Typing this to articulate some of my thoughts.
Supply-driven markets are said to move the price action more violently than demand-driven ones. When the supply of a stock is increased or promoters sell deliberately and rumors of further damage swirl, the trend shoots down.
This makes the supply-driven markets more volatile with wider channels, making profit targets bigger. The crux of this is that the two most important aspects of trading – liquidity and volatility – are housed by supply-driven incentives. No less than implying that discretionary, not systematic, trading matters more often than not, fortunately or unfortunately.
Anyway, I also think this has a first-order relation to the absorption of orders by market makers. Supply-driven momentum moves price action despite the conditions of market depth. For example, increasing (open) sell orders can still drive prices up by supply-driven absorption.
I'm looking for what you think. Here for more opinions/criticism of what I said. And do you have a method for judging supply-driven predictions, analyzing market depth, or both?
Supply-Driven Market &Absorption of Market-Makers
byu/Environmental-Ask605 instocks
Posted by Environmental-Ask605
1 Comment
Be careful not to over-theorize market makers here. Not every move is some intentional absorption game, sometimes it’s just thin liquidity and participants reacting at the same time. Also discretionary vs systematic isn’t really tied to supply-driven moves, plenty of systematic strategies thrive exactly because of those volatility spikes. I’d focus more on measurable things like volume, spreads, and liquidity rather than trying to frame it as a dominant market type