It is assumed that we are talking stochastic processes. There is no continuous price. There is only the Hilbert space of discrete events not connected by a metric space. So instead of always saying "on-balance" I assume it to be understood.
The rate of change is something that momentum players use to act. How can a stochastic process have "momentum"? It is ad hoc to relate price at time, t1 to time t2. There is no causal connection. This is the nature of stochastic processes. If you think this is wrong, please tell me with certainty what price will be at time t2 given price at time t1.
Say the "momos" act on some arbitrary device like computation of price rate of change. You can find a load of others using equally specious and opposite techniques like PNF. All these techniques just generate Gaussian noise whose net is zero and which provide the stochastic medium so that demand and supply equilibrium can be discovered. Net equilibrium change depends upon long buyers and sellers who stay, but in short time regimes the effect of that action is fully random too.
You are correct that when an upside rally is over, the market makers are loaded with short sales. Available material supply is low. You either have to entice a seller out of the woodwork with a big premium or force the same from a market maker who makes you reach in order to protect themselves. At the same time the book is loaded with orders to buy underneath. So a little bit of selling goes there to that supply (demand) and the whole process reverses, on-balance, on-balance.
There is no connection between RT net zero and volatility. There are two notions of volatility. One is determined by market state and the other is computed based on historical prices. Volatility is similar in notion to elasticity, but volatility is a confused concept if only because there are quite a few components actually hiding in the concept.
Short on sentiment? That's equivalent to shorting on price with a lag. I don't recommend it. You might as well stay with price. What does short on price mean? Read charts. I do it all the time. It's a little worse than a coin, but I have to do something silly to waste time. Also, it's impossible to measure sentiment. How do you know those interviewed in sentiment measures aren't just trying to fool themselves? Well, because at the bottom sentiment is low like price and vice versa at highs, but that doesn't tell you any more than price. You'll learn over time that sentiment fools you into the wrong action more than it helps you into the right action. |
