When the amount of buying is always the same as amount of selling, it has been discussed many times before here that price behaviour is not a game of demand and supply but expected demand and supply. That is also reflexivity adjusted demand and supply.

At a tick, inside the last "exchange" in the pit what is it that is moving the tick this side or that side?

I would simplify for my mind and place on the table an idea that it is the "Path of Greater Impatience". Whether a white shoe firm is "aware" of impending larger clients orders and therefore bidding higher or lower or there is a Technical Analyst anticipating some breakout or reversal and therefore not willing to be patient or there is a news driven, a.k.a. fundamental trigger puller, or there is an HFT machine that is sensing the depths of the order book, anyone who makes impact on the next tick is the one willing to stake a claim that her impatience is justified and is going to be profitable.

Ticks arise on impatience. Prices propagate on impatience. When too many minds and wallets are left into the patience zone, the impatient "in the money" hands get into whipping a notion that the patient will eventually turn impatient. That is where the reversals, small and big happen.

I would leave this note with a cheeky surmise that patience ain't the virtue, knowing when to be not patient and knowing when not to be impatient is the virtue.

Wondering if there is a way to capture from data streams any metrics of what percentage of existing bids and offers in the order book are changing and if such a series of data could be established how would it enhance trading decision making. This could get even more interesting to plot / numerically analyse what percentage of bids and offers are changing closer or away from price, what percentage new bids and offers are coming in and what percentage bids and offers are going out of the order book.





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1 Comment so far

  1. Selshyam on March 21, 2016 2:48 am

    A complete disagreement to the hypothesis of “Path of greater Impatience” theory.

    If someone does expect an impending change in the expected demand/supply, that should promptly be manifested via market orders, the aggressor who just sensed the alpha in split second. More than 65% (data from NANEX Research for CME) of time, the market order hits the ask and will not be able to lift the offer, just because the limit order sitting at the offer is too big to be lifted.

    What this implies, Not all price action & tick is a result of an expected demand supply. A traders impatience or patience is only significant enough to move the markets when the fire power supporting the decision is thick enough to counter the average size floating at the bid or ask. A limit order siting at the offer since a long time, might have been the result of an analysis/mis-analysis which never accounted the microstructure changes in the short time frame. But the same order manifested a visible impact on the price action, nullifying the Path of greater Impatience hypothesis.


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