders, not necessarily related to any individual trader's analysis or actions.
đ The Dynamics of Speculators and Hedgers
The speaker explains the difference between speculators and hedgers in the market. While speculators aim to profit from price movements, hedgers seek to mitigate risk by locking in prices. The speaker uses the example of a farmer and an electric motor manufacturer to illustrate how hedgers use futures contracts to secure their profit margins, contrasting this with the speculative trading approach.
đ The Imbalance of Buy and Sell Orders
The speaker further elaborates on the concept of order flow, emphasizing that price movement is driven by the imbalance between buy and sell orders. They explain that for a price to move, there must be more buy orders than sell orders, or vice versa. The speaker also shares personal experiences from the early days of their trading career, highlighting the challenges and inefficiencies of trading before the advent of electronic exchanges and real-time market data.
đ« The Myth of Knowing Market Movements
The speaker debunks the myth that market movements can be accurately predicted or explained. They argue that the reasons behind price changes are unknowable to the average trader, as they are the result of the collective actions of all market participants, whose individual motivations remain private. The speaker advises skepticism towards any claims of knowing the 'real' reasons behind market movements, as these are often unfounded.
Mindmap
Keywords
đĄMarket Imbalance
đĄRisk Management
đĄMind Freeze
đĄOrder Flow
đĄSpeculation
đĄHedging
đĄTechnical Analysis
đĄEmotional Trading
đĄPrice Movement
đĄOverconfidence
đĄMarket Efficiency
Highlights
The foundation for understanding the unpredictability of market movements is emphasized, highlighting the lack of certainty in the industry.
The impossibility of knowing market outcomes is stressed, as there is no way to predict or reduce risk based on analysis alone.
Traders often mistakenly believe there is a logical connection between their analysis and market movements, which can lead to overconfidence.
The concept of 'Mind Freeze' is introduced, describing a state where traders overcommit due to a false sense of certainty about market outcomes.
The danger of assuming one can eliminate risk in trading is discussed, as it can lead to significant financial errors.
Price movement in markets is explained as a function of the imbalance between buy and sell orders.
The distinction between speculators and hedgers is clarified, with the latter using the market to lock in prices for commercial purposes.
The impact of large orders from commercial and institutional entities on market prices is highlighted.
The concept of 'positive synchronicity' is introduced, referring to beneficial coincidences in trading unrelated to one's analysis.
The importance of understanding order flow and its impact on price movement is emphasized for traders.
The process of price discovery and how it relates to the imbalance of buy and sell orders is detailed.
The historical context of trading before the advent of electronic exchanges and the challenges faced by traders is discussed.
The inefficiency and high costs of trading in the past, including the lack of real-time price information, are highlighted.
The personal journey of the speaker from a stable career to trading commodities, and the losses experienced, is shared.
The concept of order flow imbalance as the sole reason for market price movement is reiterated, dismissing other explanations as speculative.
The lack of transparency in the reasons behind individual trades and the implications for market analysis are discussed.
Transcripts
[Music]
thank you
okay uh okay what I want to get what I
want to kind of want to get into now is
uh uh is to start building a foundation
for understanding that uh
uh not only do we not know what's going
to happen next
there's no way to know
literally there's no way to know it
doesn't seem the industry isn't set up
that way the industry is not set up that
way to allow you to think that there's
no way to know but I'm going to prove to
you that there isn't there isn't a way
to know and the problem and the thing is
when you when you really grasp why you
can't know
then you won't think that there's some
way to
eliminate or reduce the risk because if
if I go into a trade if I for example if
my if I do my analysis I've gone I
stepped into this an analytical process
and I come to a conclusion my analysis
makes a prediction I put on a trade the
trade works is it not going to be
natural for me to think
that the market is moving in my favor
for the same reasons I put on the trade
for the for the basic screen based
Trader like we are okay just not that's
all professionals I'm not top one
managers or whatever with a typical
screen based Trader that is almost never
the case there's almost never a
relationship between the reason why you
put on the train and when the market
went in your favor
and even if there was a relationship or
correlation there isn't any way for you
to find out approvement
zero
that means that you don't never know if
your analysis is ever right
it'll be right in terms of you'll know
if it's right if it made the right
prediction you won't know if you had the
right reasons for making the predictions
and if you don't know that you have the
right reasons
then there's really nothing to be right
or wrong about
he's one of the primary fears of trading
as I'm afraid of being wrong
hello there's nothing to be wrong about
because you don't ever know if you're
