Discussion of article "Market Theory"
Yousuf, the law of supply and demand on the basis of which your calculations are based does not work in a speculative market.
The law is based on the fact that there are final consumers of a commodity whose demand depends on a fixed or slowly changing amount of their income. For example, they are all together willing to spend $1 million on a commodity. At a price of $10 per unit, they will all buy 100,000 units of the commodity ( 1mn/10). At a price of $20, they will buy 50,000 units. So there you have hyperbole and a simple linear relationship.
In a speculative market, there are not these constant consumers with a constant amount they are willing to spend on a commodity. If the price has risen, it does not mean that less will be able to buy and demand decreases - the shoulder to help)))) And there are practically no end consumers. Buyers subsequently become sellers at closing and vice versa. I.e. demand is not constant, but depends on previous transactions, just like supply. Not to mention a bunch of other purposes for which FX trades are made (e.g. hedging).
Therefore, the law of supply and demand does not work in this form and the dependence of supply and demand on price is much more complex than linear. In addition to price, supply and demand depend on previous trades, the situation in other markets, news background, availability of funds, sentiment and a bunch of other things. And the result is that often when the price rises the demand rises or when the supply falls, which turns this classical law upside down)))
Yusuf, the law of supply and demand on the basis of which your calculations are based does not work in a speculative market.
The law is based on the fact that there are final consumers of a commodity whose demand depends on a fixed or slowly changing amount of their income. For example, they are all together willing to spend $1 million on a commodity. At a price of $10 per unit, they will all buy 100,000 units of the commodity ( 1mn/10). At a price of $20, they will buy 50,000 units. So there you have hyperbole and a simple linear relationship.
In a speculative market, there are not these constant consumers with a constant amount they are willing to spend on a commodity. If the price has risen, it does not mean that less will be able to buy and demand decreases - the shoulder to help)))) And there are practically no end consumers. Buyers subsequently become sellers at closing and vice versa. I.e. demand is not constant, but depends on previous transactions, just like supply. Not to mention a bunch of other purposes for which FX trades are made (e.g. hedging).
Therefore, the law of supply and demand does not work in this form and the dependence of supply and demand on price is much more complex than linear. In addition to price, supply and demand depend on previous trades, the situation in other markets, news background, availability of funds, sentiment and a bunch of other things. And the result is that often when the price rises, demand rises or supply falls, which turns this classical law upside down)).
1. It turned out that the given dependence of the quantity of realised goods on the price of their realisation in the form of a hyperbola equation from the family of Engel curves and conditionally called the law of supply and demand, works in most cases, both for competitive and monopoly markets. It was important for me to obtain, in an explicit form, the regularity of profit variation from the selling price of goods in a general form. Of course, there may be deviations depending on the specific situation you mention. Further research will show how to account for these nuances.
2. Assuming the presence of this hyperbolic dependence allows us to reach an absolute coincidence of the results of calculating the profit according to formulas (1) and (25).
3. Numerous calculations of actual and calculated profit values for the Forex market have shown their satisfactory coincidence and, what is much more important, allows to identify the type of the market at the moment - monopolistic or competitive by the type of the calculated profit curve, which is repeatedly shown in the bowels of the same branch.
Let me disagree with you about the statement that the law of supply and demand does not work in a speculative market.
If this statement of yours were true, then what would stop the price from rising or falling? Nothing!
Exactly, the absence of buyers (demand) when the price rises and the absence of sellers (supply) when it falls stops the directional movement of the price and reverses this movement in the opposite direction from the original direction.
Yousufkhodja Sultonov:
3. Numerous calculations of actual and calculated profit values for the Forex market have shown their satisfactory coincidence and, what is much more important, allows you to identify the type of market at the moment - monopolistic or competitive by the type of calculated profit curve, which is repeatedly shown in the bowels of the same branch.
What is the calculation methodology? And what does it mean "profits for the Forex market"?
