Market logic principles, operating procedures and characteristics
The goal of the following section is to make a fairly straightforward and logical argument: In order to understand market structure, one needs to read and understand the information generated by the current market. Once this is done, one is able to differentiate the type of market activity as well as the price. In order to provide the substance of the argument, the following principles have been stripped down to their essential parts and laid out in an outline. The principles set out in this outline, their implications for trade and investment implementation, and several definitions are elaborated later in this section and illustrated in the working examples in Section II.
Don't be intimidated by this outline. Skip it if you must, and refer to it again when you become familiar with the concepts and develop and explain them in later chapters.
1. A free market is a market in which participants participate voluntarily.
2. Market demand:
A) Products
B) product demand
3. The purpose of the market:
A) promote trade
1) location
2) Market-imposed time frames
4. Market function:
A) Products
B) the demand for the product
C) Promotion of activity through excessive pricing
D) Temporal Regulatory Activity
5. The market advertises opportunity by offering prices far from value.
A) There may be no response to this opportunity.
B) can take advantage of the opportunity to respond.
C) A reaction could be the opposite, replaced by an initiation that the market was unaware of at the time.
1) A campaign is a campaign that is the opposite of what is advertised in the market.
6. Markets are controlled and regulated through the allocation of prices and time, resulting in the type of natural organization that produces equilibrium (the "fair" area in which bilateral trade occurs).
7. The combination of all these components in the active phase is called market activity.
A) Market activities consist of a series of time-price opportunity events, and TPO is the basic unit of measurement of the market.
8. Market activities are an expression of the needs of participants, triggered by the following factors:
A) Market-imposed time frames
B) Participant time frame
1) The volatility of the market depends on the combination of the length imposed by the market and the time frame of the participants.
9. Information generated by market activities:
A) Readable preferences for variable time-price opportunities at different times, different prices, or the same price, different or the same quantity. It is an expression of acceptance, rejection or change of value by the participants as a whole.
1) Time Price Opportunities (and therefore prices) can arise with large or small relative amounts of time.
a) Those time price opportunities that result in a significant amount of time must result in significant volume and demonstrate market acceptance or value for both parties during that time period.
b) These time price opportunities result in a small amount of time that must result in a smaller trade volume and show market rejection or unfair value on one side during that time period.
B) This equates to a market differential in terms of price.
1) Accepted price vs rejected price
C) Types of campaigns can be further differentiated within the framework of accept/reject.
1) Prices in the market create opportunities, and prices in the market create opportunities. So price + time; market acceptance (response or initiation) = volume = market value (all free market definitions)
10. Although all markets may be structured differently (dealers, auction houses, exchange markets, etc.), they are all driven by the same forces and operate on these fundamental principles.
A) Traders and investors should understand sound market logic so that they can extract and read the information generated by the markets to meet the specific needs of each market
How Markets Work - How Markets Create Activity
A) The concerns and needs of the participants who collectively determine market activity are diverse and may vary across different time frames, but are balanced in the most recent time frame. These concerns and needs are not necessarily balanced in time frames outside the closest parameters.
B) In balancing itself, the market focuses on a dominant aggregate or single focus or news item - real or imagined - and offsets that in the short term by offering a range of prices This, in order to find an area conducive to trade. In doing so, the market announced the situation to both parties in the shortest possible time.
C) Once an equilibrium is found, the market will continue to trade in this fair area until another influence from an immediate or long-term time frame comes in and disturbs the equilibrium, shifting to a new price area. This new balance can be shifted by a new set of concerns or actors becoming active. This process can be continuous or inverse to the initially dominant nature. In the short run, the process is fast and erratic.
1) Thus, dominant transactions often incentivize short-term players to change prices to create fairness.
2) The main focus usually does not motivate long-term players. He is often motivated to view "fair price zones" as markers for creating opportunities or price overshoots in his time frame. In other words, activity over longer periods of time can disrupt the balance created in the short term.
