Price action basics. Part 5 - Page 2
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  1. #1
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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


    Attachment 1732


    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.


    Attachment 1733

    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.

  2. #11
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    all these explanations all still boil down to the understanding of the Forex technical because if you do not talk about the chart now then that is fundamentals but once you are talking about chart levels been broken then you have definitely switched your attention towards the technical aspect of the market structural analysis and that is not fundamentals anymore because fundamentals deal with the news data alone.

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  3. #12
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    Quote Originally Posted by HAMEDFX View Post
    all these explanations all still boil down to the understanding of the Forex technical because if you do not talk about the chart now then that is fundamentals but once you are talking about chart levels been broken then you have definitely switched your attention towards the technical aspect of the market structural analysis and that is not fundamentals anymore because fundamentals deal with the news data alone.
    Fundamentals mean not only fundamental analysis, but also fundamental principles of price action, of supply and demand.
    And if we are talking about data outside the price chart, it's not just news. You can see seasonal statistics, capital inflow/outflows with COT reports and other types of analysis. Economic indicators releases are widely known, but are too general to make valuable conclusions from them.

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  4. #13
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    I believe that the strategy of price action is the best way to trade forex as it shows the price movement without many technical indicators that only confuse our vision of forex. this mode of operation is highly recommended for anyone trader already unsuccessfully tried many strategies. since I started trading with the price action I have had good results.

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  5. #14
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    Quote Originally Posted by dardoalbarracin View Post
    I believe that the strategy of price action is the best way to trade forex as it shows the price movement without many technical indicators that only confuse our vision of forex. this mode of operation is highly recommended for anyone trader already unsuccessfully tried many strategies. since I started trading with the price action I have had good results.
    I can't agree that price action is a strategy. It's an approach to markets when you are concentrated more on price than on derivatives of price (indicators). Price itself can give us valuable clues, but we should not just blindly follow price. In fact, price is an advertising mechanism in the market, no more than that.

    For me, price action trading is a mindset when you try to understand market logics, try to think as different timeframe traders think and know what different parameters of price movement (tempo, aggressiveness, probes) can probably indicate.

    So, price action trader thinks in more complicated way than trader, who simply employs any trading system based on indicators. Price action trading is more discretionary than mechanical, it's about decision making process. Of course, those who trade with indicators also make decisions, but price action traders are obsessed with nuances and contrust big pictiure from many micro observations.

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  6. #15
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    Quote Originally Posted by SAJANFX View Post
    This is out of logic,Institutional traders are also humans, Our and there trading system will always same. Just because they have huge trading capital that doesn't means that they are always perfect. You know dude 5 fingers are of not same height,similarly 5 traders opinion regarding market prediction will also vary.Don't let yourself down dude,We all have same brains installed, regarding of account size we trade with.
    Institutional traders maybe traders just like us and with huge capital like you said but they have a very important advantage over us which is the inside information,large banks and hedge funds have access to each other positions and they have information where the big orders are most likely to placed and where is the place in the market where nothing big happining.

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

  7. #16
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    Different situations filter trades as we often look for demand in strong trends even supply is available when we have bearish move market will absorb that supply or spend some time at the current levels and will trap traders
    and then will continue to test that supply area that give margin calls to trders who got trapped

    regards

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  8. #17
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    for point number two, what the best thing we need to do ? do we need to wait for a correction ? because at this level, so hard to see for what the next movement in the market, or we can use the higher time frames as the basic to know the true trend ?
    thank you very much

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  9. #18
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    Quote Originally Posted by newentry View Post
    for point number two, what the best thing we need to do ? do we need to wait for a correction ? because at this level, so hard to see for what the next movement in the market, or we can use the higher time frames as the basic to know the true trend ?
    thank you very much
    I think you can use pivot point, support and resistance point to know if the price is correction or it will become trending movement. Or it's possible to know it from chart pattern with high time frame because correction usually will turn back after it reached certain point so if certain price has been surpassed so it has high possibility to breakout and it's not only correction.

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    for point number two, what the best thing we need to do ? do we need to wait for a correction ? because at this level, so hard to see for what the next movement in the market.

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  11. #20
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    Sir as you have explained nicely like other 4 parts and it is clear from this post that after ranging there will be a break out but as a new trader and with limited experience I am not being able to understand which direction we should choose to trade shall we go in the direction of previous trade or wait for a breakout before execution of new order.

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