Price action basic. Part 7
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    Price action basic. Part 7

    Liquidity – what trader needs to know?

    Hi everybody! Let’s continue our study in price action and market logic.

    How do you think, what is the main goal of the marketplace? Some would say – market brings together supply and demand, and that would be right answer, but it would be too abstract.

    The goal of the marketplace is not just to gather buyers and sellers and give them opportunity to trade, but to facilitate trading. What does it mean – to facilitate? It means that big market participants that mostly benefit from liquidity, will be interested in active trading from all types of traders. The more traders are involved, the better execution large speculator or commercial trader will have.

    Exchanges, for example, hire special companies, that are called «market makers» and pay them salary for keeping two-sided quotes – therefore every investor will be sure that he will be able to get a fill for his position. But even though, two-sided liquidity providers are unable to keep market in a balanced state when there is some aggressiveness in the market and liquidity is not very high.

    Trends often occur when there are not enough traders involved and market has to advertise more and more to attract liquidity. So, big market participants are often not interested in trends, they would rather prefer balanced state of market to have opportunity to slowly accumulate their positions. It’s tough job – to accumulate position on the rising market.

    But we as traders are interested in trends, aren’t we? Of course, idea of a trend is different for daytrader and for position trader. Let’s now talk about short-term perspective.

    See the picture below – how do you think, where liquidity can come to the market, in point A, B or C?

    robo_posts.png

    Obviously, points A and B are extremes of the bracket, and there are always traders that will try to fade extremes, as well as traders that will try to play breakouts.
    In point «C» there are not too many traders involved – they don’t know how to calculate the risk and where to place their stops, that’s why I can call this area «no mans’ land» and areas at the extremes «hot spots of liquidity»

    If market is trading without significant support from other timeframes, it will tend to go from one extreme to another, yet it’s tough to calculate risk at the extremes, because you don’t know who will win in short-term time perspective – buyers and sellers, buyers can create a breakout, collect stops of sellers, then market will go lower, or sellers can drive the market down and buyers will liquidate. So, when the crowd is there, don’t expect that price action will be predictable and smooth.

    In my own trading, if I see that market conditions are balanced, I rather try to work near «no man’s lands» in the direction to «hot spots» where I cover my positions. Key here is aggressiveness – if market is aggressive and volatile and liquidity is not enough, it will tend to reach extremes – market needs liquidity, after all it is an auction which goal is to facilitate trading. Liquidity is located near hot spots – I exit there, I don’t know who will win and I even don’t want to predict it.

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    This is an wise thread. I gained much knowledge through this thread. I like this forum for the reason that I can get much more fruitful topics to learn forex properly through this forum. I would like to express my heartiest thanks to the thread creator for taking much time to teach the newbies like me.
    I have no alternative to blame me for my failure if I failed to learn from this forum.

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    Quote Originally Posted by Jamuna View Post
    This is an wise thread. I gained much knowledge through this thread. I like this forum for the reason that I can get much more fruitful topics to learn forex properly through this forum. I would like to express my heartiest thanks to the thread creator for taking much time to teach the newbies like me.
    I have no alternative to blame me for my failure if I failed to learn from this forum.
    Why you have to blame someone? I don't think that blame has any resource - every trader moves in his/her own tempo and we all have different perception mechanisms.
    If you feel confusing about any topics, feel free to ask questions and initiate discussion - it will be useful for all trading community

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    But it could be accumulation phase and Market might be buying at lower levels and So we have two areas of demand area and two area of supply and market players might be looking buy at low levels and even If you buy at C then the stops could be few pips below the A and it would be interesting to see the chart if market buy again and A and If liquidity increase then I will buy with the close of that candle some more and would like to see price shoot through level A and It would a very good help for us if you can show some charts with particular supply and demand area with accumulation phase

    regards

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    if i take a look at the picture, maybe is this still about support resistance ? and then we can make it as entry point and also exit point ? well now, the problem for me is how to indicate the breakout position when it got the saturation ? then we can put the position at the top of range or we do not need to wait for it because so hard to get them? because if we pay attention for point A as the top, it is very good to know it
    thank you very much

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    If i have to described that in technical term then it is a breakout pullback if price go through point A the top of top bear flag and if price come back and test point c to absorb supply then it will be breakout failure and it will possibly buy on down move to liquidate and absorb supply and then if go through after that rotation point broken then i will buy and then after trapping price hardly stop and failed failures are best of the setups have success rate of 60%

    my thoughts are clearly changed after seeing the way professional trade the price action and i am testing it on demo


    regards

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    Quote Originally Posted by newentry View Post
    if i take a look at the picture, maybe is this still about support resistance ? and then we can make it as entry point and also exit point ? well now, the problem for me is how to indicate the breakout position when it got the saturation ? then we can put the position at the top of range or we do not need to wait for it because so hard to get them? because if we pay attention for point A as the top, it is very good to know it
    thank you very much
    It's possible to use support and resistance point as another consideration but it's price action strategy so it's not only using support and resistance. You can read it as head and shoulder pattern or double bottom double top pattern as confirmation for trending or reversal movement.

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    Why do you need someone to blame, yes, the price of the basic tasks? His / her own business moves towards the finale and we all have different mechanisms of perception - I do not think there is any resource.

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    Why does one would like somebody guilty, yes, the value of the fundamental tasks? His / her own business moves towards the finale and that we all have completely different mechanisms of perception - I don't assume there's any resource.

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    Learning about price action strategy will be better if it could be combined with trendline and support and resistance point. Price action can give good accuracy in signal but the signal could be wrong if the price has reached on support or resistance point which usually price would be overbought or oversold. Using some time frames can help to make sure the pattern.

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