Trading Technique  |  MAY 2005

Daytrading With Market Value by Donald L. Jones

Stocks & Commodities V. 23:5 (16-23): Daytrading With Market Value by Donald L. Jones Markets are complex, self-regulating, and driven by feedback. The message is clear: Decipher the feedback to understand your market. How can you understand the market? With feedback. What is feedback? Feedback is market response. For instance, heavy demand leads to increased market activity; feedback is apparent as more ticks, more volume, increased volatility, and higher prices. You already know this, but how can you interpret this data? Most technical indicators are not adequately coupled to the market because markets are dynamic and changing. Decoding feedback requires a market-attuned approach, something flexible enough to keep up with changes in the feedback itself. An important characteristic of feedback is that it takes time to develop a signal. A market acts, for example, and price jumps. All traders receive the information at about the same time. You consider the new information and then react to it in your own way at your own pace, and other traders do the same. The sum of all traders’ actions creates the total feedback reaction to the initial market movement. This takes time, since each trader’s response time frame is different. Ultimately, there is a new feedback message to which you and other traders may respond. This feedback-reaction-feedback cycle continues as long as the market trades. Average feedback response time has been measured to be some dozens of minutes.

by Donald L. Jones