ever right
let's see when you start understanding
the nature
way really works
you'll start shifting your perspective
and say you know what there's nothing to
be afraid of here
[Music]
I can't prove if the reason why
I'm on the trade
and see the problem is as soon as I
think that as soon as I think that I
know the reasons why the market moved in
my favor I will just naturally assume I
can duplicate the process it'll seem as
if I'm in this winning trade I know why
I put the trade on I'm assuming that the
Market's moving in my favor for that
same reason allowing me to think that I
knew what was going to happen and if I
knew what was going to happen then guess
what I've eliminated the risk
[Music]
that is the most dangerous thought you
can think as a traitor
is thinking you've eliminated the risk
eliminated the risk here's a condition
called Mind Freeze
does everybody know what I mean by Mind
Freeze
you think you know what's going to
happen you know you've got three or four
winning trades in a row you know and
it's like hey I get a I get the next
signal I've got this you know I got the
market by the balls okay I'm you know
I'm gonna load up on this one
so instead of being you know uh you know
100 share Trader you move to a thousand
shares or five thousand shares or ten
thousand shares or whatever so so as as
you make this money management error in
other words you are now stepping into
the realm of trading far more than what
your account size would say is prudent
all the market has to do is go against
you just a little bit just a little bit
and because we're so in other words our
level of commitment based on our trade
size
would be would be corresponding or
correlated to how convinced we are that
the Market's going to go in our favor
so that just that little bit against us
and we go into a State of Mind Freeze
in other words our expectations of
what's going to happen are so far away
from the reality of the situation that
our minds cannot process the experience
appropriately it shuts down
and as a result we sit there and watch
the money the market take our money away
as the market moves against our position
until like an innate sense of
self-preservation kicks in and for that
level is different for everybody that
level of self-preservation where are
where our minds check in that
self-preservation mode where kickstand
is going to be different for everybody
and we just like snap out of it and get
out of the train or like to say we're
losing one more dollar
losing one more dollar is one degree
more painful than admitting that we're
wrong
okay in other words in other words
everyone has life experiences memories
that fall into a general category of
what it means to be wrong like this is
like uh like uh these would be
negatively charged beliefs all the all
the ways that we could be wrong in our
lives that if we have experiences that
tap us into this pain we will experience
it
[Music]
all the beliefs and all the experiences
that we have that go into our memories
just in a general category of what it
means to lose this is all negatively
charged painful emotional energy
we're in the market when the market is
when the market takes away when it's
more in other words it is more painful
to lose one more dollar
than it is to admit that we're wrong is
when we'll get out of that trade
this is not a good way to trade
people again like I said a little
earlier we have to we have to trust
ourselves we cannot be most people never
recover the Traders I've worked with I
would say that for the most part most
people never recover from it they can if
they really want to work at it I'm not
saying they can't recover from it I'm
saying that they don't want to do the
work they don't want to process they
don't want to go step into the process
of what it requires to do the work to
recover from a Mind Freeze experience
that other things they don't keep on
trading but they're so damaged that you
know because because mostly when people
experience a Mind Freeze experience
understanding the underlying dynamics of
what caused it and what caused that pain
what do you think what do you think they
think their way out of it is what do you
think how do you think they're going to
compensate for it
more analysis and of course the more
analysis the more possibility of
analysis paralysis and the next thing
you know people spend years you know
learning how to reach the market they
become absolutely excellent analysts
they really do
they can't put on trade
because there's just too many variables
to consider and one of those variables
that I might not have might have
overlooked or the one that's gonna cause
me to be loose cause me to lose and so
therefore I can't I can't I can't get
past the fear but I'm sorry
so uh uh okay so so what we're going to
do is I want to do is basically give you
give you some this is sort of a a little
bit of a of evolution of how I came to
the point where I recognized that you
know we don't know what's going to
happen next and the risk always exists
and these are some of the things like
you know these experiences that that
initially happen in my life that I
really kind of just you know that I took
for granted that you know I don't you
know that you really don't need to know
not only that there's no way to know
when you understand order flow there's
no way to know
well maybe I should give you order flow
first we'll see let's just try this okay
how do prices move
prices move is function assembly of an
imbalance between the buy and sell
owners flowing into the pit or flowing
into the exchange it's that simple
when there's an imbalance between the
