Trading Logic and Market Behavior: How to Understand Market Trends? Boson Quantitative Trading Robot  

Market behavior can be likened to a puzzle: the market is like a player trying to complete a puzzle, and Trading Volume are the puzzle pieces. Analyzing the distribution of Trading Volume can reveal areas of the market that are incomplete, helping to judge PA.

Written by: TradeStream | Improve Your Trading. Reposted by: Bosen Quantitative Consultant Xiaosun (bosen0722)

Choice of Market Direction

The market direction is related to attraction and resistance. 'Atomic Habits' mentions that attraction drives human behavior, and the market is no exception. More attractive trading strategies often go against the grain and choose the opposite direction of the mainstream opponents. Dropping resistance means avoiding difficult decisions, making trading more successful.

Liquidity Analysis

Liquidity reflects the availability of counterparties in the market and is divided into active Liquidity (market orders) and passive Liquidity (limit orders). Market orders consume Liquidity through price changes, while limit orders increase Liquidity by blocking price fluctuations. Limit orders are more influential than market orders due to their importance in shaping market structure. Market orders are like hammers breaking through price barriers, while limit orders act as the floor and ceiling of prices.

What is the price difference?

The spread is the difference between the ask price and the buy price of the asset, and it is also the source of profit for market makers. When the volume is small, the price fluctuates less; but if the volume is large and the liquidity is insufficient, the price may cross a larger spread, causing significant fluctuation. In areas with sufficient liquidity, they usually occur above swing highs and below swing lows, and these areas are prone to reversals, which are also concentrated areas for stop loss of Technical Analysis traders.

Liquidity Cascade and Market Fluctuation

Liquidity cascade refers to the rapid movement of prices caused by a large number of price-insensitive traders entering the market, resulting in market supply and demand imbalance. The trading effects at this time can be divided into two types:

1. Liquidity premium: short-lived and fast, lasting only 10-15 seconds, suitable for quick profit analysis.
2. Momentum effect: longer duration, but accompanied by higher volatility and risk.

The market usually returns to the area of unfinished transactions to maximize efficiency by testing the low Trading Volume area. This Fluctuation allows prices to cycle between high Fluctuation and low Fluctuation, known as Fluctuation clustering phenomenon.

Summary

Patient traders use limit orders to influence market structure, while impatient traders drive price changes through market orders. Understanding the distribution of Liquidity and the pattern of Fluctuation can help traders optimize Risk Management strategies and seize more market opportunities.

What about ordinary people?

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