Price action basics. Part 5
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    Price action basics. Part 5

    «Thing that hasn’t happened is sometimes more important in the market than thing that has happened»

    I want to start this thread with this strange sentence. We will talk about trading logic. How do you make decisions? Do you look for signs of buyer and seller and act accordingly?

    Think about simple thing – price action itself (trend, movement) will not allow you to benefit from that. Some movements are continued, some are reversed. It depends on current market conditions, but probability of success will be close to 50/50 if you simply follow price action (substract spreads and rapid volatility spikes and you will get perfect strategy for failure).

    So, what works?

    If you dig deeper than simply following price action, you will understand that supply and demand will drive the market. But supply can be short-term, then transform into demand and vice versa. So, you have to rely on professional supply and professional demand and be able to distinguish it between other fluctuations.
    All that we learn here is designed for that. Professional demand (or supply) in most cases is ongoing demand. But are we naive enough to think, that professional buyer will uncover his actions for you in easy identifiable and straightforward way?
    No, they don’t do that!

    There are numerous attempts to capture signs of professional activity using volumes. Some traders think that if they have volumes, they have real information. Poor guys!

    Volumes are also misleading. So, one can not be successful in trying to capture big buyer from the market… if he thinks in conventional way.

    Market tells you a story and you should understand this story, combining nuances and clues (even number of volumes if you like) in the whole picture.


    Here are several examples:

    1. Market breaks out from a level and keeps level above. You see strange passive behavior of sellers – market shows you levels with very low volatility and holds there twice! If sellers were interested in this market, they would probably responded immediately. But you see no participation – something wrong with the supply is going on here.
    Therefore you can anticipate that big guys are buyers! They’ve collected all supply below and no one wants to go against them at least for a while.

    Not surprisingly price breaks out to the upside again


    robo1.jpg


    2. There’s neutral day after the breakout. If there were short-term traders who have made this breakout, they would liquidate pretty soon. But nothing happens – nothing at all! All day price goes back and forth with very low tempo. It means that probably those buyers were big (institutional) buyers.


    robo2.jpg

    Every time you analyze the market, you make narrative. Be sure that your narrative is reasonable and relies on solid market logics

    There are some important principles:

    1. Insitutional buyers will sell on the upside breakout (not downside)

    2. Low volatility after high volatility (directional breakout) shows lack of participation. The less liquidity (participation) we have near current levels, the more odds that market will auction higher.

    Is it complex?

    Yes, it is. But this is mindset that requires from you some disbelief, some critical view, some commitment to dig deeper and see what is hidden. That what trading is about.

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    Last edited by Value trader; 10-04-2013 at 08:38 PM.

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    This is a good learning tools. Through this thread I came to know about price and action basic. Actually I am newbie and trying to learn forex. The more I enter in depth of learning the more I become wonder to learn many new things. I hope to continue such types of learning tools in this thread to teach the newbie like me.

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    informative article.thank you for share.

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    Registered user Nizar's Avatar
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    after a breakout we usually see a ranging market with a low volatility and i have never known any explanation of this phenomena until i read this thread,and by this thread you entirely shifted my way of thinking and analyzes why price moves this way,and how to differentiate between institutional movement and small traders movements.

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    Bend your view to the charts, not the charts to your view

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    Quote Originally Posted by Value trader View Post
    1. Insitutional buyers will sell on the upside breakout[/U] (not downside)
    This statement is a good and logic
    why institutional sell on the upside breakout? because they have a huge capital and for sell all their position they must sell in huge volume and huge volume just happened in upside breakout. when most of retail trader buy they sell and they got a big profit from that situation. that's what i'm learn in stocks market and forex market too.

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    Registered user Nizar's Avatar
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    Quote Originally Posted by diaislambd View Post
    i have read from this thread very important things which i could not get before. i am trading in forex about two years and started my trading with price action about six month.i usually open my trade when market going to any breakout.
    breakout trading is profitable and i have tried it many times you just need to concentrate on only one pair and study it very well and know where it is most probably going to breakout and it is also important to understand that break out trading you should target as many pips as you can and take profit should be at least twice stop loss.

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    Quote Originally Posted by Nizar View Post
    breakout trading is profitable and i have tried it many times you just need to concentrate on only one pair and study it very well and know where it is most probably going to breakout and it is also important to understand that break out trading you should target as many pips as you can and take profit should be at least twice stop loss.
    As you mention that it's better to concentrate on just one pair to know it's movement very well and it's break point,but i little disagree with you,because it may take too much time for one pair to break from certain level,but if we watch more than one pair and do trade once a week with break out trading strategy then it's much profitable and enough for us..

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    Registered user Nizar's Avatar
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    Quote Originally Posted by mark48 View Post
    As you mention that it's better to concentrate on just one pair to know it's movement very well and it's break point,but i little disagree with you,because it may take too much time for one pair to break from certain level,but if we watch more than one pair and do trade once a week with break out trading strategy then it's much profitable and enough for us..
    there is great deal of correlation between currencies in forex market and price changes in major currencies can affect the market in general,and even if the trader decides to follow only one pair and understand it very well he should also glance at other pair as their movement can help him anticipate future movement of his pair.

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    Bend your view to the charts, not the charts to your view

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    Quote Originally Posted by Value trader View Post
    There are numerous attempts to capture signs of professional activity using volumes. Some traders think that if they have volumes, they have real information. Poor guys!

    They are useful for trader but only those trader can get benefit of volume who an predict the direction for a usual trader volume means volatility but for trader who can analyze volumes he can figure out the direction of the market which can help him to plan accordingly. Some people use complex vertical charts for the same but every one cannot get this techniques it's hard to get. There are many analysts which share their volume based analysis free of cost.

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    Registered user opan's Avatar
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    Quote Originally Posted by Nizar View Post
    after a breakout we usually see a ranging market with a low volatility and i have never known any explanation of this phenomena until i read this thread,and by this thread you entirely shifted my way of thinking and analyzes why price moves this way,and how to differentiate between institutional movement and small traders movements.
    Well actually I also think that the price is always start small volantori break out when it's done, but did we know that many have read this tread, it is very helpful to know how the condition and characteristics of the market because by knowing the characteristics of the market means we could do with a good open position.

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