Understanding the market. Part 1 - Page 88
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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 Brain View Post
    I really do understand the market, that is the reason why I have been able to have learned and know that trading with the use of the price action is always the best way to trade the market. due to price action gives traders more opportunity to strong analysis. As it deals with the support and resistance and that alone carries a lot of potential to success.
    i don't quite understand market because i don't monitor its movement for whole hours in a day. i usually look at economy calendar, mark important events, read breaking news, and then arrange my plans what will i do today with market. if there are many news to come then i will spend at least 2 hours before the release to analyze its movement with my strategy.

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  3. #872
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    Quote Originally Posted by Sascha View Post
    i don't quite understand market because i don't monitor its movement for whole hours in a day. i usually look at economy calendar, mark important events, read breaking news, and then arrange my plans what will i do today with market. if there are many news to come then i will spend at least 2 hours before the release to analyze its movement with my strategy.
    That is a must for everyone to be aware of the upcoming news and economic events and plan his trading accordingly. When one is serious about his experience and about betterment of his trading, then he will not be taking too long to start achieving consistency in his trading results. It is true there so many experienced traders who are facing losses due to their trading being of low quality.

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  4. #873
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    Your ability to understand the market makes you a good profitable trader, understanding the market means that you know what you want from it and then you know your trading strategy and then know also how to handle your trades. Those who understands the market never gets to impatient with the market, but they get to be patient with the market and then know the rules to be followed.

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    Quote Originally Posted by Makaveli View Post
    Your ability to understand the market makes you a good profitable trader, understanding the market means that you know what you want from it and then you know your trading strategy and then know also how to handle your trades. Those who understands the market never gets to impatient with the market, but they get to be patient with the market and then know the rules to be followed.
    Understanding the market can help us to find trade-able set ups but then for good results we also need to understand our mindset. We can say that what we sow, so we reap that is how we can perform we will get the rewards proportional to that. In beginning when our understanding and experience is little, we might have tough times ahead. But once we learn the things we can make money from this business.

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    Rookie Silhouette's Avatar
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    Quote Originally Posted by Abhishekwala View Post
    Understanding the market can help us to find trade-able set ups but then for good results we also need to understand our mindset. We can say that what we sow, so we reap that is how we can perform we will get the rewards proportional to that. In beginning when our understanding and experience is little, we might have tough times ahead. But once we learn the things we can make money from this business.
    So far it's becoming a big challenge for every traders to understand this market and how it moves through its price and various patterns. What I've learned from market that it can be learned later because what we must understand first is ourself. Find all bad things inside us that could become our obstacle when we want to improve ourself, then we can choose what to do next with a strategy and create a system.

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    Quote Originally Posted by Makaveli View Post
    Your ability to understand the market makes you a good profitable trader, understanding the market means that you know what you want from it and then you know your trading strategy and then know also how to handle your trades. Those who understands the market never gets to impatient with the market, but they get to be patient with the market and then know the rules to be followed.
    Understating the market is nonnegotiable to traders, that makes it what we have to be doing at all time. We have to learn how the market is working and many training will have to be done before that will be possible. Trading the market with the simple trading systems is likewise the best approach to understand the market, using the complex systems will be making traders to trade with confusion and impatience.

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