I totally understand where you’re coming from in terms of price being a disagreement on value. The problem I have with that view is the scope is too narrow. It doesn’t take into account an array of things which play out in the market.

You touched on the subject of a margin call, which alters the participant’s perception of value at a given time. The need to liquidate to square things up with his broker alters the equation. That’s just one example, though. There are a great many situations in which a trader can have a particular view on the markets, but has other ancillary things disrupting his perception of value (for better or worse). Wanting to get rid of the stress of a difficult position is one. Needing the cash for another position is another. I’m sure you could come up with loads of them.

There’s also the question of timeframe. Traders operate on lots of them and what looks good in one timeframe may not in another, creating different value perceptions.

And of course there is a big difference between selling to close a position and selling to enter a short, or buying to exit a short and buying to go long. They all involve different value judgements.

Oh, and we also have to toss into the mix non-speculative activity in the markets, meaning those who buy and/or sell for business needs. Value for them is generally unrelated at all to the direction price will go in the future. It could be protection against potential loss (hedging), or aquiring capital (issuance), or any number of other things.

The point I’m trying to make is that at a given point in time – and that’s all we’re talking about here as things can certainly change – the buyer and seller come to agreement on value when they execute a trade. It’s just like any other business transaction. Of course it’s all based on perceptions, which certainly can be quite wrong, but that is something which factors into future value determinations.

Hope that makes sense.

Buyers buy because they think (even if only at the moment of transaction) that the item is worth more than the money they’re spending.

Sellers sell because they think (even if only at the moment of transaction) that the item is worth less than the money they’re receiving.

“Special circumstances” like a margin call will influence the mental calculation made by sellers, i.e., they may think it’s worth more most of the time, but their immediate need for the money makes them desperate enough to think it worth less AT THIS MOMENT.

This differential in value perception, and the opportunity to arbitrage it, keeps market makers in business and generally greases the system. It’s also the genesis of some of the neater tick-based sentiment indicators, such as how many transactions are hitting the bid vs hitting the offer.

If transactions are hitting the bids, then the sellers think it’s worth a lot less than the money, while the buyers think it’s worth only a little bit more than the money. Reverse that for the transactions hitting the offers. That’s a powerful sentiment tool.

Keep in mind that price is not an agreement, but a disagreement, over value, and that will add a little more color to the rest of the piece.