And another question: in the law of supply and demand on the abscissa axis is the volume of goods sold. How did you get to the fact that you have time on the abscissa axis? And where did you get the volumes?
- ru.wikipedia.org
We were talking about the classical law of supply and demand. And you can probably find some supply and demand curves for individual situations. But they will not have the same form as in the classical theory. The directional movement can unfold for many reasons. For example, speculative - those who opened longs are forced to sell to close them. That is, those who created demand now create supply. Or arbitrage processes, or fundamental - there are many reasons. And all of them in each specific case will influence the formation of supply and demand curves. And in the classics, the dependence is quite trivial - linear. Obviously, this is not the case for financial markets.
What is the method of calculation? And what does it mean "profits for the Forex market"?
And another question: in the law of supply and demand on the abscissa axis is the volume of goods sold. How did you get to the point where you have time on the abscissa axis?
1. Actual and estimated profits are calculated using formulas (1) and (25), respectively;
2. Where did you see time on the abscissa axis?
1. Actual and estimated profits are calculated according to formulas (1) and (25), respectively;
how did you consider that "Numerous calculations of actual and estimated profit values for the Forex market have shown their satisfactory coincidence"? Where are these calculations?
2. Where did you see time on the abscissa axis?
On the market chart))) We don't have volumes, we have time and prices. In theory and formulae of volumetrics
how did you consider that "Numerous calculations of actual and estimated profit values for the Forex market have shown a satisfactory match between them"? Where are these calculations?
On the market chart))) We don't have volumes, we have time and prices. In the theory and formulas of volumetrics
1. Graphs of actual and calculated values of profits in points are repeatedly given in the thread of the same name for competitive and monopoly markets, for example, here: https://www.mql5.com/ru/forum/58256/page66. All calculations show that, the profit is commensurate with the spread and is a few (from 2 to 10) points.
2. When making calculations, including virtual market price levels, profits, market type definitions are made without using the "time" parameter, but, price level graphs are simply linked to the usual "price-time" graph.
- www.mql5.com
1. Graphs of actual and calculated values of profit in points are repeatedly given in the branch of the same name for competitive and monopoly markets, for example, here: https://www.mql5.com/ru/forum/58256/page66. All calculations show that, the profit is commensurate with the spread and is several (from 2 to 10) points.
Is it a deviation of real prices from your calculated price at each bar, not counting the current one (forecast)? Or is it approximation of some parametric curve and calculation of standard deviation from it?
Is it the deviation of real prices from your calculated price at each bar, not counting the current one (forecast)? Or is it approximation of some parametric curve and calculation of standard deviation from it?
1. The calculation is done accurately, without any approximations, like those shown in the table for the real market of goods and services. The calculated profit curve is according to formula (25), and the points - actual profit values - according to formula (1). There is always a scatter of actual values from the calculated ones, but the nature and type of the market is determined unambiguously: for the monopolistic market the curves are obtained in the form of an inverted bell, and for the competitive market - in the form of a bell with a maximum at the top, from 0 to 10 (or so) points. This issue requires and deserves, I think, to be addressed within the confines of a separate article. If they allow me to write it, I will devote a separate article to the identification of market types. It may turn out to be an indicator (at the bottom of the chart), indicating the type of the market at the moment. The thing is that very often monopolists interfere in the trading process and change the nature of the market very strongly, and after some time they also "imperceptibly" leave and "turn" the market back to a competitive one. The indicator detects all this manipulation at once. It is shown in the bowels of the forum.
