Understanding the market. Part 1 - Page 2
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    Understanding the market. Part 1

    Hi everyone!

    Is it possible to understand the market? People have been thinking about it since market has appeared. Just remember Japanese candlesticks, they were applied in early 1800-s in Japan. Later on, attempt to formalize market movements was made by Charles Dow, which has become popular for “technical analysis”. It’s interesting that Louis Bachelier in his “Theory of speculation” had developed absolutely opposite views on the market - he claimed that nature of the market is close to random.

    In 20-s of 20 century, market has accumulated enough history for making conclusions about effectiveness of different theories. It has become clear that “moving with the market line” can’t beat the market, and average investor has to apply something more complicated and smart.

    Richard Wykoff, who also was journalist and trader, has developed technical analysis into VSA (Volume spread analysis) method. Later, in 1934, Benjamin Graham had claimed principles of “value investing”.

    Later on, models for understanding the market were developing, along with new nuances and details. There’s no “right” or “wrong” model, everything depends on current market conditions. But, we can say, that all approaches for understanding the market, can be put in 4 groups:

    1. Market action discounts everything;
    2. “Smart money” vs “Public”;
    3. Random walk hypothesis;
    4. Harmonic analysis.


    First refers to technical analysis in all it’s forms, second is closer to VSA and "auction market theory", third one refers to statistical distributions and probability theory, fourth involves application of Fibonacci retracements/extensions, Gann or Elliot principles.


    Market action discounts everything:

    When we talk about technical analysis, we remember it’s first and basic rule - “Market action discounts everything”. If we take larger timeframes - Weekly or daily chart, it would be good to use conventional technical analysis on them, because relative percentage of market “noise” is low there. Comparing price action on “W1” with that on “H1”, we will find that on “W1” quantity of conflicting information is relatively lesser.
    That’s why professional traders who employ “Head and shouders”, “Flags” or “Pennants” work on larger timeframes. They compensate low quantity of trading signals occuring on their timeframes by analysis more markets and more trading instruments.


    “Smart Money” vs “Publiс”

    When we switch to intraday charts, we will find that there’s a lot of “price probes”, “tests”, “false breakouts” and other irrelevant price movements. So, intraday, or even swing trader (who works on trends of 1-3 days of duration) has to filter information.
    Professional traders, who are working on small timeframes, often analyse 3 parameters - price, time and volume. They combine it together and get the idea of value. Distinction between price and value is the most difficult and important task for intraday trader.

    The goal of this process is to capture activity of “other timeframe trader” (OTF) from intraday chart. If we trade within a day, yet can’t understand big picture, we can easily be caught up in false price moves.

    To be continued...

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    Last edited by Value trader; 03-20-2015 at 11:32 AM.

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    Quote Originally Posted by hosny55 View Post
    I think that it is very important to many of us to understand the market with a very smart way . the market may be so difficult and may try to trick us all the time for our loss is it s profit . so we may think if this issue by using many tools an d combine them together in order to make a new style for the trading
    It is high risk trading that makes Forex complicated and more difficult and so I do not think it is reasonable in any sense to take high risk. Forex on its own is a very risky market, we as traders should reduce our risk level and not keep increasing the risk. If we want to think of that high profit, we should be aware of the great loss bt the same time.

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    Quote Originally Posted by Abhishekwala View Post
    It is high risk trading that makes Forex complicated and more difficult and so I do not think it is reasonable in any sense to take high risk. Forex on its own is a very risky market, we as traders should reduce our risk level and not keep increasing the risk. If we want to think of that high profit, we should be aware of the great loss bt the same time.
    Forex is risky but very risky when we trade with greed. I think it is rational to have a return of 5%-25% or more every month. it also depends on how much you are risking on one trade and how you have improved on your trading. if you think you are a good trader then you can risk more and make more every month.

