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  1. #1
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    Price action basics. Part 1

    Hi, traders.

    In series of posts, I will try to uncover underlying reasons that drive the market.

    Trading the market, you want to see something beyond candlestick charts, and you want to see - guess what? You want to see people, traders with their interests, fears and desires. Like one wise man said, "discover what makes people tick, and you will know what makes market tick"



    1. Where are you trading?



    First of all, there is a significant difference between stock market and markets that trade with leverage. Forex is one on those markets (but not the only one - there are futures, options, OTC derivatives and so on).

    Nature of retail Forex market is that real currency rarely trades here. We trade obligations (for example, we take responsibility to buy some currency after the trade, and deposite some money fot that. If we are mistaken, we give some money to the market, if we are right - we take some money from the market).

    Numerous obligations (traders from retail traders) meet together and form a huge whole position, that liquidity provider must cover using other liquidity provider. That's how it works.


    ! The process of exchanging obligations is somewhat different from exchanging real goods.


    Imagine you're trading a stock. Quantity of stocks is limited, and to go short you must borrow some stocks from its' owner. If you want to close your long position, you expect somebody to sell it (real stock). And that's why we have "short interest" on the stock market, it usually doesn't exceed 5% of the whole volume.

    Attachment 766

    Things are different on Forex and futures. You can sell almost unlimited number of contracts, so you don't need to borrow something from somebody. That circumstance makes analysis of supply and demand on Forex pretty different than on stock market.

    We can see big supply, but suddenly market reverses and all those short sellers start covering. Why? Because they need to do it - they have small pockets and should exit quickly otherwise they can blow up their accounts.

    The same is with long positions - there are lots of weak holders, that have very close "pain point" - they go long, place very close stop and if they have no defense from "strong holders", market will probaly go after their stops, because there is always strong counterparty that can hold the level and prevent price from further rising (remember - they can place as many "sell limit" orders as they want)

    Attachment 767



    ! Trading on Forex market is really the Art of analysing underlying inventory.



    To start successfully find good trades, we should answer these questions from small check-list:



    1. Who is responsible for price action? Strong holders or weak holders? (price will go in the favor of strong holder)

    2. Is market oversold or overbought on the way up? (in the first case we have weak short sellers, in the second - weak long bueyrs)

    3. Is market oversold or overbought on the way down? (in the first case we have weak short sellers, in the second - weak long buyers)



    Remember, there are not only situations when we have "win-lose" situation and "strong-weak" market configuration, we can also have "strong-strong" market configuration, when market is careless about retail traders and their positions (this is when we have elongated trends).

    As a trader, you should know how to read inventory and to play on the strong side.


    to be continued....

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    Last edited by Value trader; 08-10-2013 at 11:12 AM.

  2. #511
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    Quote Originally Posted by PROPENSITY100 View Post
    There are always many things for traders to learn in Forex. Even if after blowing the account a trader can realize his mistakes and make efforts to correct them, then he can learn the skills and strengthen his knowledge and proceed to recover his losses. But many traders do not leaven even after blowing their accounts.
    thank you very much for feedback
    it is good for them who evaluate everything from what they have done and accepted, then will make them know the weakness and how to find the solution and solve the problem, then they can do a better thing in the future
    so i guess there is no reason to leave it after blew up the accounts, because there are many chances for us as long as want to open mind for it

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  3. #512
    Registered user erespe's Avatar
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    Quote Originally Posted by ANANDCHENNAI View Post
    Forex greatly tests our skills and knowledge. We need to be psychologically tuned or perfect before going into forex trading. We should know about the risk that is involved in trading and set our minds to accepting whatever is coming our out of the market, whether it is profit or loss.
    Recognizing the risks is the most important to undergo forex. Because to understand the risks, the trader will always manage trading using good money management, thus carelessness to trade using large lot size without consideration, can be avoided.

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    “Not everything that can be counted counts, and not everything that counts can be counted.”
    ― Albert Einstein

  4. #513
    Trader lawners1791's Avatar
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    as to watch of the good monitoring with the market, good trader should defines of the best with the decision on referring with the further extents on strategy as to submits of the proper on number with the good risks to wait of more with the rest on compounded strength with the running evaluation to survives on securing of position on completing finale with the target on occupation.

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  5. #514
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    Quote Originally Posted by erespe View Post
    Recognizing the risks is the most important to undergo forex. Because to understand the risks, the trader will always manage trading using good money management, thus carelessness to trade using large lot size without consideration, can be avoided.
    Using big lots to trade by taking higher risk is not a wise decision by a trader, if he does it, but if he knows about the risk and he is doing it delebrately then what can we say, it is just like gambling, whether the market will fill the pocket or empty it, depends upon the luck. Using money management can control the risk factor.

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  6. #515
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    Well Mr. Value trader you have explained very well actually I was totally unaware from price action as i had no even a basic knowledge of price action after reading your explained thread about price action I get some idea what is actually price action thank you again for let me know. I will try to apply it.

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  7. #516
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    Value trader sir always give his best in all threads, yes sir I think you can use this system for your trading but first of all try to spend time in your demo trading account with price action learning its not a easy system at all. As a new trader even you can use other simple and easy trading methods also in your trading but its your own choice at all

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  8. #517
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    your post is very good and reliable for us. i think some other difference between forex market and stock market or share market. forex market has leverage which is operate by the brokers. it is the fee of brokers. besides this we can trade in forex market both of buy and sell position. but we can do it in other trades as: stock or share market. there we can trade only by one way.

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  9. #518
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    Yeah, technical analysis is actually what when i do As soon as when i follow price action.

    But earlier we decide to follow it, my partner and i need to learn OUR destination IN ADDITION TO reason beyond MY entry.
    Things i are generally talking here are generally the bit added complicated when compared with conventional trading throughout most the person MACD but It's going to reward a person over time frame if you put enough effort to figure This out.

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  10. #519
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    As a trader, you should know how to read inventory and to play on the strong side
    well, this words trigger me to learn deeply, imagine if a trader know how some situation properly, so they can take so many advantages from the market and even maximize themselves, and simple price action will lead them to reach the goals

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  11. #520
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    I remember the moment when the news comes out. Forex market price usually make a spike, it can be spike up or spike down. I have figured out forex price more hard to follow when the price make a spike and the more volatile. The real direction of the maket always follow the conclusion from all news, and fundamental read by the trader. The market direction after news depend on the way how the big player conclude after reading news or press release.

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