The Structure & Function of Price

[ducati916]

Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
The following quote from Magdoran;

You are frantically focussing on minor indicators, when I keep telling you to just learn to read the chart. Forget the moving averages, RSI, stochastics, oscillators, Bollinger bands, etc, etc, until you can learn to read a chart. The objective is to determine the trend, then what part of the trend the underlying is in (beginning, middle or terminal phase), then when to enter, and when to exit. Easier said than done. Once you realise that a significant element in this pursuit is about filtering your psychological bias, you will fare much better.

Just learn to read a chart without the gizmos first. In my view, there are very few people who know how to really use these effectively (people like tech for instance have pioneered a system and refined it – reads input of effective effort), and they have spent years working out how to use them.

In my view using indicators too early to the exclusion of learning how to read a chart obscures the process of perceiving the nature of trends. Look at tech’s recent charts, he’s essentially using straight bar chart and volume, and interpretation based on the bars and the volume. It is great T/A in my view, you can learn a lot from this. Try to understand what he is trying to tell you.

Why not try just looking at the chart without the indicators for a while and focus on the bars and volume. If you want to learn more, just ask the right questions, and start looking in the right places.

Structure governs Function & the inverse;
Function governs Structure.

What is the structure of price, and how does it facilitate the function of market dynamics, and, how does the functioning of price, effect the structure of market participants?

By studying and quantifying the structure of price, we shall gain some insights into how price functions, and more importantly clarify principals and practical strategies of how to profit from the functioning of price.

jog on
d998

 

[It's Snake Pliskin]

Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
The following quote from Magdoran;



Structure governs Function & the inverse;
Function governs Structure.

What is the structure of price, and how does it facilitate the function of market dynamics, and, how does the functioning of price, effect the structure of market participants?

By studying and quantifying the structure of price, we shall gain some insights into how price functions, and more importantly clarify principals and practical strategies of how to profit from the functioning of price.

jog on
d998

A difficult topic here Duc.

 

[barney]

Price & Volume analysis, popular, been around since Charles Dow pioneered the theory circa the 1890's and is still grossly misunderstood by many.
The following quote from Magdoran;



Structure governs Function & the inverse;
Function governs Structure.

What is the structure of price, and how does it facilitate the function of market dynamics, and, how does the functioning of price, effect the structure of market participants?

By studying and quantifying the structure of price, we shall gain some insights into how price functions, and more importantly clarify principals and practical strategies of how to profit from the functioning of price.

jog on
d998

Hi Duc, Any insights/examples/info/discussions etc. on price structures and their meanings/and how to interprate different patterns etc. would be greatly accepted by myself (and others I'm sure) Please fire away ......... Barney.

 

[ducati916]

Starting with some of the structural factors of price;
*Technical
*Manipulative
*Psychological
*Management & reputation
*Competitive conditions and prospects
*Possible contrasted with probable changes in volume, costs, prices
*Earnings
*Dividends
*Assets
*Capital Structure
*Terms of the issue
*Others [any-one think of some more ......add them in]

Starting at the top, where I guess the most interest lies, Technical

The technicians will think chart analysis.
Increasingly charts are being utilized by market participants. The problem, and one that is being seemingly encountered by residents of ASF, is the unpredictability of your basic chart utilizing price alone, hence the migration to the employment of any number of measuring indicators. These suffer from a fatal flaw.....particularly in short-term daytrades, which will become clear as we progress.

Volume, is increasingly espoused as a vital ingredient to the increasingly accurate analysis of a basic chart based on price alone. I used to be a volume skeptic, but increasingly, volume can give some vital clues, especially in the short-term.

Price in economic terms conveys a huge amount of information. It is possible that chart analysis utilizing price [and volume] took the basic theory from economics, which also studies markets, and transferred the theory.

There are however some very basic and fundamental differences that need to be highlighted in order to understand how an economic price differs from a financial asset price

jog on
d998

 

[tech/a]

I'm amused that a "Fundamental trader" is all of a sudden an expert on Price.
As Such I will refrain from comment and learn.

The Fundamentals have to me atleast been less than impressive---perhaps a reversal of form---here.

 

[Sean K]

Hi Duc, Any insights/examples/info/discussions etc. on price structures and their meanings/and how to interprate different patterns etc. would be greatly accepted by myself (and others I'm sure) Please fire away ......... Barney.

Barney, I've found this site to be very informative in providing guidance on what particular patterns indicate.

http://stockcharts.com/education/

For example, their description of a pennant:

Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume, and mark a mid-point of the move.

1. Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. Flags and pennants require evidence of a sharp advance or decline on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the flag/pennant is merely a pause.

2. Flagpole: The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole.

4. Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines.

5. Duration: Flags and pennants are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern. Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.

6. Break: For a bullish flag or pennant, a break above resistance signals that the previous advance has resumed. For a bearish flag or pennant, a break below support signals that the previous decline has resumed.

7. Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance (support) break lends credence to the validity of the formation and the likelihood of continuation.

8. Targets: The length of the flagpole can be applied to the resistance break or support break of the flag/pennant to estimate the advance or decline.

Even though pennants are common formations, identification guidelines should not be taken lightly. It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification.

 

[Sean K]

And the type of chart that would come with the article above:

 

[It's Snake Pliskin]

ducati916

Starting with some of the structural factors of price;
*Technical
*Manipulative
*Psychological
*Management & reputation
*Competitive conditions and prospects
*Possible contrasted with probable changes in volume, costs, prices
*Earnings
*Dividends
*Assets
*Capital Structure
*Terms of the issue

Duc, wouldn't it be better to simplify this a moment? The ones in red be classed FUNDAMENTAL?

Starting at the top, where I guess the most interest lies, Technical

The technicians will think chart analysis.
Increasingly charts are being utilized by market participants. The problem, and one that is being seemingly encountered by residents of ASF, is the unpredictability of your basic chart utilizing price alone, hence the migration to the employment of any number of measuring indicators. These suffer from a fatal flaw.....particularly in short-term daytrades, which will become clear as we progress.

Volume, is increasingly espoused as a vital ingredient to the increasingly accurate analysis of a basic chart based on price alone. I used to be a volume skeptic, but increasingly, volume can give some vital clues, especially in the short-term.

Price in economic terms conveys a huge amount of information. It is possible that chart analysis utilizing price [and volume] took the basic theory from economics, which also studies markets, and transferred the theory.

There are however some very basic and fundamental differences that need to be highlighted in order to understand how an economic price differs from a financial asset price

Bring out the economists for this one

 

[It's Snake Pliskin]

And the type of chart that would come with the article above:

Kennas,

Basically that penant is showing consolidation. There are various ways of looking at it. Patterns are in my view like looking at clouds and seeeing a picture. But they work for people and those that have success with them need not be concerned with what some might say about them.

What is driving the price in these formations?

 

[Sean K]

Kennas,

Basically that penant is showing consolidation. There are various ways of looking at it. Patterns are in my view like looking at clouds and seeeing a picture. But they work for people and those that have success with them need not be concerned with what some might say about them.

What is driving the price in these formations?

Theory is that it doesn't matter. Whatever it is, is factored into the price. That's all you need to know. The pattern produces a probability of a future move. A pennant in a general upward trend would indicate that it's going to go up. Pennant in a downward trend, down. Again, it's just a probability. Then you use your brain, and tarot cards, to make your own best guess. Well, that's what I do anyway. I haven't lost my girlfriends house yet, although would be pretty hard to do over the past 3 years!

 

[It's Snake Pliskin]

Whatever it is, is factored into the price.

A broad statement and often misunderstood (I am not saying this about you). Are you saying the market is efficient?

The pattern produces a probability of a future move. A pennant in a general upward trend would indicate that it's going to go up.

Basically consolidation may mean either way.

Pennant in a downward trend, down. Again, it's just a probability. Then you use your brain, and tarot cards, to make your own best guess. Well, that's what I do anyway. I haven't lost my girlfriends house yet, although would be pretty hard to do over the past 3 years!

Yes, the last 3 years.

 

[Sean K]

A broad statement and often misunderstood (I am not saying this about you). Are you saying the market is efficient?



Basically consolidation may mean either way.



Yes, the last 3 years.

Market overshoots and undershoots, but long term it evens out. Doesn't it?
Consolidation in an upward trend or downward trend, yes. Then 'probably' continue the trend.
Yes, I'll lose the house over the next 3 years.

But, my money is likely to be invested in something that won't sink. A boat!

 

[It's Snake Pliskin]

Market overshoots and undershoots, but long term it evens out. Doesn't it?
Consolidation in an upward trend or downward trend, yes. Then 'probably' continue the trend.
Yes, I'll lose the house over the next 3 years.

But, my money is likely to be invested in something that won't sink. A boat!

I was more interested in whether you thought price was dependent or independent, not about you.

 

[Sean K]

I was more interested in whether you thought price was dependent or independent, not about you.

