Price action basics. Part 3
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    Price action basics. Part 3

    Hello again.

    let's contiunue our studies about price action and how to use it.
    See previous posts here:

    Price action basics. Part 1
    Price action basics. Part 2

    As you might notice, I'm not suggesting to simply FOLLOW PRICE, but I suggest you to rely on MARKET LOGICS.


    Why not to simply follow price action?


    Price is simply the advertising mechanism and in most cases it can be misleading.

    "Should you accept this breakout", "should you fade this market" and so on and so forth. Price itself will not give you clues for that. You have to analyse fragile equilibrium between price and value to get answers on these questions.


    What is Value?


    It can be called area of aсceptance - area that market will more likely revisit or stay near that area for some time. Trading markets, you should rely on fundamental market principles.

    And of of them claims:

    "The goal of the marketplace is to faciliate trading"

    If you think about this principle, you will understand that market needs liquidity to facilitate trading. By "liquidity" I don't mean single buyer that steps in and kicks the price.

    By liquidity I mean plenty of players with different perspectives, participating near given price level. If you have that pluralism in opinions, you have value area.

    If liquidity is not enough, market auctions higher or lower to find it. Guess, how it attracts liquidity? Of course, it offers higher or lower price - nothing is new.
    That's how market auction works.



    There are 2 basic types of price action if we look at it from "price-value" perspective.

    I will use the simpliest way to vizualize value on market - moving average. Of course, it's not that simple in reality, but it would be enough to show you how it works.


    1. Value is leading, price is following.

    For example, it occurs when value is lower. Market accepts lower prices and rejects higher prices, yet it has scanned higher prices for liquidity.

    You might notice that value is going sideways.

    In this case market has no reasons to immediately leave this value area. You may expect some rotation before something happens.

    pvalue1.jpg


    2. Price is leading, value is following

    In this case you may notice, that price runs away from value, there's often a gap between price and value, and this is an indication of strong imbalance - sellers are in control and it's better to trade in sync with them.


    pvalue2.jpg


    to be continued...

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    Last edited by Value trader; 09-02-2013 at 11:11 AM.

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    It's an amazing guide about price action and I also using this method to trade in forex. However I still don't understand about the value. What do you mean about value? Is it the moving average value in your chart? And if you don't mind, may I know the setting of Moving Average in your chart? Thanks. :)

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    Quote Originally Posted by thenight View Post
    It's an amazing guide about price action and I also using this method to trade in forex. However I still don't understand about the value. What do you mean about value? Is it the moving average value in your chart? And if you don't mind, may I know the setting of Moving Average in your chart? Thanks. :)
    Value is the moment of acceptance.

    I don't use MAs to identify value. Actually, it's a bracket, or price range where 70% of daily activity occured. It's easier to identify value with market profile, but with conventional chart you can also see it. Just think about the time - where price was trading for the whole day?

    Value also migrates within a day. For example, price can trade within small bracket on european session, then breakout on US session and start building new value area.

    Moving average is another way to see how value migrates. Some people use it - why not?

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    The moving average serves as a very good indicator to tell the true trend. Some people also trade with these moving average especially crossovers of 2 or 3 moving averages but everytime i advice them to shift to price action to become more successful.

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    Quote Originally Posted by taharoyal52 View Post
    The moving average serves as a very good indicator to tell the true trend. Some people also trade with these moving average especially crossovers of 2 or 3 moving averages but everytime i advice them to shift to price action to become more successful.
    Whatever strategies you are using, using indicators or naked trading, I do not think there should be debated, who can be profitable then he is the best, whatever method that he used. Moving Average is an indicator of the most simple, the logic is to calculate the moving average in accordance with the period of time we have set. 2 or 3 MA crossover is a simple strategy as well, but often gives a false signal in sideway condition, but we can avoid these conditions with a variety of filters and manage risk.

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    I think to identify the trend of the market with the price action is very simple and when we are looking the trade with the trend we only want to be trading with the ver obvious trend and if the trend is not obvious then chances are it is not very strong trend and may look other trade such as range trades.

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    Quote Originally Posted by sam9630 View Post
    I think to identify the trend of the market with the price action is very simple and when we are looking the trade with the trend we only want to be trading with the ver obvious trend and if the trend is not obvious then chances are it is not very strong trend and may look other trade such as range trades.
    What do you mean by obvious trend?

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    All the explanations, I've got conclusion that a strong holder always choose long term trade. I do not have the ability to plan long term trade, meaning I have analyze price movements in time frame H4 as trend information (follow the trend has been made by strong holder) and then take action signal on the under H4. What do you think?

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    Quote Originally Posted by wanahito View Post
    All the explanations, I've got conclusion that a strong holder always choose long term trade. I do not have the ability to plan long term trade, meaning I have analyze price movements in time frame H4 as trend information (follow the trend has been made by strong holder) and then take action signal on the under H4. What do you think?
    They not always play long term. They can join the market for whatever reasons, even not speculating. For example - they need to execute order of big client. But they need AT LEAST not to get the worst price for him. So they need to accumulate slowly.

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    Quote Originally Posted by sam9630 View Post
    I think to identify the trend of the market with the price action is very simple and when we are looking the trade with the trend we only want to be trading with the ver obvious trend and if the trend is not obvious then chances are it is not very strong trend and may look other trade such as range trades.
    One think i highly agree with is that we need to identify the true trend in order to trade in its direction and keep our trading profitable. I dont think it is proper advise which technique/indicator to use to find out about the trend or momentum, different traders may have their own way which they are comfortable with and which works for them. Myself never use indicators but it is my market watch which let me know about the trend often.

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