number of buy orders flowing into the
exchange and the number of sellovers
that flow into exchange to do the
exchange so for example if uh we have a
10 11 12
9.07 and the last price is nine what we
have is we have people we have traders
who are bidding at eight and offering a
ten now now you you have to you really
have to you have there's a couple of
things taken consideration one there is
a as speculators
and interesting how we we know that
we're speculating on price movement and
do not think of ourselves as gambling
and yet we will Define ourselves as
speculators but we're speculators who
don't gamble okay we're speculating but
we don't gave them okay anyway yeah what
we have is a situation where we need
price movement to make money
the price has to move for us to make
money it's that simple whereas for
example there are there are several
Market participants who don't want the
price to move
these are people who use the markets for
legitimate commercial purposes
these are your headdress
these are people who are naturally long
or naturally short whatever it is that
they do for a living so for example if
I'm a farmer
and I'm planting my corn in the spring
anticipating harvesting it in the fall
I am the moment to think about this the
moment that I decide the moment I decide
to plant my corn and how many acres I'm
going to plant and what my and what I
anticipate my my yield to be for those
Acres I am long corn I am along the corn
Market
all I did was decide to plant the corn I
become long the corn Market why because
what are the price fluctuation occurs
between the moment I decided and the
moment I harvest my crop is going to
determine how much money I get
so like if I get a million bushels or
100 000 bushels whatever the whatever
the price of corn is when I harvest it
is is what my is what my income is going
to be
so as a farmer I'm thinking okay uh my
cost of production is X number of
dollars per bushel the price of corn
let's say the price of corn is at seven
dollars a bushel right now in April I
don't know what it's going to be in
October or November I have a slightest
idea what it's going to be I'd like it
to be ten dollars a bushel or nine
dollars a bushel but I don't know
you know what and my cost of production
is uh let's say five dollars a bushel
would I be satisfied with a three dollar
bushel profit
yeah I think I would so what am I doing
what am I going to do I'm gonna go into
the Futures market and sell the
equivalent amount of Futures contracts
I'm selling my crop in advance
so if I'm anticipating let's say a
hundred thousand bushels and one Futures
Contract is 5 000 bushels what am I
going to do I'm gonna sell 20 contracts
if I think I'm going to get a million
bushels what am I going to do I'm going
to sell 200 contracts
and what I have done is I've locked in
my price at eight dollars a bushel if my
price was eight dollars a bushel and
locked it in at eight bucks my cost of
production is three or my cost of
production is five that means I've
locked in my profit at three dollars a
bushel no matter what the price is in
October
but in essence it doesn't matter what
the price is in October because
I've got my price already so the price
can change as much as it wants
but what a lot of people a lot of
speculators people who don't understand
the markets don't realize is that when
hedgers enter a locket notice what I'm
going to show you is that it's an
imbalance between the number of buy
orders and sellers that flow into the
pit to determine whether the price moves
up or down
and because because we might only be
trading you know five or ten Mini S PS
or even as big Traders we might get into
you know in terms of shares of stock
might get it's pretty significant amount
pretty significant amount of shares
people don't realize is that there are
commercial and institutional entities
that can that can put on orders massive
orders that can affect the price check
the imbalance between the buys and the
number of cells coming into the pit and
think that they're taking risks that
they can't nobody would do that because
it's too risky to do it wrong it's not
risky they're eliminating the risk now
putting in orders that can have a huge
impact on the price and they're
eliminating the risk because they're
already naturally long or short
you guys you sorted with me on this so
for example if I got a if I got a an
electric motor manufacturer and my sales
manager comes back with a with a huge
order that you know he sold these huge
generators that are you know you know
500 000 a piece or whatever and he went
over something country and sold 10 of
them or something the moment he signed
the contract the moment he got the
purchase order uh whatever the amount
the amount of pounds that it takes to
make these gen of copper that it takes
to make these orders they are short
copper unless they already have it in
their inventory chances are they don't
have it in their inventory because let's
say they're running at high capacity and
what they have in their inventory is
just enough to make the orders that they
already have and because they're not
even going to start making the motors
for six months from now or whatever it's
like they don't want to acquire the
actual physical inventory of all that
copper what are they going to do they're
going to go into the Futures market and
buy the equivalent number of proper
contracts that they need to lock in the
price of copper when they need it to use
it so that they can so that they can
guarantee their profit margin that might
be a huge order
now if I just happen to be training off
