Price action basics. Part 3 - Page 3
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  1. #1
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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.

    Attachment 968


    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.


    Attachment 969


    to be continued...

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    Last edited by Value trader; 09-02-2013 at 12:11 PM.

  2. #21
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    Quote Originally Posted by wanahito View Post
    I have begun to understand what is meant by bro educator. Knowing through analysis of how prices move as where, when and why, the price actions and market reactions shall show the trader to make any decisions. Traders who have known the condition may use the preferred indicator to help open or closed the position. I will continue to learn about it.
    I personally think the indicator is useful as a tool to help traders in understanding the characteristics of the market, with a lot of experience so the trader can remove indicators, and analyze without indicators because they really understand the market, while many traders are going to try to understand the characteristics of indicators without understanding the characteristics of the market itself.

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  3. #22
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    Momentum is also needed to confirm the true breakout/reversal/or any other patterns. Without momentum , the effect is not great and the chances of stop loss being hit also increases too.
    So wait ave patience, and look for the best opportunity , that is try to trade when good price action forms so that you can minimize risks and maximize profits :)

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  4. #23
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    The best price when the same pattern and style works we can use the price actions and every time we should wait for some time the effect happens and then enter the trade. i also use many patterns and basically 12 patterns of candlestick with price action also and it's the best one strategy and i have left my technical trading style after that i join this strategy.

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  5. #24
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    If we all look out for some candlestick patterns especially in the historic (previous) support and resistance areas, then we can trade on those candlestick patterns with minimum risk reward of 1:1 or 1:2 . THis is also a part of price action strategy and everyone must use and apply these in their daily trading so as to become good in candlesticks chart patterns and price action strategy.

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  6. #25
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    Best price when the same pattern and style works,So we can use the price actions and every time we need to wait for some time the effect happens and then enter the trade.

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  7. #26
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    Yes! Sometimes we should not just look price action only because sometimes or the other, the fundamental news effects the market and also changes the trend. So we should be unbiased. That is, we should do both type of analysis , fundamental analysis and technical analysis which includes price action. And if both agrees then trade with small stop loss and high take profits .

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  8. #27
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    Quote Originally Posted by taharoyal52 View Post
    Yes! Sometimes we should not just look price action only because sometimes or the other, the fundamental news effects the market and also changes the trend. So we should be unbiased. That is, we should do both type of analysis , fundamental analysis and technical analysis which includes price action. And if both agrees then trade with small stop loss and high take profits .
    Yes, i agree we need to know fundamental news because the news with high impact will makes our trading worst if we just use technical only. actually we need to trade using both technical and fundamental, so we can avoid big losses and always trade with low risk. we will not get much losses if we really know the two analysis

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  9. #28
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    Price action is not always giving signal as its pattern, it's depending on time frame which we are using and also timing to read candlestick itself. It's possible if the candlestick pattern is showing reversal movement (example : PinBar) but the real market's movement is not reversal. It can happen when the market has been oversold or overbought. If you read in the end of New York session, so there is tendency to become sideways so the signal is not too accurate anymore.

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  10. #29
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    Regarding this thread, I would like to say that some people trade with these moving average especially crossovers of 2 or 3 moving averages but every time i advice them to shift to price action to become more successful. The moving average serves as a very good indicator to tell the true trend.

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  11. #30
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    Quote Originally Posted by Rizwan Aziz View Post
    Regarding this thread, I would like to say that some people trade with these moving average especially crossovers of 2 or 3 moving averages but every time i advice them to shift to price action to become more successful. The moving average serves as a very good indicator to tell the true trend.
    There is no doubt that moving averages are good to determine the forex market trend,but price action strategies are much better than using just simple moving averages,there are many patterns available in price action strategies to confirm the forex market signal according to the time frame which trader uses..

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