Price action basics part 2
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    Price action basics part 2

    This is continuation of series of post. Read beginning here

    Strong holders vs weak holders


    Ok, now if we have distinguished weak holders from strong holders.

    And what we really have to do - we want to know, at least to assume what professional players are doing. By professional players I mean dealers or institutions that have to consistently deal with big volumes and give their clients at least average good fills.


    Institutional activity


    When we are talking about institutional activity, we are talking about strong holders.
    That guys have almost unlimited buying power at their disposal, but it doesn't mean that they want take money from you, they usually have large order from their clients. It not always means that they want to purchase from weak holder, squeeze them and hunt for their stops.

    They just want to accumulate position not sqeeezing price against themselves.


    First of all, if you look at this chart, how do think, where (on what prices) institutional player was buying (if he was buying at all here)?

    asdasdasd.jpg

    Expected answer is that they were buying at lower level.

    But think about their volumes. They are big enough, and they simply would not have enough liquidity to build a position there. They usually have to accumulate - to buy several times, to absorb somebody's sell orders. Otherwize they will not have enough liquidity and make prices grow immediately

    So, their buying will be distributed within whole trading range:

    123qwe.jpg

    And the first clue of institutional activity is acummulation on moving market (rising or falling market).

    They don't have enough order flow going down to absorb, so they have to squeeze prices a bit, but nevertheless they have good average price, not the worst of the period.

    It's a wave-like process. It ends with a breakout

    range_smarts.jpg

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    Last edited by Value trader; 11-14-2013 at 07:54 PM. Reason: any

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    Reading price action, it's important for us to estimate - is this action a result of institutional activity or result of any other activity?

    First of all, let's break some popular myths.


    Myth:

    1. Rapid move is a sign of big money buyer or seller.


    bigmoneyseller.jpg


    Of course, in some cases, after news announcements or forced by circumstances, institutional buyers or sellers can enter the market this way,

    But it would be a messy trade and their clients would not appreciate it. Yes, sometimes they are forced, sometimes they have no choice, but more often than not, they don't do it.

    They need to build a position before.


    So, if we see a rapid move, what is it?

    It is emotional reaction of the market - it is a sign of crowd. Traders are acting in sync with each other and create a crowd.

    More often, rapid move is a result either a short-coverage (move up) or long liquidation (move down)


    WILL price action continue after rapid movement?


    Actually, nobody knows that. It will depend on various factors and I would not bet money on it.

    Traders in whole are driven by linear logics.

    For example: "we see something volatile, it's a sign of big guys going to one direction". It doesnt' work that way. Big guys try to be ahead of the crowd.

    But IF there is a continuation of a rapid move AND series of new highs/lows, than probably it can be a sign of a single big player.

    Why? Because market continues building in the favor of previous breakout, it often happens when sellers are too weak and can't create enough pressure to drive prices back to previous range

    Look at this chart:

    You can fade the liquidation break in this case

    liqui.jpg

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    Last edited by Value trader; 08-15-2013 at 10:31 PM.

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    Let's move on.

    So, you know already that big guys rarely come to the market and buy all they want. They need to build their positions, sometimes in sideways market, sometimes on moving market.

    It's called accumulation. The opposite process (when they cover their positions) is called distribution.
    That's how market mechanics works.

    For example, if big buyer participates the market:

    Big player accumulates positions, market is temporarily oversold on weak side, it breaks out from the range of accumulation, then rapidly pulls back, levels below are protected, market is bought out and highs are retested.

    If later on we see market "leaning" on higher prices, it's a sign of possible imbalance - buyer is in control and if seller will not step in, market will continunue renewing highs.

    Then you may see pullback again and if market "drills" lower prices, imbalance is possibly dissappeared - your opportunity no longer exists:

    robo_sd.jpg


    In this situation, opportunuity disappeared pretty quickly.

    But accumulation can be more elongated.

    Look at this chart - you see that market accumulates for several days before breakout occured:


    example.jpg

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    Last edited by Value trader; 08-28-2013 at 11:13 AM.

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    Rookie mohamed reda's Avatar
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    trading with the price action will be the best way to trade Forex in my opinion because it is so simple and so effective and also you will make good profits by training with the price action so it is the best to trade Forex in my opinion .and also if you are a beginner trader you must learn the basics of the price action to be able to make profits easily .

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    Price action is one of the best way to make money with technical analysis because their method is based on the historical market movement. I recognize if market sometime repeating same movement pattern while going up and going down so we can use price action method if we already recognize the pattern from the beginning.

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    Thanks , MR. Value trader!
    You are doing a great job . This will surely help not just newbies but experienced traders too.
    Surely as you mentioned, they need to do money management to buy and sell so many tips for choosing dips.

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    Rookie rinaji's Avatar
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    Quote Originally Posted by thenight View Post
    Price action is one of the best way to make money with technical analysis because their method is based on the historical market movement. I recognize if market sometime repeating same movement pattern while going up and going down so we can use price action method if we already recognize the pattern from the beginning.
    I think technical analysis in general is work based on historical data, we can make decisions based on market behavior in the past, so it means there are conditions where the market does not move as usual. We're just looking for the best in the probability ratio. That's the basic concept of technical analysis, not just the price action, but all the technical strategy, including technical indicators.

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    Quote Originally Posted by rinaji View Post
    I think technical analysis in general is work based on historical data, we can make decisions based on market behavior in the past, so it means there are conditions where the market does not move as usual. We're just looking for the best in the probability ratio. That's the basic concept of technical analysis, not just the price action, but all the technical strategy, including technical indicators.
    I would say, research of price action in the past is curious but more important is to rely on fundamental principles.

    What do I mean by that?

    If you know that big market participant will need to accumulate his position, you anticipate - where they were probably accumulated it? Then you automatically expect some levels to be protected, some to be rejected.

    Markets may change - they may become more liquid, breakouts can become less reliable over time, buy principles are the same.

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  9. #9
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    Price action is one of the best trading strategy in naked trading systems and really have good risk reward if we follow this strategy with right rules risk and mony management only this strategy is enough for day trading and to get good risk reward of our tradings.

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  10. #10
    Registered user kamrul's Avatar
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    It is based on technical analysis of historical market price action is the best way to make money is one. And we know that if we start the process from the model can be used to go down to the market, once again, the same pattern of movement it I am accepted.

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