Another trading story
I can't take any credit for this, it's from a trader called Mark Douglas (look him up). I just thought it was a good story and blatantly ripped it off (in part) to post here.
Apparently it's a true story...
The semi-retired chairman of the board of the brokerage firm was a longtime trader with nearly 40 years of experience in the grain pits at the Chicago Board of Trade. He didn't know much about technical analysis, because he never needed it to make money on the floor. But he no longer traded on the floor and found the transition to trading from a screen difficult and somewhat mysterious.
So he asked the firm's newly acquired star technical analyst to sit with him during the trading day and teach him technical trading. The new hire jumped at the opportunity to show off his abilities to such an experienced and successful trader.
One day, as the two of them were watching the soybean market together, the analyst had projected major support and resistance points and the market happened to be trading between these two points.
As the technical analyst was explaining to the chairman the significance of these two points, he stated in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse; and if the market goes down to support, it will also stop and reverse.
Then he explained that if the market went down to the price level he calculated as support, his calculations indicated that would also be the low of the day.
As they sat there, the bean market was slowly trending down to the price the analyst said would be the support, or low, of the day. When it finally got there, the chairman looked over to the analyst and said,
"This is where the market is supposed to stop and go higher, right?"
The analyst responded,
"Absolutely! This is the low of the day."The chairman retorted,
"That's bullshit! Watch this."He picked up the phone, called one of the clerks handling orders for the soybean pit, and said,
"Sell two million beans (bushels) at the market."Within thirty seconds of placing the order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified expression on the analysts face. Calmly, he said,
"Now, where did you say the market was going to stop? If I can do that, anyone can."
The motto of the story is, people move prices, not patterns.
I guess when thinking about it all the trades are basically between people to people. So emotion and psyche plays a big part in prices. Although I have also heard now that computers can execute trades much faster and more accurate that trades are often between computer to computer. Can this still result in the same way as people trading with people?
Trading between computers is very fast, if you mean algorythmic trading then it's microseconds, for tiny amounts.
I'm pretty sure they don't affect the price at all, they just look for tiny imbalances in price that are very fast, buying and selling almost instantly for tiny fractions.
A predictable, algorithm-based trading system is even more open to manipulation in this manner.
Great story, I love it! Now imagine 100 such guys all working together...
they do, it's called Goldman Sachs :-)
Indeed.
Awesome story.