Price action basics. Part 6
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    Price action basics. Part 6

    Hi there!

    Do you think that analyzing price action comes to just pattern recognition? (candlestick formations or chart patterns)?

    I would disappoint you, but patterns are not the only (and even the least important) part of understanding price action. It’s been said a lot of times, that experienced traders have «feel» for the market. But what this «feel» comes from?

    Professional traders – those highly committed to markets, spend much time near monitor. You may be surprised – «if you see setup, just trade it, why to stare at the charts»?

    They sit and stare because they want to have more edges than others (that’s why they are professionals). And there is level of information, that is absolutely subjective and useless for algotraders.
    I’m talking about such parameters of price action as «aggressiveness», «conviction» and tempo.
    Every time we are trying to analyze price action, we want to see people beyond candlesticks – one wise man has said – «discover what makes people tick, and you will understand what makes market tick»

    But before we talk about nuances of price action, let’s talk about 3 basic processes in the market: new money flow, liquidation and price discovery.


    1. Price discovery

    It happens usually, when most traders clearly see borders of some trading range. Not surprisingly, most traders will try to trade near extremes or support/resistance levels – to follow breakout or to fade it.
    But if price if located right in the center of the range, guess what? Participation will be pretty low there because trade location (for those going long or short) is also not very good there.

    Traders will step in the market near «hot spots», that are located near extremes.
    But remember, that the goal of the marketplace is to facilitate trading. The more volumes market has, the better job market markers do.

    Trade facilitation is important for institutional players, because they need liquidity for their business. Guess who provides liquidity? Yes, it’s you. And me also… and every retail trader on this planet.
    If you know, where the majority of traders will tend to trade, you automatically know where liquidity is.
    If price is located within clearly readable trading range, it may start slowly rise (or decline) prices, you will see low tempo of price action, sort of discovery process. Market offers higher prices and looks – is there any reaction from sellers? If it’s not, it can rise it again and again…

    auction.jpg

    That often is a job of market maker, but any trader in this case can act as a market maker.
    When price reaches «hot spot», aggressiveness and tempo of price action will significantly increase.

    What does it mean for you? If you see price discovery process, be aware – market doesn’t have destination here, it hunts for liquidity. Inventory is balanced in this case, and you may only know destination when inventory is imbalanced.


    2. Liquidation

    Too often traders are confused when they see rapid breakout to the downside after uptrend. They think that this is a sign of strong seller. But actually they don’t act this way – they bring some volumes to the market not at once, they accumulate. More often than not strong seller will sell high (he will be selling counterparty in raping movement to upside).
    During typical liquidation tempo and aggressiveness are high, and market goes very quickly from point A to point B.

    If you see this, be aware. After liquidations, market becomes more neutral, and often process that follows after liquidation is price discovery (unknown destination)

    liquidation.jpg


    3. New money flow

    Whey you see new money flow, it may look as price discovery, but with more aggressiveness and tempo. Market sort of probes higher prices, pulls back, then probes again and again, prices go up, and it ends up with rapid breakout.
    New money flow often occurs outside of trading ranges, important extremes e t.c.

    newmoneyflow.jpg

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    Price action basics part 6 is very interesting and suitable for learning good trade. I appreciate it and hope to continue such types of learning tools so that we all the newbie can be helped. I came to realize that we need to invest much time to learn forex market perfectly, if we are able to achieve it then we can earn more profit quickly from this trade.

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    I can not truly understand this, if the price action is not bout the market pattern recognition, then what is price action in its trading entirety? With what the value trader is trying to drive at, it is more of the whole trading balance, and it will also leads to the economy review of the market before you can do this, and i believe that this is getting outside the line of the price action itself.

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    Very important discovery there,from what I've understood from your post your suggesting trading in a range is riskier compared to trading on extreme highs and lows its a good point you made but in most instance such levels might be a late entrusted point,although such strategy would work well for counter trader.thanks for sharing.

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    Quote Originally Posted by uchexxx View Post
    Very important discovery there,from what I've understood from your post your suggesting trading in a range is riskier compared to trading on extreme highs and lows its a good point you made but in most instance such levels might be a late entrusted point,although such strategy would work well for counter trader.thanks for sharing.
    Yes when market moves in a particular range particularly on Friday,i mostly uses scalping strategy to make use of range bounded market and this gives me very good profit most of the times too..But when market breaks their range and moves in one direction then i first make market analysis and then try to open long term trading according to forex market condition..

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    Price discovery is really hard to understand i think you need to make it simple and in this you must use some simple words along with some practical thoughts. Many time it become really tough to get a concept which remain really a side from the proper learning. I read your thread many time but it's really tough to understand that where price discovery can help in decision making or it's just for the info to get. I think if you share more detail on this then we can get this concept.

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    price action appear on the chart from the volume of the market we can see the power of the direction and go with them in that direction but some time the market not move good or very reversing so we must not put any order put just watch to see the market maker direction

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    Nice post bro. I read your all the post that you posted before. I think its a good things to get some good amount of profit. Yeah i know that this thing don't work all the time. Extreme high and low point are risky too and trade in that time will put some risk on you. but suitable strategy can reduce it. Its kinda counter trading which ill give you some good profit if you can perform it properly. Thanks..

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  9. #9
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    Quote Originally Posted by kashifrehman View Post
    Price discovery is really hard to understand i think you need to make it simple and in this you must use some simple words along with some practical thoughts. Many time it become really tough to get a concept which remain really a side from the proper learning. I read your thread many time but it's really tough to understand that where price discovery can help in decision making or it's just for the info to get. I think if you share more detail on this then we can get this concept.
    you are obviously correct because i am sure a lot of traders, especially the novice trader needs very plain and simple concepsts of trading that they can easily understand. Price action is actually not so difficult to understand just try to read and understand it from another source and i believe that trading systems should be simple to use and understand.

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    Well mr value trader, after i read about new money flow, liquidation, and price discovery, they are seems like the same but i can feel there are big different between them. Unfortunately i can't understand thus big different and kindly please more explain it with simple way, sir. Thank you.

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