Oh, of course, sorry Mr Snake.

I didn't think you asked that question. I started writing something in response to it now, and then realised that I'm not sure..

By dependant do you mean acting according to market conditions therefore representing true value?

Or, acting independantly, having nothing to do with it's present true or future value, or cash generating potential etc..

 

[Casper]

Starting with some of the structural factors of price;
*Technical
*Manipulative
*Psychological
*Management & reputation
*Competitive conditions and prospects
*Possible contrasted with probable changes in volume, costs, prices
*Earnings
*Dividends
*Assets
*Capital Structure
*Terms of the issue
*Others [any-one think of some more ......add them in]

Starting at the top, where I guess the most interest lies, Technical

The technicians will think chart analysis.
Increasingly charts are being utilized by market participants. The problem, and one that is being seemingly encountered by residents of ASF, is the unpredictability of your basic chart utilizing price alone, hence the migration to the employment of any number of measuring indicators. These suffer from a fatal flaw.....particularly in short-term daytrades, which will become clear as we progress.

Volume, is increasingly espoused as a vital ingredient to the increasingly accurate analysis of a basic chart based on price alone. I used to be a volume skeptic, but increasingly, volume can give some vital clues, especially in the short-term.

Price in economic terms conveys a huge amount of information. It is possible that chart analysis utilizing price [and volume] took the basic theory from economics, which also studies markets, and transferred the theory.

There are however some very basic and fundamental differences that need to be highlighted in order to understand how an economic price differs from a financial asset price

jog on
d998

Using the KISS principle, all of the above can be summarised imo by the fact that human fear and greed drive prices up and down in accordance with the concept of supply and demand.

The above "structural factors" all effect supply and demand, and hence fear and greed, in one way or another.

Share price charts are a very useful tool imo showing how fear and greed have pushed prices up and down in the past and so allow those looking at a chart to interpret the probability of share price movements in the short term based on previous trends, support and resistance levels.

 

[It's Snake Pliskin]

Oh, of course, sorry Mr Snake.

I didn't think you asked that question. I started writing something in response to it now, and then realised that I'm not sure..

By dependant do you mean acting according to market conditions therefore representing true value?

Or, acting independantly, having nothing to do with it's present true or future value, or cash generating potential etc..

Why the sarcastic, childish verbosity Kennas?

I posed this question:

Are you saying the market is efficient?

 

[Sean K]

Why the sarcastic, childish verbosity Kennas?

I posed this question:

Sorry, wasn't intending that.

This is the answer I thought I provided to the question:

Market overshoots and undershoots, but long term it evens out. Doesn't it?

I'm obvously off on another planet today. Must be the panadene forte. I have a herniated disc giving me hell.

 

[It's Snake Pliskin]

Sorry, wasn't intending that.

This is the answer I thought I provided to the question:

Market overshoots and undershoots, but long term it evens out. Doesn't it

I'm obvously off on another planet today. Must be the panadene forte. I have a herniated disc giving me hell.

Get on the wine that will help.

Be being efficient I mean every price day is independnet of every other day. Something like the efficient market hypothesis. You said this:

Whatever it is, is factored into the price.

I wanted to know what you meant by this.

 

[Sean K]

Get on the wine that will help.

Be being efficient I mean every price day is independnet of every other day. Something like the efficient market hypothesis. You said this:

I wanted to know what you meant by this.

In all honest Snake, I'm trying to nut this one out.

What I said about everything being factored in would include the previous price action. The knowledge about what the sp did in the lead up to today is surely a factor in anyones investment decision. As is all other factors based on history, like managements past performance etc...

Am I on the right track here? Let me get a vino.....

 

[It's Snake Pliskin]

In all honest Snake, I'm trying to nut this one out.

What I said about everything being factored in would include the previous price action. The knowledge about what the sp did in the lead up to today is surely a factor in anyones investment decision. As is all other factors based on history, like managements past performance etc...

Am I on the right track here? Let me get a vino.....

That has cleared things up a lot. It is dependent in your words. That is price from yesterday influences price of today, regardless of what drives it. I believe this in the short-term. The long-term is open for debate as many variables come into it and corrupt. It isn't an exact science. I feel nobody knows! But talking about it helps us learn or adapt.

So is price predicatable?
In the short-term with a probabilistic mindset, 50/50 maybe.
In the long-term, there are just too many discontinuous events, too much wild randomality, and other variables to even want to predict.

But those who value invest tend to do well in the long-term, so I would love to hear more from Duc.