Price action basics. Part 8
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    Price action basics. Part 8

    Initiative, liquidation and responsive breaks

    Hi, fellow traders, let’s continue our studies in price action.
    Interpreting charts can be not very complicated, and I would say – good setups look pretty simple, but in most cases this simplicity requires astute eye and some practice.

    Many of you are familiar with concepts of «overbought» and «oversold» market. Conventionally, if price is going up and momentum is slowing down, we see signs of overbought market, and, the opposite – when price is going down and momentum is slowing down, we see oversold market.

    But is it fair for every market condition?

    Market is a huge pie, where interests of different traders from different timeframes are crossing over. The overbought/oversold situation above occurs only when market is dominated by short-term traders. But let’s first get familiar with concept of domination. What doest it mean, that market is dominated by short-term traders? It does not mean that nobody is there except short-term traders, it means that they are the driving force for the market.

    By the way, short-term trader does not necessarily mean lack of money on deposit. It only means that horizon of a trader is relatively small. In most cases, it’s short term traders who are responsible for initiative and liquidation breaks.

    If you we see movement that is going to be highly volatile and starting from inside of the trading range, it’s probably a «cascading effect» - something that is created by «fear of missing out» - many traders are chasing this movement and will lead to fast auction, raising prices higher and higher. In auction market theory it’s called "initiative break", it means that something is happening very quickly, with significant expansion in volatility, and maybe – volumes. But volumes can be not interpreted easily in this case. When volume is increasing (or decreasing) inside of the trading range, this information can be misleading, because there are too many types of traders participating inside of the trading range – from algos to scalpers, and increased volume can be a result of those guys’ overtrading

    What about "liquidation break"? This is the opposite to "initiative break". It occurs when traders who have been involved in the action (during initiative break) are closing their positions. Usually, volatility is also increasing, traders are scared due to some news announcement or they simply put their stops below similar levels again causing cascading effect. Really, there’s nothing new under the moon – traders often act like a herd, and they rarely try to find their own particular niche and instead do what is comfortable and conventional – say, buying on the moving market and selling on the falling market.

    Now, what if market makes quick break from outside of the range of the day? It is called «responsive break». More often than not, responsive breaks represent activity of other timeframe traders who are building their positions using high prices (of course, short positions). We should take into consideration that other timeframe traders are not too urgent – they don’t want to push price down here and now, they understand that market has opportunity to go down in medium term time perspective and they want to be in this movement, but they are interested to accumulate inventory before the rally, that’s why they are acting upon a good price, but not expecting to get good timing for their trades.

    So, responsive activity can be the sign of market that will at least hold near current prices for a while.

    priceactiontoday.jpg

    Why in the world do we need to know this? If you know market structure, if you know who is involved and what happened in the recent past, it would give you better understanding of possible opportunity (or it's absence)

    For example, if you've seen that market has liquidated, and before that it has auctioned higher with initiative break, you can make conclusion that short-term traders were in, now they are out. Market has become more neutral and nothing really happens - market needs more information to generate movenent to whatever side.

    Or if you see several responsive breaks to the downside, it can be possible indication of big player accumulating position. Does it mean that price will necessarily go in his favor? No, even big players are losing money, but if you see any setup confirming short position, your view may be supported by those attempts of responsive activity.

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    Quote Originally Posted by forex.people View Post
    To be truthful , a trader with a passion for a major failure . If that means being connected to the business , there is a possibility that you will be fearful of losing money . If you do not have a strong attachment to that forum money ( other people's money) , and it can not be good for you as a trader . So in my opinion it is comfortable for you to use your own money to be able to use the money in your trading exercise good trade forum
    hello mate ..., can you please explain what is the relationship of your opinion with the topic in this thread? I did not find a connection at all between Initiative, liquidation, responsive breaks with trade using other people's money. I mean what you say is different from the topic of the thread.

    by the way, thank you for the educators of this topic, I have to understand more about this, to be honest I was a little difficulty in understanding fully the difference between liquidation and responsive breaks.

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    I would like to know more about it because if responsive breaks are to upside after initiative breaks and immediate liquidation and price is range bound for a day or two and we saw responsive breaks to the upside then can we rely on momentum in such case and I would really appreciate your effort,if you can post any such setup with the help of a chart

    sincerest regards

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    Too much extensive explanation to be understood by normal and starter traders. Thus, there is need for the traders to always make sure that they should be able to gather good knowledge regarding the forex market such that they can be able to get the price action correctly and be able to speculate the possible market direction. This was regarding the price liquidation and breakout trading where as most of the time it would have referred to price levels.

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    Quote Originally Posted by Ashviniurs View Post
    Too much extensive explanation to be understood by normal and starter traders. Thus, there is need for the traders to always make sure that they should be able to gather good knowledge regarding the forex market such that they can be able to get the price action correctly and be able to speculate the possible market direction. This was regarding the price liquidation and breakout trading where as most of the time it would have referred to price levels.
    In simple terms what is meant by reponsive liquiation break and I can understand. Hopefully I'll help a little more starters traders can understand it. Responsive break as shown in the picture. Showed the presence of an aggressive movement of the price, and then denied it to go back to the previous price zone. While liquiation is the price of re-doing a balancing because as the trend of the range was too high.

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    well what you mentioned are indeed an important topics of how a trader shoulr function and keep himself updated with all news and event of the market so he can make an informed monitering of price action and movements and make good trading decisions.

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    My dear friends Price is one of the main things in the forex market if you want to succeed in the forex market should be committed to many things, including the follow-up of good news for the political, economic and also good training, and long enough at the expense of a trial and also predicted the effect of the news on prices.

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    For one to understand the price action basics it may take some time in the forex market and considerable experience in the forex market is always an added advantage for the traders to understand the price action in a much better manner. Thus, the traders should first know the critical price levels for the respective currency pairs which they are trading based upon which they can gather or make the price action analysis for effective trading.

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    Quote Originally Posted by eman66 View Post
    Important to rely on a certain way in trading even know how to determine the price and we know how to walk the direction of a particular currency and that by relying on the strategy for good circulation and rely on a good indicator, but also important to learn technical analysis and news service
    Indeed if one can learn regarding the price action analysis is very much good for the traders to be able to take up the best and highly potential trade such that the trader can be able to make money with confirmation and confidence. Hence, there is need for the traders to always be sure of the trade which they take by making right analysis of the forex market. Price action can be learnt with experience and keen observation of the forex market.

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    Price action is a great concept in this market. I tested a strategy for several months and it was really profitable. Just open your chart then place ZigZag signal and basing on highs and lows we open positions.
    For example : Buy Position : Price is coming from a Low ( basing on ZigZag ) and it breaks the last registered high.
    Sell position : The price is coming from a top ( basing on ZigZag ) and it breaks the last registered low

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