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Thread: Does price reflect everything?

  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:

    Attachment 10298

    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?

    Attachment 10299

    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:

    Attachment 10300

    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):

    Attachment 10301

    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:

    Attachment 10302

    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.

  2. #1711
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    Quote Originally Posted by cutiekc View Post
    It all just depends on how much experience you have gone through, then you should be able to know what the price is doing and then the movement of the market and the decisions to be made, that is how we can get to have a better means of trading. The price in the market moves and then only the skilled trader will know what decisions they should make and they shouldn't.
    market price remains unknown and not really visible to see. all we can do to take price in market as our trading reference is to look at our strategy. analyzing market will become more possible to do and sensible in a good way rather than guessing where market will go. price may give us wrong ideas sometimes and we can't expect to get profits all the time.

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  3. #1712
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    Quote Originally Posted by Sascha View Post
    market price remains unknown and not really visible to see. all we can do to take price in market as our trading reference is to look at our strategy. analyzing market will become more possible to do and sensible in a good way rather than guessing where market will go. price may give us wrong ideas sometimes and we can't expect to get profits all the time.
    Yes we can take the current market price as a reference to find the possible value in it through our analysis and that is how we trade. Technical analysis assumes that prices reflect everything, but then we can see some irrational moves in the market that could be due to fundamental factors. Though money can be made by other ways, following the market with the help of price action is perhaps the best possible means of earning.

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  4. #1713
    Rookie Lyon's Avatar
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    Price will surely show a whole lot of things, you just have to be able to have a good concept regarding the way you should trade the market, that is how you could get to know what decisions to be made and then the right thing to be done. I don't use the news, what I use in trading is the trend trading and price often at times has given me good signals to trade on.

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    Rookie ola4real's Avatar
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    Quote Originally Posted by Sascha View Post
    market price remains unknown and not really visible to see. all we can do to take price in market as our trading reference is to look at our strategy. analyzing market will become more possible to do and sensible in a good way rather than guessing where market will go. price may give us wrong ideas sometimes and we can't expect to get profits all the time.
    Yes, the forex price is not what we can know where it will go in the next possible seconds or farther time, we only have to make our analysis based on assumptions on what we have with the principles of trading of forex strategies and the patterns in whom we see on the forex charts. It is going to be a good thing for traders to make the analysis of where the price will go on the higher time frames, that is how the trend of the forex market can be seen.

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  6. #1715
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    Quote Originally Posted by ola4real View Post
    Yes, the forex price is not what we can know where it will go in the next possible seconds or farther time, we only have to make our analysis based on assumptions on what we have with the principles of trading of forex strategies and the patterns in whom we see on the forex charts. It is going to be a good thing for traders to make the analysis of where the price will go on the higher time frames, that is how the trend of the forex market can be seen.
    We cannot know exactly the next prices but we can study thing like market trends or breakout with a certain degree of accuracy. Things might never be very simple but with discipline you can avoid doing many wrongs like scalping and trade without stress. Discipline is needed in order to trade only the strong set ups and also needed to follow risk management.

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  7. #1716
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    According to shapes of the candlesticks we can make good points to trade with and follow many strategies to do . also by having goof manner for the trading there is confirmation points.to assure the entry point , thus by making effective strategy which can depend on the price limits , I think price levels can be very alarming to direct the trades to the right position,

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  8. #1717
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    Price will reflect a lot a make traders know about the reaction, then it is left for the trader to do the right thing after which price must have reacted and depending on how good the trader is with analysis, then they can get to know the right decision to be made, obviously, we all need to really learn and understand the market in dept.

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  9. #1718
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    Quote Originally Posted by Abu George View Post
    According to shapes of the candlesticks we can make good points to trade with and follow many strategies to do . also by having goof manner for the trading there is confirmation points.to assure the entry point , thus by making effective strategy which can depend on the price limits , I think price levels can be very alarming to direct the trades to the right position,
    You are right about that, the shape of the candles and the patterns will give a good clue, all it takes is for the trader to be able to have made good analysis, then they can take on good trades and trade profitably. A lot has to be learned, the trader have to be patient before they can succeed the business. The market reflects all movement, but then again, will the trader be disciplined enough to make a good analysis?

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  10. #1719
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    As a price action trader, I get to look at the chart to make decisions on the way I will trade the market. The price reflects a lot of things for us, we should be able to know the things we are looking for on the chart, we should be able to make good analysis and then understand that the best way to being profitable is to understand the technical trading then we can apply support and resistance to trade profitably.

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  11. #1720
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    Quote Originally Posted by Brain View Post
    As a price action trader, I get to look at the chart to make decisions on the way I will trade the market. The price reflects a lot of things for us, we should be able to know the things we are looking for on the chart, we should be able to make good analysis and then understand that the best way to being profitable is to understand the technical trading then we can apply support and resistance to trade profitably.
    Understanding what the price reflect and what the price ticks on our charts reflects is what we use to make the market analysis and based on that take our decisions. We might be looking at different kinds of chart patterns along with indicators to find bullishness or bearishness in the market. We find different approaches which can help us find good value to trade and this value can be expected appreciation or depreciation in prices.

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