Does price reflect everything?
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  1. #1
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    Does price reflect everything?

    Hi traders! Everbody knows one of basic principles of technical analysis – price reflects everything. Let’s think about it for a while. Many traders are caught in the price action and ask – «what in the world does it (price) reflect?».

    If fact, market needs some time to reflect demand and supply in the price action.

    Look at the chart below:

    weekly.png

    This is a weekly chart and you see that price action here really reflects activity of all major players who are interested in this market. This is big timeframe and takes 1 week to complete this figure. Strong side of the market (smart money, market movers) is automatically visible after bar (candlestick) is closed. If buyers were dominating the market, we see rising bar (candlestick), if sellers were dominating – we see declining bar (candlestick) e t.c. In this particular situation, we see that buyers were in control

    What if we switch to 1-hour chart?

    hourly.png

    We immediately register much more ambiguity, volatility and uncertainty. Price goes back and forth. No one would say with confidence who is in control here.

    So, we come to conclusion that, yes, price reflects everything but it needs some time to do that. On small timeframes price becomes advertising mechanism that fluctuates from high to low prices to attract buyers and sellers for whatever reasons.
    What does it mean that price is an “advertising mechanism»? It simply means that goal of the marketplace – to bring together buyers and sellers, to facilitate trading.

    Market works as an auctioneer. Imagine some auctioneer that tries to sell something to the public. What will he do? He will claim starting price and if no one is interested, he will claim lower price until any buyer is interested. That’s how market operates, nothing new about this.

    If you want to purchase something, will you blindly buy something just for the reason that it is advertised? No, you will not do that. You want to know fair price, in other words, you want to know not only price but also value. You don’t want to buy something overpriced. That’s a main difficulty of technical analysis. It’s been said that price reflects everything, but we see it only in retrospective. In real time we see semi-stochastic process of price action going back and forth.

    Find where the value is

    To avoid being trapped by the price, traders needs to know where the value is. In a nutshell, value is a area of acceptance, area where all timeframes are comfortably trading with each other.

    To find value, you should pay some attention to parameter of time. The more time price spends near certain price level, the more accepted this level is. For example, on a sample below we see that market was holding certain high prices within some period of time, and when price tries to get away from this level, market rejects is:

    example1.png

    However, time also is a double-edged sword. Too much time time spent near price level means that market is preparing for big move (thus, is not going to stay near this level):

    goaway.png

    Sometimes it’s hard to identify value. It’s not easy process and sometimes market will rotate waiting for more information.


    Market profile

    The most convenient tool that allows us to see how value migrates, is market profile. It is a tool that organizes data using distribution as a core principle. It shows – how much time price was touching every level within a trading day and builds «value area». Value area is an area that combines 70% of data within one blue rectangle. This is an area of acceptance. When price emerges from this area, it will most likely revisit this area again. But there are times when market builds new value higher of lower without revisiting former value areas. We call it a trend:

    markerprofile.png

    To know more about analysis with market profile, you can attend my webinar on this topic tomorrow.

    Know more

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    Last edited by Value trader; 04-29-2014 at 10:08 PM.

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    It is what I have noticed long time ago, the price of the market is the one that is keeping the market, it will go up and turns down, but this is never a things to trade with. If the market looks to the upside in real chart price`s ticks, it may be that the real trend is still resting before a vital movement will take shape.

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    yes it reflects.infact the market is live for the movement of price.this business depends on the price movements.the profit and loss is fully depended by the price of his buying and selling.open a trader opens a trade that time the condition of the trade and the balance will be depended on the market price of his trading lot.

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    i think price reflect by the supply and demand of the currency.if the currency demand increase and supply decrease then the price of that currency will be increase and by buying that currency we may make few profit so before opening any trade we should collect economic data.

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    Quote Originally Posted by sohel74 View Post
    i think price reflect by the supply and demand of the currency.if the currency demand increase and supply decrease then the price of that currency will be increase and by buying that currency we may make few profit so before opening any trade we should collect economic data.
    Yes I am agree with you because price movement depend on economical data and trade so you will see maximum time after news punishment the market move very quickly and the market trend change from provisos trend so it is really very important for every one who want to trade successfully. but normally there is not more fluctuation for trade.

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    Quote Originally Posted by mohabbat View Post
    Yes I am agree with you because price movement depend on economical data and trade so you will see maximum time after news punishment the market move very quickly and the market trend change from provisos trend so it is really very important for every one who want to trade successfully. but normally there is not more fluctuation for trade.
    the price will always reflect how the market so with so we as traders must strive in this trade to get a better trade with analysis and we as traders must learn to continue to trade with understanding and developing better analysis if you can not do the analysis well in this trade then you will not be able to understand the reflection of the market price and will often times will make you much worse understand market conditions

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    I am completely newbie and I have no such moral courage to put my comments on it rather than taking lesson from this learning tools. Through this thread I came to learn a new lesson which will increase my knowledge level higher. Expect such types of learning education on a continuous basis so that we all the newbies can be of helped.

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    But what about if price breaks yearly extremes and daily and weekly extremes and immediate liquidate and revisit the area again with low tempo. What we should look to point out in such conditions, should we wait for higher prices to hold and trade location or we need to wait for passive seller's behavior.

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    Quote Originally Posted by sohel74 View Post
    i think price reflect by the supply and demand of the currency.if the currency demand increase and supply decrease then the price of that currency will be increase and by buying that currency we may make few profit so before opening any trade we should collect economic data.
    Well brother. I think any bank or country can not control this price because it is fully dependable on international economy that means this price move only for economical data and maximum bank and money organization trade on this market after news publish so this is the main secret of FX market but maximum trader have no idea about theses.

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    Don't loss you hope.

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    Then it is possible to know which higher price we should trust specially when it is new high and price lean near those areas most of the daily activity and breaks down with gap the next week , thus those area really reflects price and went with those value is advised here in this post.

    regards

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