2. I studied this theory for a long time and created it exactly for the real market of goods, from where I found out that the volume of realised goods does not affect the determination of virtual levels of market prices. Simply, they are reduced when dividing S by Y. This circumstance was used in the Forex market. In principle, one can strictly prove this fact, if necessary. Now, S and Y began to show, I assume, the strength of the opposing sides in points from 300-500 pips for monopolistic and 1000 - 10000 pips for competitive markets. There are examples in the thread of the same name. It turned out that monopolists themselves are weak compared to the competitive market, but they, in an incomprehensible way, turn and temporarily weaken the market, which allows them to do whatever they want with the market. As if they inject anaesthesia into the market. Then the market "wakes up" and in no time at all kills the monopolists. But it is too late - the market has been damaged for the monopolists' benefit. It takes a long time for the market to recover from this shock. In short, they manage to turn a bear market into a bull market and vice versa. It seems to all of us that there is a usual correction, as always, according to Elliott, but often such a trick creeps in.
I will definitely find out the mechanism of how they manage to do it and will report it separately in the supposed article about market types above.
The mechanism is quite simple - provocation. I am talking about financial markets.
Every market participant can observe these provocations by himself almost daily.
Monopolists or market makers, as applied to the Forex market, constantly test levels. They accelerate the price near a significant level and watch the market reaction after breaking this level.
1. If the market does not pick up the movement, the market makers retreat and wait for the next opportunity. In such situations we observe "false level breakout".
2. If the market picked up the movement, the market makers reached their goal. In such cases we observe "level breakout" and transition to another range. Market makers go into the shadows again.
Although monopolists are weak compared to the whole market, they are able to manipulate the market by utilising market sentiment and market power.
The question has arisen. What can market theory be used for in ordinary commodity markets? The first thing that comes to mind is the calculation of the optimal selling price of goods. What else?
And such a question concerns the securities market.
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New article Market Theory has been published:
A logically complete market theory that would cover all types and varieties of markets for goods and services, micro and macro markets like Forex, hasn't been available until now. This article covers the essence of a new market theory based on the profit analysis, reveals patterns of the current price change and the principle of the mechanism operation that allows the price to find its most optimal value by forming a chain of virtual prices that can develop the controlling influence on the actual price. Mechanisms of formation and change of market trends are also identified here.
Let's look at the market theories that are most well-known among traders who try to use them in order to gain a statistic advantage when organizing profitable trading and creating profitable trading strategies on the Forex market based on them. There are three main theories:
Gann Theory is a product of practical study of the model, price and time ratios and their influence on the market.
Elliott Wave — through practical research Mr. Elliott came to the conclusion that any trend consists of the same repeated basic models (sections) that are divided into two types:
a) impulse section ("Impulse") that consists of 5 segments and acts as a moving section with a trend development;
b) corrective section ("Correction") that consists of 3 segments and compensates for the previous impulse movement.
Strategy based on the Ichimoku Indicator — associated with "Ichimoku cloud" which is a product of the author's practical research of 30 years.
They all have a common feature — the absence of a strong theoretic base showing the real connection to the process of real trading with goods and services. These theories are the result of practical investigations and assumptions of their authors. Furthermore, they are connected with a united idea, namely, the understanding that along the price movement there are some levels and powers affecting its pattern, and the authors have devoted their lives to the frantic search for regularities of forming the indicated levels and forces.
Applying indicated theories in the trading practice led to variable success, however, due to the lack of more reliable theories, the researchers aimed only at the positive results, regardless the convention of their application and the actual money loss, explaining this as the "wrong" interpretation on the trader's side or presenting it as the disadvantages of one or the other theory.
I am trying to convey the essence of the new market theory that doesn't have any disadvantages listed above. This theory is based on a strong theoretical foundation, with equal elegance it describes the process of real trading of goods and Forex trading on the basis of price interaction between three virtual price levels, that the brightest men dedicated their lives to find, but, unfortunately, never succeeded.
These are the levels:
Current price level that can become bullish or bearish, depending on the situation. When the market is bullish, the price becomes bearish, and vice versa.
Virtual price level is formed by the market, and, like the current price, may turn bullish and bearish, depending on the circumstances.
Virtual managing level of the optimal market price — lion level.
Virtual managing level of the average market price — leopard level.
The figure shows real and virtual price levels based on the considered market theory over the years 2010 and 2011:
Author: Yousufkhodja Sultonov