D) Markets present a range of time-price opportunities on which participants can act. What they do or don't do determines the structure of the market. Market rotation is to address all time frames and facilitate trade. The most accepted price zone is the one that is used most often and therefore is the one that facilitates trade.
E) The market will continue to offer various time price opportunities to ensure this activity.
F) The price not accepted is the overcompensation or overcompensation used to find the balance. It is these over- or under-compensation that incentivize entry of longer-term buy/sell participants, either trying to take advantage of price deviations from value, or due to distress, these compensation are used for short-term participation reference point for the reader.
G) This overcompensation or undercompensation is always more or less present in the market, depending on the volatility or prevalence among participants, which depends on the impact of the time horizon.
H) Markets self-regulate and control their main function, which is to facilitate trade. When the market moves toward the extremes of the equilibrium zone, it becomes attractive to long-term players while attracting short-term traders. Therefore, the opportunities created by the market do not last long as competition to exploit them intensifies. This uses time as the controlling factor in the market.
market characteristics
1. All markets are essentially auction markets.
A) There are two types of auction markets.
1) Active Auctions - Scope expands during negotiations.
2) Passive Auction - The scope has been pre-determined in the package release.
B) Active auctions can go from low to high or from high to low. During the auction, the marketplace will continue to work in the same direction to facilitate transactions until the last buyer or seller participates.
C) All prices are changed from previous prices in order to meet market conditions.
Second, participants have a range of time-frame views during the operation. For simplicity, participants can be divided into two categories based on their time frame views.
A) Those who do business for a short period (or a day) - a short period of time.
B) Those who do business outside of this parameter - for extended periods of time (or otherwise).
1) Companies in different time frames operate differently in the market.
a) Short (days) time frame - looking for a fair price in a short time frame.
b) Long (Other) time period - looking for opportunities for market creation related to individual participant needs, this is an optional type of activity.
3. The activity level of the time period is as follows:
A) Short-period participant activity usually accounts for the majority of trading volume in a given time period.
B) During the same time period, long periods of participant activity usually account for only a small amount.
1) The anxiety levels of short-term participants ranged from active to passive.
2) Anxiety levels of long-term participants ranged from passive to active.
3) The aggregate mix will be a mix of these circumstances and will affect market structure accordingly.
4. Regardless of whether prices are too high or trade is facilitated in the short term, the market creates opportunities that are attractive to long-term buyers but not to long-term sellers. Therefore, the desires of long-term buyers and long-term sellers to participate at the same time and at the same price are opposite. As a result, long-term buyers almost never buy from long-term sellers. Therefore, there is no market consisting only of long-term participants trading with each other.
5. A price or price area that is attractive to short-term buyers is attractive to short-term sellers if prices facilitate trade and are therefore fair over short periods of time.
6. The normal trading mode is that short-term traders trade with long-term traders, resulting in various buying and selling combinations: long-term and short-term. Each combination trades business in a different amount across the entire range of structures.
7. Participants can and will change their schedules according to circumstances relevant to their needs. Its effect is to increase or decrease market activity.
A) Long-term players, when they decide to trade on short-term time frames rather than simply trading with an edge, become short-term players because their expressed needs and goals in market activity are different from those of other short-term players. The participants of the segment are the same. This increases market activity.
B) Likewise, when long-term participants extend their time periods, market activity decreases. Additionally, market activity decreases when long-term players miss out on opportunities created by the market.
C) When a short-slot player extends his time-slot, he becomes a long-slot player, reducing activity.
D) When short-slot participants shorten their time slots, activity increases.
E) Those who have established positions in non-consumer markets may exit positions during these two time periods whenever possible.
This concludes the presentation. in the outline. logic. Operating procedures and features involved and inherent in all markets. There are many different markets though. All of these follow the logical principles presented in this syllabus. In some markets, operating procedures may not be visible to the untrained eye. And the minimum and maximum time frames vary widely depending on the particular market. but no matter. Each market is governed by logic and operating procedures and has the characteristics described above. According to these principles. People can develop and use tools to read and understand the market. Provide information that acts logically. Thoughtful and consistent.