THE COUNT--> What really causes large price changes?

"In the study of ballistics, it is possible to estimate by two means the distance a projectile will travel when  fired from a gun:

(1) Exterior ballistics, in which the motion of the projectile is considered after it has received its initial impulse: when it is moving freely under the influence of gravity and the resistance of the air; then it can be calculated as to whether it will hit a certain object.

(2) Interior ballistics, which require an analysis of the presure generated by the gas resulting from and explosion of the powder ; this is in order that the requisite charge of powder may be used to secure the initial velocity of the projectile without unduly straining the gun. These two methods combined , make possible fine calculations as to the distance the shell will travel.

When it comes to estimating the distance a stock will move in a certain direction, there is no such exact science, but an analogy is found in the fact that certain forces are generated before  the stock begins to move, and that the distance it travels is the result of these, plus the additional forces which gathers, and minus other forces that oppose it.

The accumulation of a stock on a large scale  may be compared with the loading of the gun with powder. Absorption of the stock not only gathers it into one large holding but at the same time reduces the floating supply around the level where the accumulation takes place.

The marking up period may be likened to the firing of the charge. The selling resistance encountered during and at the culmination of the rise, may be likened to the air-resistance and the force of gravity which tends to slow up the projectile before it hits the target." Richard D Wyckoff ~ 1934

Does Volume really move Price ?  What makes volume ? What makes Price ?

What makes Price Move ?

What is Velocity  and Acceleration ?

"The accumulation of a stock on a large scale  may be compared with the loading of the gun with powder. Absorption of the stock not only gathers it into one large holding but at the same time reduces the floating supply around the level where the accumulation takes place."

Consider this carefully ! What does he mean by "One Large Holding" does he mean one person ? ( Hint :-) NO ! )

 "but at the same time reduces the floating supply around the level where the accumulation takes place."
Consider WHY are these two things the same ?  (Hint ;-) NO ! ).


Some connection here==>

What really causes large price changes? 

J. Doyne Farmer, La´ szlo´ Gillemot, Fabrizio Lillo,

Szabolcs Mike, and Anindya Sen.

We study the cause of large fluctuations in prices on the London Stock Exchange. This is done at the microscopic level of individual events, where an event is the placement or cancellation of an order to buy or  sell.

We show that price fluctuations caused by individual market orders are essentially independent of the volume of orders. Instead, large price fluctuations are driven by liquidity fluctuations, variations in the

market’s ability to absorb new orders.

                          We show that this also explains price fluctuations on longer timescales.

                           

                        This is a finite size effect, caused by the granularity of order flow

Two theories that deserve special mention because

they make testable hypotheses about the detailed

underlying mechanism are the subordinated random

process theory advocated by Mandelbrot and Taylor

 and also by Clark  and the recent theory of

Gabaix et al .

Clark’s proposal is that because order

arrival rates are highly intermittent, aggregating in a

fixed time interval leads to fat tails in price returns.

Gabaix et al’s proposal is that high volume orders cause

large price movements.

We show that neither of these theories describes large price changes in the London Stock Exchange:

Instead, we show that large price fluctuations are

driven by fluctuations in liquidity, i:e: variations in the

response of prices to changes in supply and demand.

The number of agents that participate in the market at any

given time, and thus the number of orders to buy or sell, is

rather small. Even for a heavily traded stock, the typical

number of orders on one side of the book at any given

time is generally around 30.

While it is in some cases a good approximation to regard the market as a statistical system, which can be treated using mathematical methods from statistical mechanics , markets are far from the thermodynamic limit, and display strong finite size effects. Fluctuations in orders are important, but it is not the size of orders that drives large price changes, but rather the uniformity of their coverage of

price levels.

Revealed supply and demand curves at any instant in time are irregular step-like functions with long flat regions and large jumps. The market can be regarded as a granular medium, in which the incremental changes in supply and demand are the grains. The statistical properties of prices depend more on the fluctuations in revealed supply and demand than on their mean

behaviour. --ends

Now again consider RDW statement ==>

"The accumulation of a stock on a large scale  may be compared with the loading of the gun with powder. Absorption of the stock not only gathers it into one large holding but at the same time reduces the floating supply around the level where the accumulation takes place." RDW

along with this ==>  but it is not the size of orders that drives large price changes, but rather the uniformity of their coverage of

price levels.

"One large Holding" increases  the granular nature of the market. It creates HIGH and LOW and VALUE.

It does this by aggregating expectations. Consider this last point especially ! It is what "causes large price changes"

Also remember the dual effect of a buy or sell ! What is bought must then be sold and  what is sold must then be bought ( at least before it can be sold again ! )

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