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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. #1721
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    The market price moves each and every time there is the news movement and all that. But then again, the trader that wants to become profitable in the business should know that they can't rely on the news alone when trading. Which means that the trader should have the technical method, use some good indicators in trading and then follow the right time frame to make the right decisions.

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  3. #1722
    Registered user layigold's Avatar
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    In forex trading , there is nothing that reveals every thing to a trader and that is why the entire trading process runs on the platform of probability but nonetheless , price is something that no trader can ever neglect in forex trading because it reveals a lot of thing about the market. Price , they say is the king of the market and the direction it goes is determined by the forces between the demand and supply. If you want to know who is winning the battles between the bulls and the bears , all you have to consider is the price action and the chart.

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  4. #1723
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    Price reflects so much things, but the question now should be if the traders handling their trades and making analysis can make the actual good analysis to help them see the right movement of price. This is what most of us don't know about the market. Price will show us the candlestick the support and resistance and all that, then in return we need to make analysis and then from our knowledge know what is to be done.

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    Registered user Silhouette's Avatar
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    Quote Originally Posted by Makaveli View Post
    Price reflects so much things, but the question now should be if the traders handling their trades and making analysis can make the actual good analysis to help them see the right movement of price. This is what most of us don't know about the market. Price will show us the candlestick the support and resistance and all that, then in return we need to make analysis and then from our knowledge know what is to be done.
    Market price is the reflection from many big traders and with a combination from huge amount of transactions made per minutes, hours, and a day from traders all over the world who's trading the same currencies. Huge requests of transaction will be showed on specific patterns in market which we can see how price is going on whether it's bearish or bullish.

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  6. #1725
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    Quote Originally Posted by Silhouette View Post
    Market price is the reflection from many big traders and with a combination from huge amount of transactions made per minutes, hours, and a day from traders all over the world who's trading the same currencies. Huge requests of transaction will be showed on specific patterns in market which we can see how price is going on whether it's bearish or bullish.
    In simple terms market price is the result of the transactions that are conducted by retail traders and big players like banks and institutions. Trading is more about smartness, like a trader must be able to use what he learned to understand the underlying sentiments that drives the prices. Price reflect a lot but not everything. With the help of what is reflected already in the price we need to anticipate what remains to be reflected.

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    Registered user mexima's Avatar
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    well price is just move according to the chart pattern but candlestick chart show the up coming movement it just not depend on only support and resistance as you mentioned in the attachment market made the doji candle which was the sign that price will move in opposite direction similarly price move according to the candlestick pattern.

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    Quote Originally Posted by mexima View Post
    well price is just move according to the chart pattern but candlestick chart show the up coming movement it just not depend on only support and resistance as you mentioned in the attachment market made the doji candle which was the sign that price will move in opposite direction similarly price move according to the candlestick pattern.
    candle pattern is nothing in trade according to my opinion because when we use candle pattern it not shows us clearly all things, market can not move on patterns, in fact a market can work on economy so it required our knowledge about economy or technical is also good where we use indicators we have reasons of tools but not in candle pattern, it can work on short time frame but don't go for long with this knowledge and way

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  9. #1728
    Registered user mexima's Avatar
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    Quote Originally Posted by fxaddictor View Post
    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
    gap down or up on the next week mostly open when there will be important news or data on the weekend because market will be close and these will be impact on market which will come after the market opening how ever that gap is very important because that always decide the news and next trend of the market.

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  10. #1729
    Registered user cutiekc's Avatar
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    As price moves in the chart, we can get to identify with what we see, depending on what we have as our trading strategy. Furthermore, we ought to know that because we are all different, so therefore we possibly will have different views on the chart and will possible have different analysis been made, so therefore, we have to stick to what we know and try as much as we can not to complicate things.

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  11. #1730
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    Quote Originally Posted by Makaveli View Post
    Price reflects so much things, but the question now should be if the traders handling their trades and making analysis can make the actual good analysis to help them see the right movement of price. This is what most of us don't know about the market. Price will show us the candlestick the support and resistance and all that, then in return we need to make analysis and then from our knowledge know what is to be done.
    analysis on not just based on some pattern like support and resistance . the professional analysis is mixture of technical and fundamental analysis where you saw every situation where market will give you profit and where market will give you loss more over how you get profit and exit in the market and if you get the loss how will you recover it and exit from the trade with lowest loss..

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