a moving average my technical indicator
off a moving average on you know in
Copper at the time that that order hits
the pit or hits the exchange you know if
I'm on if if uh um if I'm on the long
side if my moving average just shows me
you know about two or three minutes
before their order huge order hits the
exchange I'm going to find myself in a
winning trade
did my reason for putting on that trade
have anything to do with why the market
went up
nothing absolutely nothing
this is what I call like a positive
synchronicity a planned synchronicity
with the order flow let's get into the
order flow okay so for example what does
it take if the last fight so so here I
just wanted to make this distinction
between speculators and hedgers headers
when they put an order in the market
they don't want to make the price move
in other words if I'm this this this
generator this manufacturer of
generators and I'm and I need to lock in
the price of copper to lock in my profit
margin when I put my hundreds of capital
orders in the market I don't want to
force I don't want them to create such
an imbalance in in the in the order flow
to cause the price of copper to go up
because because I'm increasing my
average price what I want to do is do it
in a way that doesn't create price
movement so that I maintain you know I
maintain my average price I maintain a
good average price because what happens
is this is that what you have is that
for us as speculators to make money
there's only one there's only two ways
to make money that's it everyone's
trying to do the same thing everyone has
to buy low and sell high or sell high
and Buy Low there's no other way to do
it there's absolutely no other way to do
it
and as speculators screen-based typical
screen-based speculators we don't have
the uh let's say in many cases or in any
case really not many uh where we don't
have the financial or the Psychological
Resources to actually move the price
ourselves whereas you have to understand
that there are plenty of Traders out
there who do
there are a lot of hedge fund managers
and big traders who can under under a
lot of different circumstances actually
create price movement purposefully they
purposefully look for situations with
what I call like the herd Masters okay
where they're looking for they're
looking for patterns they're looking for
chart patterns where they know that a
lot of uh what they call week week Longs
you've heard these words week Longs and
weak shorts have gone into the market
and what they want to do is they want to
force the week Longs out so they can
they can they can buy they can buy they
can get into their position at a lower
price or they want to Performance the
week week shorts out so they can they
can sell at a higher price and they will
look at chart patterns where they know
that did the typical Speculator has gone
into the market they'll hit the hit the
market with huge orders Force the price
lower or higher cause the typical
Speculator to panic because uh the cause
of the panic which which creates further
movement in the direction against the
Speculator but what they need is
inventory I'll explain how this works
okay so for example Buy Low sell high
sell High Buy Low if the last price was
nine how does it get to ten
yeah in other words in other words look
at it this way if you look at it from
The Exchange perspective before the
electronic change electronic exchanges
exchanges
you you have executable orders and for
every buy order there has to be a
sellover or if you can't execute a trade
on electronic exchange it's the same way
there has to be somebody on the other
side of your trade whether it's a
computer program that was you know that
was designed by a major brokerage firm
like Goldman Sachs or whatever or an
actual individual it doesn't make any
difference there is somebody on the
other side of your trade
in every circumstance in every single
circumstance
which means that if if you you buy at
nine and the price goes to ten or eleven
whoever on the other side of your trade
is losing money the money that you're
gaining is the money that's coming
directly out of their account through
the clearing firm into your account
and when the market goes against us the
money that's flowing out of our account
going into the clearing firm and going
directly into the account is on the
other side as is on the other side of
the trade
so what this means is that if the last
price was nine how it gets to ten is
that there were no executable in other
words I have a certain number of buy
orders flowing into the pit at 10. there
has to be a there has to be an
executable sell order to match up with
every buy order
if you're not getting this let me know
there has to be an executable sell order
to match up with every buy order for the
price to go anywhere if there is an even
amount of buys falling into the exchange
at this at any particular moment with
with the number of cells as there are
buys the price will go nowhere
are you with me on this if there's an
even number of buys and an even number
of cells executable by the cells at this
price the price goes nowhere it doesn't
go up to 10 until there aren't enough
sell orders at nine
to fill the number of buy orders for the
people who want to buy for the number of
number of contracts or shares or
whatever available on the buy side and
then the electronic exchange what it'll
do is it'll move the price up to 10 to
find its sell orders
you'll find executable sell owners and
if there aren't enough executable sell
orders then that's the buy inventory
flowing into the pit then it'll move it
