question: if everyone is buying and selling stocksat market price, how does the price adjust due to demand?
comment: Good question, and the answer is that not everyone offers at market price. You can post an offer to buy or sell at *any* price so it's common to say (for example) "I'll sell 1000 shares at $50.25" when the current market price is $50.19. Your offer sits there until someone agrees, unless you cancel it.
passages: The behaviour of stock prices have shown properties of universality. By taking historical share price data of a company, calculating the daily returns and then plotting this in a histogram would produce a Gaussian distribution. Stock prices will fluctuate with small variations constantly and larger changes much more rarely; a stock exchange could be interpreted as the force responsible to bring the share price to equilibrium by adjusting the price to the supply and demand quota.
   Market rules set the times and duration for trades and settlement. Some markets may not have many participants as the assets being traded do not have much appeal (the formal term is "market interest" in which participants express interest in the underlying asset). Such markets are often called illiquid, for example minor currencies. In illiquid markets, price discovery might take place at a predefined auction time or even whenever participant wants to trade. In such cases there may be no executions for days or months. In such examples there is no price discovery for long periods so the last traded price is used. This can have significant risk as the market for the illiquid may have moved. Another characteristic of illiquid markets is that the cost of trading can be higher due to the lack of competition.
   How could this business reality best be modelled? In contemporary "value-based management" by corporations, we can witness a continual cross-reference between past prices, current prices and future prices occurring, because there is practically no other way to do it for business purposes. In the words of group controller Gerard Ruizendaal of Royal Philips Electronics, 
  
  A partner of McKinsey & Company comments:
   The difference between the price at which a market maker is willing to buy a stock (the bid price) and the price that the firm is willing to sell it (the ask price) is known as the market maker spread, or bid–ask spread. Supposing that equal amounts of buy and sell orders arrive and the price never changes, this is the amount that the market maker will gain on each round trip. Market makers also provide liquidity to their own firm's clients, for which they earn a commission.
  
  Section::::See also.
  
  BULLET::::- Sales and trading
  
  BULLET::::- Day trading
   The objective part of a Market Profile is the profile display. This comes directly from the data itself, creating TPO's (either from LDB or tick data (11)). A key element is the Initial Balance, the range and price location of the first hour of trading.
   The declaration of each buyer has no effect on the price he has to pay; the price is determined by the buyers in the other sub-market. Hence, it is a dominant strategy for the buyers to reveal their true valuation. In other words, this is a truthful mechanism.
   Much effort has gone into the study of financial markets and how prices vary with time. Charles Dow, one of the founders of Dow Jones & Company and The Wall Street Journal, enunciated a set of ideas on the subject which are now called Dow theory. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. The role of human psychology in price variations also plays a significant factor. Large amounts of volatility often indicate the presence of strong emotional factors playing into the price. Fear can cause excessive drops in price and greed can create bubbles. In recent years the rise of algorithmic and high-frequency program trading has seen the adoption of momentum, ultra-short term moving average and other similar strategies which are based on technical as opposed to fundamental or theoretical concepts of market Behaviour.
   A market maker is basically a specialized scalper. The volume a market maker trades is many times more than the average individual scalper and would make use of more sophisticated trading systems and technology. However, registered market makers are bound by exchange rules stipulating their minimum quote obligations. For instance, NASDAQ requires each market maker to post at least one bid and one ask at some price level, so as to maintain a two-sided market for each stock represented.
  
  Section::::Strategies.:Transaction cost reduction.
   This trading or "betting with positive edge" method involves a [[Money management|risk management]] component that uses three elements: number of shares or [[Futures contracts|futures]] held, the current market price, and current market [[Volatility (finance)|volatility]]. An initial risk rule determines position size at time of entry. Exactly how much to buy or sell is based on the size of the trading account and the volatility of the issue. Changes in price may lead to a gradual reduction or an increase of the initial trade. On the other hand, adverse price movements may lead to an exit from the entire trade.
   When the current market price is less than the average price, the stock is considered attractive for purchase, with the expectation that the price will rise. When the current market price is above the average price, the market price is expected to fall. In other words, deviations from the average price are expected to revert to the average.
  
  The standard deviation of the most recent prices (e.g., the last 20) is often used as a buy or sell indicator.
   Section::::Protocols.
  
  The market itself provides a medium of exchange for the contracts and coupons and cash to seek prices relative to each other, and for those to be publicized. This publication of current prices is a key feature of market systems, and is often relevant far beyond the current groups of buyers and sellers, affecting others' supply and demand decisions, e.g. whether to produce more of a commodity whose price is now falling.
   Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse; the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors "are" bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading.
   BULLET::::2. Calculate formula_1 - the maximum profit possible given the valuations.
  
  BULLET::::3. Calculate a price that guarantees that we get a profit of formula_1.
  
  Step 3 can be attained by a profit extraction mechanism, which is a truthful mechanism. However, in general the mechanism is not truthful, since the buyers can try to influence formula_1 by bidding strategically. To solve this problem, we can replace the exact formula_1 with an approximation - formula_5 - that, with high probability, cannot be influenced by a single agent.
   5. The time which is spent on individual prices does not necessary imply that the same amount of volume took place there. For more precise results, it is sometimes advisable to use Volume Profile, which is based purely on volume and price and does not take time into account at all.
  
  Section::::References.
  
