When Buyer and Seller agree on both Price and Value, no trade will ever be made.

Buyer and Seller have to disagree on Value, not on Price, in order to make trades. Because there are many buyers and sellers in the world of currencies, there are alway people who value a currency different and so price keeps moving around. If one can predict value, one can predict price.

Fundamental analysis is all about predicting value, while technical analysis is all about predicting price. We can see price moving in the charts and so try to predict where it might be going, but forces we cannot see make the price go up or down. If we could only see those forces…

When observing the way market, volume and price change, we can see similar mechanics in the physics of pressure. Hang on for a few seconds, it’s quite simple.

Pressure and Forex: if i shake a bottle of champaign forcefully, the cork will pop out and champaign will be wasted. So if pressure rises in one places, stuff will go from where the pressure is high to where the pressure is low.

The same proces works for Forex price: if value differs, price will move. And again: by knowing where the pressure is, we can tell where price will move to. By knowing where the value is, we could then tell where price will move to.

Phases of value

In above example of two connected or disconnected boxes, there are only four possible states:
  • Stability: pressure in disconnected boxes is equal. Molecules are moving steady.
  • Pressure: boxes are disconnected, pressure rises in one box. Molecules are moving more actively than in the other box.
  • Flow: boxes become connected after pressure occurred and molecules flow from high to low pressure
  • Completion: end of the flow and beginning of a new equilibrium in connected boxes. Molecules of both boxes are mixed and are moving steady.
In Forex literature we see sort of the same four phases in the works of Bill Williams. We could describe our four phases in Forex as follows:
  • Stability: ranging and quiet market.
  • Pressure: active price movement, but ranging.
  • Flow: clear trend.
  • Completion: when one of these phases will soon end.
The more we would know of Value, the more precise our model would be. People trading with strategies based on order flow fully rely on this figure.

Enter the Matrix

We can make three small matrixes to find out in what phase a price – or a chart – is. For example: if volume is going down and price movement as well, we can call that phase Stable. If both rise, we could say we are reaching the state of completion. More people are entering the market and make the price move faster and faster. Situation will soon end.

Now it would be too simple to watch a candle stick, fill in the numbers and say: yep, next one is up.

But by drawing these data in the charts and comparing the lines, we might be able to see in what phase the market is and also what price will be doing soon.

By using precise volume data on buyers and sellers, we might even be able to tell where value is and so where price will move to. That would give us a precise insight and make trading with the trend way easier.

We follow price, we don’t make price

In Forex this model could actually work, because Forex-traders follow the market. We do not make the market. That is done by the relatively few people on the trading floors who actually buy and sell currencies for their clients, while we only swap contracts.

All we need is Volume

So in order to rely more on value, we need to know more about value. Not only – like in MetaTrader or cTrader – how frequent price changes are, but also the number of placed and closed orders – pending and market orders (which includes the pending orders for takeprofit and stoploss) and also their lot sizes.

Pressure-And-Flow Index

A new set of specific Forex Indicators would be possible that show us where pressure is in the market. As long as that is not the case, i'm happily trading Forex based on candle stick and p&f patterns which is the closest to Pressure and Flow as possible.
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