up to 11. when we're dealing with
physical exchanges people actually did
this in other words what you have are
actual traders in The Exchange in the
pits or whatever who would actually bid
the price up in other words if they
couldn't find any other traders in the
pit who who they could execute a trade
at nine at they've bid it up to 10 or
bid it up to 11 to find someone who
would someone who would sell because the
whole idea is sell High Buy Low Buy Low
sell high so the higher the price goes
the theory would be the more attractive
it would be for someone to come into the
pit and take the outside of my trade
are you guys with me on this yes so what
it all boils down to is that price
movement is simply an imbalance between
the number of buys and number of cells
flowing into the exchange that's it that
is it but it has major implications
for example when I uh you know I started
trading I said 1978 and I was working in
the commercial casualty of business uh
as a matter of fact of managing a
commercial accounts in the agency just
before I moved I mean this will pretty
much just before I moved to Chicago I
signed a three-year contract with this
Agency for 360 000 100 000 in the first
year in 120 in the second 100 and 140 in
the third so I mean that was kind of
financially I was I was you know I was
doing good especially in my early 30s
and uh uh but shortly thereafter and
something happened I was also I also
didn't like managing I didn't really
like being in the insurance business and
I certainly didn't I thought I'd like
management I did not like management at
all I was a horrible manager yeah yeah
anyway just it's not something just not
something my brain was into but in any
case um something happened to me where
where I felt compelled to move to
Chicago because I was I got I called
from like a shearsome broker in the
building we were in and uh I opened up a
Commodities account and started trading
gold and silver right off the bat
and uh lost you know my first couple of
steaks you know whatever I think I
started out with a ten thousand dollar
account lost that you know did another
five or six thousand dollars lost that
changed my broke I went to a different
brokerage here so I'm thinking you know
he would do a better job had no idea
this is in 1978 1979 what we understand
about the markets and what's available
to us or virtually today we're
non-existent back then we didn't even
have computers okay we didn't even have
personal computers the
I didn't even know what was going on was
to call your broker 10 times a day or
whatever and also we did have instant
execution you know what you had in the
situation where you want to execute a
trade you've got to call your broker you
got to dial the phone he has to answer
the phone if he's on the other line with
another customer you have to wait and
then once and once and you answer the
phone of course he had to uh you write
out a ticket the ticket had to be wired
down to the exchange once it got to the
exchange it got to the phone clerk at
the exchange the phone clerk rolled out
another ticket and gave it to a runner
the runner then review it to the
appropriate uh broker executing trades
for that particular firm in the pit and
then and then the broker would do based
on supposedly open outcry actually you
know say hey I've got I've got five to
buy or five to sell at this price and
then if someone else whatever another
maybe another brokerage firm or just a
local some guy trading for his own
account standing in the pit hit the
order hit the bid or the offer whatever
the price was and then the uh then the
floor broker would would uh you know
record the trade uh get it give it back
to the runner the runner would then go
back to the phone clerk the phone clerk
would go and call up uh or wire it back
to the back to the broker else and then
the broker had to get back to you with
the film
okay
and all this cost on average with the
big firms like Merrill Lynch and Hutton
and cheerson like 100 between 130 and
140 a round turn one contract one
contract trade between 130 140 bucks
now I can't tell you how many times I
I've been on I mean it doesn't but just
to give an example if I put in an order
you know to buy silver at uh you know
nine bucks an ounce or whatever okay
that you know I'm buying at nine dollars
an ounce and and the market comes down
and hits my price but I'm not guaranteed
a fill unless it goes one tick through
my price
so if it hits my price and goes back up
I don't even know if I'm in a trade my
broker doesn't even open a trade if the
floor broker hasn't gotten back to them
yet if the floor broker is busy it might
take 20 minutes half an hour if it's
what the exchange classified as a fast
Market he wasn't even obligated to get
back to me until maybe an hour I don't
remember what it was
so I could be in a winning trade and not
know it I could be wanting to take my
profits and not even know if I'm in a
winning trade if I go ahead and just
assume that I got billed
and you know and and so I could end up
being that short you know the Market's
going up and not even know it is you
know I mean I get into being that short
not know it
the old-timers with the Tony you know
what I'm talking about right
yeah
this was a rough way to trade because
not only that do you even check out we
didn't have we didn't have price
available we didn't have any prices
available we had to call our broker you
know 20 times a day where's it now
where's it now where's it now basically
what you did was trade out a daily bar
charts from The Wall Street Journal
now when you get the Wall Street Journal