  BULLET::::- 1. Steidlmayer on Markets, J.P. Steidlmayer, Wiley 1989
  
  BULLET::::- 2. CBOT Market Profile manual, 1985, published by CBOT, 115pg
  
  BULLET::::- 3. The Normal, Gaussian Distribution, Wikipedia
  
  BULLET::::- 4. The Three Day Balance Rule for Profile Value Area, Nov 11, 2007**
   BULLET::::- Price: One of the first rules of trend following is that price is the main concern. Traders may use other [[Technical indicator|indicators]] showing where price may go next or what it should be but as a general rule these should be disregarded. A trader need only be worried about what the market is doing, not what the market might do. The current price and only the price tells you what the market is doing.
   This trade takes place between what Black calls "information traders" and "noise traders", where the former operates based on accurate information and the latter trades based on noise. Unfortunately, there is no way of precisely parsing the noise and information from a data stream or signal, so the so-called noise traders tend to think that they, in fact, trade on information that others in the market simply reject as noise. Thus, methods of parsing noise and information from a signal are becoming increasingly important in the market-place, especially as strategies used by high-tech alternative investment firms, such as some hedge funds.
   For example, if statisticians publish aggregated price estimates about the economy as a whole, market actors are likely to respond to this price information, even if it is far from exact, if it is based on a very large number of assumptions, and if it is later revised. The release of new GDP data, for instance, often has an immediate effect on stock market activity, insofar as it is interpreted as an indicator of whether and how fast the market – and consequently the incomes generated by it – is growing or declining.
   Price discovery as it relates to equities is the process in which a security’s market value is determined by way of buyers and sellers agreeing on a price suitable enough for a transaction to take place. On the New York Stock Exchange alone, it is not uncommon for over $1.5 trillion of stocks to be traded in a single day. Due to the large amount of transactions that take place every day, experienced traders, and computer using algorithmic trading make trades based on the slightest up-ticks and down-ticks in price, and subtle changes in the bid–ask spread. When trading halts for any amount of time, the flow of information is reduced due to a lack of market activity, adversely causing larger than normal bid-ask spreads which slows down the price discovery process. When stock specific trading halts occur in order for press releases to be announced, the market has to then make a very quick assessment of how the new information affects the value of the underlying asset leading to abnormal trading volume and volatility.
   For example, if a company has 4 million shares outstanding and the closing price per share is $20, its market capitalization is then $80 million. If the closing price per share rises to $21, the market cap becomes $84 million. If it drops to $19 per share, the market cap falls to $76 million. This is in contrast to mercantile pricing where purchase price, average price and sale price may differ due to transaction costs.
   Due to advances in technology, another variant of variable pricing, called "real-time pricing", has arisen. In some markets events occur so fast that there is insufficient time to either set a fixed price or engage in lengthy negotiations. By the time you have all the information to determine a price, everything has changed. Examples include airline tickets, stock markets, and foreign exchange markets. In each case prices can change in less than a second. By linking all the market participants through internet connections, price changes are disseminated instantly as they occur. 
   There are two forecasting sub-problems: predicting time-phased demand and predicting demand response to the pricing decisions. In yield management-type applications, predicting time-phased demand, at a very granular level, is central since these applications are characterized by fixed capacity against which demand must be balanced by use of pricing or related controls. In many of these types of applications, predicting response to pricing decisions is also important, since price is often the control instrument used to modulate demand. However, there are a number of yield management applications in which the control is directly on product availability; prices are typically taken as fixed in these cases and prediction of price response is not required.
   In most systems the algorithm used is a "DC" model rather than an "AC" model, so constraints and redispatch resulting from thermal limits are identified/predicted, but constraints and redispatch resulting from reactive power deficiencies are not. Some systems take marginal losses into account. The prices in the real-time market are determined by the LMP algorithm described above, balancing supply from available units. This process is carried out for each 5-minute, half-hour or hour (depending on the market) interval at each node on the transmission grid. The hypothetical redispatch calculation that determines the LMP must respect security constraints and the redispatch calculation must leave sufficient margin to maintain system stability in the event of an unplanned outage anywhere on the system. This results in a spot market with "bid-based, security-constrained, economic dispatch with nodal prices".
   Overlays are generally superimposed over the main price chart.
  
  BULLET::::- Bollinger bandsa range of price volatility
  
  BULLET::::- Channela pair of parallel trend lines
  
  BULLET::::- Ichimoku kinko hyoa moving average-based system that factors in time and the average point between a candle's high and low
  
  BULLET::::- Moving averagean average over a window of time before and after a given time point that is repeated at each time point in the given chart. A moving average can be thought of as a kind of dynamic trend-line.
   In a dynamic market, the price discovery takes place continuously while items are bought and sold. The price will sometimes fall below the duration average and sometimes exceed the average as a result of the noise due to uncertainties, and transient changes in supply caused by the act of buying and selling: trading. A closed market has no price discovery; the last trade price is all that is known. It is common in some markets not to use the actual last traded price but some sort of average / weighted mean. This is to prevent price manipulation by the execution of outliers on or at market close. One side effect of this practices is that market close prices are not always available at market close, indeed even after the official market close is published, it is possible for "corrections" to be issued later still.
   In 1975, the structure of sales commissions underwent significant reform when the US Congress ended the SEC's requirement of having a minimum commission, also known as deregulation. One recent trend in the industry has been the unbundling of commission rates; simply put, this is the process of separating the cost of trading the stock (e.g. trader's salaries) from the cost of research (e.g. research analyst salaries). This process allows buy side firms to purchase research from the best research firms and trade through the best trading firms, which often are not one and the same.
  
  Section::::Tracking analyst performance.
  
presuppositions: Stocks are bought and sold at market price everyone buying and selling stocks at market price.
corrections: Not all stocks are bought and sold at market price; you can offer any price you want. Not everyone is offering at market price.
raw_presuppositions: Stocks are bought and sold at market price everyone buying and selling stocks at market price.
raw_corrections: Not all stocks are bought and sold at market price; you can offer any price you want. Not everyone is offering at market price.