Why Price Moves

Here is an ES chart. A red candle. What happened?

"Sellers won," the technical analysis textbook would say. Sounds logical. And completely useless. What actually happened is someone hit the bids with a market order. Someone consumed the liquidity. "Sellers won" is like saying "the car arrived because it was driving." Technically true, but explains nothing.

Without the mechanics we are about to cover, footprint, delta, and profile are just a set of colored squares. With them, you will see what is invisible on a candlestick chart: who exactly moves the price, and why.

The Fruit Market

Picture an ordinary market. Not a financial one -- a fruit market. Stalls, sellers, buyers.

Three apple sellers stand behind their stalls. The first has a price tag of 100 per kilo, with 5 kg on display. The second -- 101, 7 kg. The third -- 102, 10 kg. They are in no rush. They set their prices and wait. These are passive participants -- in exchange terms, limit orders in the order book.

A buyer walks in. He needs 15 kg, and he needs them right now. No haggling. He walks up to the first seller -- takes all 5 kg at 100. Counter empty. Moves to the second -- takes 7 kg at 101. Counter empty. Goes to the third -- takes the remaining 3 kg at 102. This is an aggressive participant -- a market order.

What happened to "the price of apples"? It went from 100 to 102. But the buyer was alone, and there were three sellers. Yet the price still went up. How?

Now reverse the situation. Three buyers stand ready. One willing to buy at 100 (5 kg), the second at 99 (7 kg), the third at 98 (10 kg). A seller arrives with 15 kg of apples and needs to sell right now. He dumps 5 kg to the first at 100, 7 kg to the second at 99, 3 kg to the third at 98. Price dropped from 100 to 98. One seller, three buyers. And the price fell.

The aggressor was the seller. He came to the buyers and sold at their prices. He pushed the price down.

This picture -- the aggressor approaching the passive participant and taking their goods -- will come back in every lesson of this course. Footprint, delta, the order book -- they are all different ways to see the same thing: who came to whom.

The Order Book: Same Market, Just in Numbers

On the exchange, the "fruit market" is called the order book (DOM, Depth of Market). Instead of sellers with apples -- limit orders at each price level.

Here is what it looks like for ES futures (E-mini S&P 500):

         Ask (sellers)
5525.50  |  120 contracts
5525.25  |   85 contracts
5525.00  |   45 contracts    <- best ask (nearest seller)
---------+-------------------
5524.75  |   60 contracts    <- best bid (nearest buyer)
5524.50  |   95 contracts
5524.25  |  140 contracts
         Bid (buyers)

The difference between the best ask and best bid is the spread. On ES, it is almost always 1 tick (0.25 points = $12.50). During overnight sessions or in thin markets, the spread widens to 2-3 ticks.