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Why Doesn’t the Market Move?

Posted by Larry Doyle on January 4, 2010 2:55 PM |

Have you ever wondered why the market often times makes a very early move one way or the other then just seems to sit all day? Take today, for instance. The market moved solidly higher on the open, but has sat at up 160 points all day. Why? Let’s look at a 5 minute graph of today’s price movement for the Dow Jones Industrial Average:

Graph

The market has traded in a 10 to 15 point range for the better part of the last 4 hours. Why isn’t it moving? A lack of overall trading volume and accompanying conviction on the part of many investors. With fewer market participants involved, volatility diminishes, and the market sits.

Is this good, bad, right, wrong? It’s none of the above. This is merely the market.

All other things being equal, it is healthier for a market to trade up and down on heavier volume as that indicates a stronger conviction and develops a stronger foundation. One may agree or disagree with the price action of a market.  That said, a market will do whatever it may want. That is, “the market is the market.”

LD

  • Randy Bowman

    You are right, Larry. There is no question that trading light volume periods is more challenging than high volume periods with high volatility, but it is just part of how the market moves and traders need to learn to adapt if they want a successful career as a trader. The markets are heavily manipulated by the largest professional players who merchandise their inventories of shares in the cash market or contracts in the futures market to and fro to capture volume imbalances as they develop in relation to the movement of price. The key for the newer, less capitalized trader is to take the time and learn the real manner in which the game is being played so that he can play in the same street without getting runover. He or she has no control whatsoever over volume, volatility or even price. A trader simply has to develop the skills to play in consolidating or range bound and low volume/low volatility markets or else find another way to make their money.

    It took me two solid years of 14 to 16 hour days before I tossed out the squiggly, mutli-colored indicator lines in favor of watching just price and volume. Only then did I begin to clearly see the naturally developing lines of support and resistance, the market symmetry created along paths of least resistance, the price rejections and volume spikes at key areas, etc. and see them without lag, which makes all the difference. The actions of the big players were leaving repetitive and high probability clues that could often be acted upon with a fairly high degree of success once you had discerned your edge and stuck by the trading plan based upon it.

    But let’s face it Larry, only a very small percentage will ever succeed at this game. If everybody figured it out and could trade the markets successfully in spite of their emotions to the contrary, there simply wouldn’t be enough money in it to make the risk worth taking. While it is perhaps unfortunate that most will never master the game and thus will lose money when they trade, the fact that they do trade, considerably improves the liquidity of the markets and keeps costs more affordable for all of us






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