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  1. #1
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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?

    Attachment 3557

    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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  2. #701
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    Quote Originally Posted by MIGHTYRAMESH View Post
    Forex is a business and we should be in a position to do good analysis and management to earn here. To learn and get good knowledge of price action we should focus well on our learning and practicing. Demo account is very supportive for learning and also correcting the mistakes a person has while trading.
    You are right when trader does not have enough knowledge on analysis, he should do practice on demo. When trader is able to understand the market movement then he will be able to trade and benefit with trends. There are lots of trading tips that can be seen online that are very useful. Nothing is useless when good work is done.

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  3. #702
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    Quote Originally Posted by Bhave4U View Post
    You are right when trader does not have enough knowledge on analysis, he should do practice on demo. When trader is able to understand the market movement then he will be able to trade and benefit with trends. There are lots of trading tips that can be seen online that are very useful. Nothing is useless when good work is done.
    Yes no one is masters of market analysis from the beginning, everyone have to do their part of work with sincere endeavor. After opening a trading account whether he gets profits or loss depends on how he is able to perform. Forex is very risky business because if we are investing money and we start trading without knowledge and experience we can loss everything.

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  4. #703
    Trader layigold's Avatar
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    I have been following this teaching right from part one and by now I know what the big players desire in trading and I also know what interest the weak holders( I mean the retail trades like you and me).if care is not taken , you may think that the best way to trade is to follow the strong holder in trading and if you dare that , you will come out a loser since you do not have great buying power to accumulate positions at various levels as they do . The best thing is to trade in your own way, manage the risks and accept responsibility for your actions

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  5. #704
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    Quote Originally Posted by layigold View Post
    I have been following this teaching right from part one and by now I know what the big players desire in trading and I also know what interest the weak holders( I mean the retail trades like you and me).if care is not taken , you may think that the best way to trade is to follow the strong holder in trading and if you dare that , you will come out a loser since you do not have great buying power to accumulate positions at various levels as they do .
    Every one can understand his investing capacity and both big participants and smaller ones, like your and me, have a chance to succeed here, when we understand what we are trading. As a matter of fact, experience helps in understanding the market closely and puts us in a better position to trade trends, reversals or ranging markets. Trend is good for trading but the trader has to judge a good trend first through his analysis.

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  6. #705
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    Quote Originally Posted by Abhishekwala View Post
    Every one can understand his investing capacity and both big participants and smaller ones, like your and me, have a chance to succeed here, when we understand what we are trading. As a matter of fact, experience helps in understanding the market closely and puts us in a better position to trade trends, reversals or ranging markets. Trend is good for trading but the trader has to judge a good trend first through his analysis.
    Forex being so risky, basically I would like to suggest everyone to invest only the money they can afford to lose. Traders needs to be careful because any mistake regarding risk and money management will lead to a big loss. so the trader needs to take his time im analysis of the market before he takes any decisions and strictly follow the rules. .

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  7. #706
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    Quote Originally Posted by MIGHTYRAMESH View Post
    Forex being so risky, basically I would like to suggest everyone to invest only the money they can afford to lose. Traders needs to be careful because any mistake regarding risk and money management will lead to a big loss. so the trader needs to take his time im analysis of the market before he takes any decisions and strictly follow the rules. .
    That is good because when we have a strategy and invest what we can afford we can trade with more peace of mind. I think we should practice strategies which help us to benefit from a market trend. A demo account is the best way to practice trading and it help newbies to gather experience and also old trader can test there new trading strategies.

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  8. #707
    Trader layigold's Avatar
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    Having read a lot of threads on price action and market fundamentals from value trader (one of the most respected instructors in the forum) , I have been able to understand that liquidity is what the big players try to look for and that is why they would prefer not to take positions where most retail traders feel it is good to buy or sell. If you look at the chart below , you would see that the market has formed a very nice double bottom and most retail traders would be looking for an opportunity to go long :

    usdjpy.jpg
    At the point or price level where retail traders would like to buy this pair , the big players simply would not have enough liquidity to build a position from there. They usually have to accumulate in order to have sufficient liquidity and makes price grow.

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  9. #708
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    [lang=ar]the price action of the most important techniques for the trading and it is may be the most used all over the world actually it is very simple to use and always can be very effective for trying to make good trading at different situations for the trading . thus there can be good strategies which can be used as price action one of its vital factors[/lang]

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  10. #709
    Trader ara's Avatar
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    Quote Originally Posted by layigold View Post
    usdjpy.jpg
    At the point or price level where retail traders would like to buy this pair , the big players simply would not have enough liquidity to build a position from there. They usually have to accumulate in order to have sufficient liquidity and makes price grow.
    Though I don't know about what happens behind the scenes of the forex market especially with regard to big players, but it is quite reasonable to be called as a fact.

    From your image above, I see there is no valid signal for go long with those double bottom pattern, there is nothing candlestick pattern as the confirmation signal to go long.



    And usually double bottom trading is just for break out trading system. Just like W pattern



    But if we approach the way you do, then maybe the target point is in the top or high section.



    If I analyze your chart, I will have a difference in the analysis.
    There are 2 pattern here, head & shoulders, and triple top.
    The price has been break from the triple top pattern, so this is a valid signal to open sell (as a minor pattern)
    The price is now in the support level of triple top pattern, we just need to waiting a valid breakout to open sell again (as a major pattern)


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  11. #710
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    There is no surprising fact that a trader can expose to greater risks of trading. And again if you are trying to earn money from price action trading strategy then please try to bring highlight on all essential aspects. Otherwise working with forex can become hard with price actions. However, yes, trend analysis is also important: each trader must give focus on how to utilize trends in the decision making process.

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