morning and you do your go ahead Tony
yeah so commodity perspective right
right yes
yes
so yeah it was it's like you you know
there's things that you learned that you
know you sort of paid for granted about
about the way you developed as a result
of that but anyway this is this is
really a tough way to trade and so so
what happened what happened with me so
you do understand the concept that is
simply an imbalance in order flow right
everybody with me on this if there's
more bio or stuff so why did the market
why did the market go up today
more bio doesn't sell orders why did the
market go down today more sell orders
and buy orders now the reason why there
are more bioters and sell orders oh how
do we know why in other words every one
of us in our room in the room has a
reason everybody contributes to everyone
contributes to the order flow which
means that everyone contributes to the
up and the down takes
everyone every order contributes to the
up and the downticks
so why did the market tick up well
you're basically the reasons exist in
the minds of everyone who put on a trade
that contributed to the imbalance
between the buys and the sells in that
moment and since the exchange says one
when we put out a buyer or sell order in
since you are not required to attach
your reason for putting you are not
required to attach your reason for doing
it
foreign
s
and neither is anybody else
that we don't know why other people are
doing it
and what's interesting is that as
typical screen-based Traders we are
strictly dependent
and the Traders do have to a trade
since we are not we don't have the
financial or emotional resources to be
able to move the market ourselves I'll
talk more about that a little bit since
we do not have these resources then we
are strictly dependent on what other
Traders decide to do after we get into a
trade and the reality is we don't have
the slightest idea why what they're
going to do or why they're going to do
it in other words orders are going to
flow into the exchange after we get into
a position we don't know what the what
the volume between we don't know what
the imbalance is going to be in other
words there could be a huge order that
hits the market in our favor but there
happens to be enough a huge buy order we
just got in there's a huge buy order
that hits the market a few minutes after
we get into a trade but there's enough
cellular inventory in that moment in
that moment to absorb all that all that
buy volume price goes nowhere
five minutes later that buy order could
create a panic
and the market could shoot right up like
this
why did it happen
because for whatever reason whoever put
the mortar in however many Traders did
it and for whatever reason they do it
we'll never know unless we have a way
unless the exchange the reality is the
exchange if the exchange gave us uh uh
uh gave us the uh the names and you know
the accounts and the names of all the
people who contributed to the order flow
in any given moment so that we could go
ask these people why they put their
orders in the market then we would know
why the price went up or why the price
went down
then we would know
the real reasons
everything else that you hear or read is
basically that people are making up
and I'm not kidding
and I'm really serious about that it's
people's stuff that people are making up
because they don't know
people don't get on TV or write articles
and do it in a way where they don't
sound like they know what they're doing
or not gonna or not gonna do it in a way
where they don't sound intelligent or
that that they know what they're talking
about
so even if they don't come right out and
say directly this is why or that's why
they're implying that they know
which gives us the idea that somehow
another it can be known
and there are there are exceptions
because if you do know large fund
managers and and Traders who can move
the market and put in and they do put in
huge orders and you happen to know that
these huge orders hit the exchange and
there wasn't enough inventory on the
other side to uh to absorb those orders
and that's the reason why the market
went up if you know that correctly then
you know why it happened and certainly
the guys that or the people that put
those orders in they know why it
happened because they're the ones who
did it
so the typical spring-based Trader this
information is off all intents and
purposes unknowable
so the implications are that regardless
of how sophisticated your analysis is
regardless of how good you think it is
it isn't telling you the reasons why
even if for example let's say we're
trading a support resistance pattern
okay or we're trading you know uh we're
training a retracement okay so what we
have here and I put and I put a buy
order in right here
and the market shoots up
is it possible that the reason why other
Traders came into the market and created
an imbalance in the order flow is
because they happen to put orders right
in there too yeah
it's very possible
it may even be likely is there any way
that I know that
no I don't know do I
it's unknowable to me
and if you think that what I'm saying
isn't correct all you've got to do is
challenge somebody every time you hear
somebody say the life price went up
because of this other than an imbalance
in buy and sell orders every time you
hear somebody give you a reason say poop
it
prove how you know that where's the
information that you have access to that
tells you that that's the actual reason
why
tweet the people on CNBC don't approve
it
I guarantee you those
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