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You're asking a great question. I used to work as a professional trader and the answer is that probably nobody really knows. Like you said, any explanation you

You're asking a great question. I used to work as a professional trader and the answer is that probably nobody really knows. Like you said, any explanation you hear about prices moving is just a narrative fallacy. People love hearing simple explanations to complex questions like "why did X price move" when in reality there is no such thing. The stock market is an incredibly complex interconnected system, with so many types of participants and algorithms optimizing for different outcomes over different time horizons. Retail flow can certainly influence the market, but in my experience the influence is more indirect than direct, as algorithms may jump onto the retail order flow signals to profit from it, which may then create positive feedback loops. But who knows, the fact is that a lot of volume is being bought, and that's all you can conclude. I'd go as far as saying that anyone who tries to connect the stock market with economic events doesn't understand a thing about trading. They're just not connected, except in a few special instruments. They're only connected in so far that people believe they are connected and invest based on that, just like Bitcoin is only worth what people believe it to be worth.

currymj 6y ago
in some limited cases it seems like maybe we can be pretty confident that retail investors "caused" a price move. even if professionals magnify it, the core thing would not happen without retail investors. Like the Hertz thing, or "Long Blockchain Corp", or when people get confused over ticker symbols. but I agree it does seem sort of unanswerable in general. very odd, then, to see people making these public assertions with total confidence. I am curious: based on your experience, do you think that, in principle, an omniscient observer of all transactions on stock exchanges and who made them could answer questions like this in many cases? If so, what concrete things would they hypothetically want to look at to figure it out?
- gas9S9zw3P9c 6y ago
  > I am curious: based on your experience, do you think that, in principle, an omniscient observer of all transactions on stock exchanges and who made them could answer questions like this in many cases? If so, what concrete things would they hypothetically want to look at to figure it out? Not necessarily, because the order flow they see goes through brokers, is anonymized, and order execution is optimized algorithmically as to not reveal any patterns. You can't easily tell what is retail flow and what isn't, however you want to define that. What you would need is not just to exchange data, but also the internal user data from companies like robinhood, and an understanding of how exactly algorithms from hedge funds and HFT firms behave. In theory this would be possible if you had complete access to and a full understanding of all of this. In practice it's impossible.
  - deleted 6y ago
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currymj 6y ago

in some limited cases it seems like maybe we can be pretty confident that retail investors "caused" a price move. even if professionals magnify it, the core thing would not happen without retail investors. Like the Hertz thing, or "Long Blockchain Corp", or when people get confused over ticker symbols. but I agree it does seem sort of unanswerable in general. very odd, then, to see people making these public assertions with total confidence. I am curious: based on your experience, do you think that, in principle, an omniscient observer of all transactions on stock exchanges and who made them could answer questions like this in many cases? If so, what concrete things would they hypothetically want to look at to figure it out?

gas9S9zw3P9c 6y ago
> I am curious: based on your experience, do you think that, in principle, an omniscient observer of all transactions on stock exchanges and who made them could answer questions like this in many cases? If so, what concrete things would they hypothetically want to look at to figure it out? Not necessarily, because the order flow they see goes through brokers, is anonymized, and order execution is optimized algorithmically as to not reveal any patterns. You can't easily tell what is retail flow and what isn't, however you want to define that. What you would need is not just to exchange data, but also the internal user data from companies like robinhood, and an understanding of how exactly algorithms from hedge funds and HFT firms behave. In theory this would be possible if you had complete access to and a full understanding of all of this. In practice it's impossible.
- deleted 6y ago
  [deleted]