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    Quote Originally Posted by forexfighter007 View Post
    Forex is risky but very risky when we trade with greed. I think it is rational to have a return of 5%-25% or more every month. it also depends on how much you are risking on one trade and how you have improved on your trading. if you think you are a good trader then you can risk more and make more every month.
    Many( not all) of us become greedy because we trade with small capital. Earning depends firstly on the amount invested, the number of pips taken and the way they can analyse the market. But if we are to put them on the same position, with same equity, same pips then the day trader will make more profits. But really a swing trader and position traders takes lots of pips per month. All should be determined by the effect of their analysis.

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    Registered user techboy's Avatar
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    Quote Originally Posted by forexfighter007 View Post
    Forex is risky but very risky when we trade with greed. I think it is rational to have a return of 5%-25% or more every month. it also depends on how much you are risking on one trade and how you have improved on your trading. if you think you are a good trader then you can risk more and make more every month.
    True, it maybe part of human nature to be greedy when we see an opportunity, and we need to control such trait by being to imposed discipline in our trading, if we know that something is not good for us then we have to suppress it, being greedy in trading can only bring disaster to our account. It is much safer to use smaller risk even if we are already a good trader.

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    " Trading is 70% Psychology, 15% Risk Management and 15% Strategy ! "

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    Quote Originally Posted by techboy View Post
    True, it maybe part of human nature to be greedy when we see an opportunity, and we need to control such trait by being to imposed discipline in our trading, if we know that something is not good for us then we have to suppress it, being greedy in trading can only bring disaster to our account. It is much safer to use smaller risk even if we are already a good trader.
    Greed not just cause losses in trading but also responsible for a person doing crimes like robbery and all.Not only experience but also learning , skill , capability of analysis are important. Yes, regular practice is necessary too.A man become perfect from practice.No sometimes practice , need all everyday practice. Analysis currency also needed.

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    Through out my time with forex trading I have got to know that it is had to understand the market that much, forex trading is a complicated business and to understand the market we need experience.

    Thus it is more better that we start with the demo account if we would want to understand the market due to the demo account is where to trade as if we are trading on the real account and then thus we can understand it.

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    smart money as they draws of the longer with the market chart on referring excess as retailer works of the customs on appealing with the choice of system on referring good options to recalls with the submission of risks on exchange with the arbitration.
    as those to gives with the better on returns as trader qualify the proven on strategy with the worthy on ideal preference as possessing of customs with the good backup on supports with the trading system and good strategy.

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    Registered user techboy's Avatar
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    Quote Originally Posted by splash View Post
    Through out my time with forex trading I have got to know that it is had to understand the market that much, forex trading is a complicated business and to understand the market we need experience.

    Thus it is more better that we start with the demo account if we would want to understand the market due to the demo account is where to trade as if we are trading on the real account and then thus we can understand it.
    Right, in order to be good trader we need experience, and to be more effective trading in a demo account it is very important that we already have a thorough understanding with forex in regards to technical and psychological aspects in trading, trading in demo without learning the theory behind successful trading will be less effective.

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    " Trading is 70% Psychology, 15% Risk Management and 15% Strategy ! "

  10. #19
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    Quote Originally Posted by lawners1791 View Post
    smart money as they draws of the longer with the market chart on referring excess as retailer works of the customs on appealing with the choice of system on referring good options to recalls with the submission of risks on exchange with the arbitration.
    as those to gives with the better on returns as trader qualify the proven on strategy with the worthy on ideal preference as possessing of customs with the good backup on supports with the trading system and good strategy.
    To me all strategy are just good and fine, the thing is the one making use of it, if he has got the skills and knowledge where as has learned the strategy.

    If we all should learn and know the strategy that we are making use of, I think we can make money and succeed in the business.

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    I can not imagine to work for a certain field without understanding all its principles . I think that we have to study well all of its features . also we have to be able to distinguish all the faults of it . hope to find more details of the trading which may help us to get closer to the market unless the trading random ally .

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