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Price action is the ultimate indicator. It reveals very precisely where the big bids and offers enters the market, where profit taking occurs or even – where it might happen in the distant future. Despite of technical analysis methods one chooses to use, but accurate observer might always get clues what is about to happen directly from watching price action real time and act accordingly.
Figure 1.0. See obvious price reaction to a certain area? Look for a technical level in it.
Even if the exact underlying technical reason, which stopped or reversed price movement at a particular spot is unclear, it is still possible to trade it by fallowing few basic principles of liquidity dynamics around such areas.
Some long time ago I managed to see a pattern and trade similar technical levels as I trade now, but without actually knowing the reasons behind them – just by observing price reactions and keeping my profit targets and risk limits tight (see my older article - Intraday Rhythms of EUR/USD Pair).
Price behaves differently in certain parts of the range and in certain hours of the day. It moves inertially and, incredibly, it has all the similarities to the Newton’s lows of motion. J…
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Likerty avatar
Likerty 14 May

OneGoodTrade, thats a controversial statement, like saying that alcoholic working in the bar is delta neutral in his work:) I believe, this conflict of interest in between market makers and the rest of the crowd, is the main reason why hedge funds dont speculate in FOREX markets.

Airmike avatar
Airmike 17 May

Likerty - Stop loss hunting is term for hunting of stop loss orders in order book (any type of orderbook). it is not a name for peaks or any price manipulations. retail stop loss orders have just very low amount of volume. For execution of this small amount is unreasonable to bet against other market makers and take risk from arbitrage trades. that's the point , if risk from arbitrage is x time higher than profit from stop loss hunting. stop loss hunting is possible only if ONE subject has permission for market making. not possible when many market makers compete against each other.

Airmike avatar
Airmike 17 May

Btw. I didn't understand this note about hedge funds. with full respect. I am sure that information is not a correct because hedge funds definitely do participate on FX.

Jignesh avatar
Jignesh 22 May

Good Article, very technical.  Price action seems that hardest indicator to master but the most effective.  I'm going to attend some of your webinars to learn a bit more.  Have you ever looked into Elliott Wave?

Likerty avatar
Likerty 23 May

Jignesh, Elliot Wave makes a lot of sence, just I consider it a pattern and as all the patterns - these are secondary tools in trading, not primary. Its difficult to base trade decision solely on PA paterns..

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Trend lines and moving averages are ones of the most widely used tools in technical analysis. Wherever you look - all publicized analysis has some trend line or moving average of sorts (further in the article – TL and MA). Even major banks love them. So how did I came up with such “preposterous” conclusion, stating that MA's and TL's better to be ignored in technical analysis!?
The Big Conspiracy. I’m not a big fan of conspiracy theories, but when it comes to something delusional that masses believe (or just don’t bother to think more deeply about) and for other side doesn’t cost much physically or financially to maintain that delusion (like games in politics for example), than why not? It’s not necessarily some specific person’s or a specific group’s evil plan – just a natural flow of common believe which formed “ages” ago. And no one with a true knowledge is interested to break that delusion as himself makes a living from this common understanding.
Major banks basically are Market Makers (for their clients – directly, and for the rest of the FX participants – indirectly). Because they always take other side of your trade, the conflict of interest happens of course. And it doesn’t…
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northernwave avatar

well done. thanks for sharing your hard work.

David_ avatar
David_ 30 Oct.

Good article again.

Fxtrader500 avatar

Good article, well done.

Odradek0222 avatar

if the trend is our friend

Likerty avatar
Likerty 17 Jan.

Thank you all for feedback! You can fallow me on twitter: @VenasEdvinas

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