Price Action - not quite what it seems?

S

Second income trader

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I'm interested in people's views on this observation relating to Price Action. As someone who follows PA closely it's became more apparent to me that a lot of price action is following market sentiment rather than support resistance etc. So for example I'll often be following a particular currency pair, say AUDUSD on a 15m or 1H chart and I'll see the price hit a support/resistance level, whilst forming a Pin and showing overbought/oversold on a CCI or RSI. Confluence on 3 counts I'll be thinking. The Price will then bounce as predicted and will turn a profit. I'll have that warm glow and self-satisfaction from seeing the price behave as it should and reacting correctly to the S/R level etc. :D But my self satisfaction wanes when I then look at other currency pairs, say EURUSD and GBPUSD and see that the price has turned at exactly the same time, without the benefit of any S/R level or Pin bar etc and I'm left thinking that the reason the Price turned on AUDUSD had nothing to do with the S/R level, or Pin or CCI/RSI, but was just following the general market sentiment.... Anyone else as frustrated as I am?!
 
I rarely see retail traders speak of S&R in it's true form. Some of discussions around the topic refer to S&R with expectations of it being respected. Others don't trust using it because they have experienced more failure than success.
S&R zones are about as useful as an astray in a motorbike without sentiment governing the direction. In other words, they are merely reference points where orders are likely to be waiting.
To understand S&R a trader needs to understand trends. A trend has a starting point, [n] number of price legs, and an end point. Trends characteristically exhibit strength that can be represented by a children's swing. At the beginning it starts out sluggish but quickly speeds up. Usually the biggest leg represents the end of the midpoint of the children's swing. From this point onwards each of the remaining legs exhibit a loss of energy. The last leg is where you reach the other end of the swing where price will rest.
This is the trends' lifecycle which requires a thorough understanding before a trader can make money in my opinion. There is no mystery or secret method for using S&R. Its a function of reference points within the lifecycle and nothing more.
 
forker said:
S&R zones are about as useful as an astray in a motorbike without sentiment governing the direction. In other words, they are merely reference points where orders are likely to be waiting.
Click to expand...

whoop whoop (y)

totally agree.

IMO the whole idea of support and resistance is altogether flawed. "levels" on graph exist because nothing moves in a straight line. IMO when you are trying to read "price action" (a term I am generally sceptical of), you have to weigh up where the pain is and what is the likely threshold. Then you have to consider what the incentives are, and what the rewards might be, for someone going to market to find out.

On a broader scale, it absolutely amazes me that people talk about support and resistance with no reference to volume - either by price or by time/range.

One is the horse the other is the cart. no prizes for guessing.
 
Priceactionsitas have no greater chance of success than some newbie using 2 MAs..
 
S/R is extremely useful for entering trends. Problem is when you try and trade every bounce of s/r 'just cause', without any respect for the general context.
 
reply to op

Analysing potential technical support/resistance areas in any market is really just about looking fore the most likely areas where swing points may occur against the immediate prevailing price direction, but whatever tools you use to determine this, and whatever response price may make at such, you use you have to realise that;

a. It is not an exact science
b. You will never be able to identify all the areas at which every market turn results.
c. The analysis you complete in this respect is best viewed in context with the overall prevailing conditions of the instrument you are trading (ie is the instrument trending, strongly trending or ranging ?)...as you correctly say it is best to view this analysis in the light of general market sentiment (howsoever you detrmine that.)

Given the above, whatever tools you use to identify potential support/resistance, all you can do is asssess the graeter probability of such a market turn (howsoever temporary,) given the readings of these tools/studies (that may and probably should include price action itself and it's reaction to the potential support/resistance and may include volume etc...) at such areas of potential support/resistance.

Many times I see price turn at an area that I had not pre-identified as potential support/resistance and the only conclusion I can draw from this is that the methodology underpinning my analysis for determining such did, on that occassion not pick up such an area. On other occassions I have poptential support/resistance factor (s) pre-identified at which I would not act if price tests them as they do not fulfill the criteria of my trading edge.

Potential Support/Resistance analysis is not the holy grail but just another tool that can help us gain a trading edge....on it's own it is less useful than when combined with other factors that can indicate the greater probability. Just because a greater probability may be highlighted by a trading edge, doesn't mean that it will always play out, such is the nature of a trading edge.

In the example you give in your post of eurusd and gbpusd turning at exactly the same time as audusd with no visible reasons to suggest that this may happen could be because of the above and/or that these $ cross pairings can be highly correlated. Whatever the case the analysis you did on the audusd pairing and the one you traded resulted in a winning trade (although you make no reference as to whether it hit your target etc...) so why concern yourself with what happened on other pairings ?

Furthermore I really don't think that it is a question of deriving satisfaction or being frustrated by the resulting price action after you have acted on your trading edge (particularly on pairings/instruments that you were not involved in,) but of trying to remain dispassionate about your trading edge, trying to act at it with impunity and in so doing realising it's limitations. All of this involves the development of a robust psychological framework/skillset that can take years to enable you to consistently profit from your trading edge.

G/L









Second income trader said:
I'm interested in people's views on this observation relating to Price Action. As someone who follows PA closely it's became more apparent to me that a lot of price action is following market sentiment rather than support resistance etc. So for example I'll often be following a particular currency pair, say AUDUSD on a 15m or 1H chart and I'll see the price hit a support/resistance level, whilst forming a Pin and showing overbought/oversold on a CCI or RSI. Confluence on 3 counts I'll be thinking. The Price will then bounce as predicted and will turn a profit. I'll have that warm glow and self-satisfaction from seeing the price behave as it should and reacting correctly to the S/R level etc. :D But my self satisfaction wanes when I then look at other currency pairs, say EURUSD and GBPUSD and see that the price has turned at exactly the same time, without the benefit of any S/R level or Pin bar etc and I'm left thinking that the reason the Price turned on AUDUSD had nothing to do with the S/R level, or Pin or CCI/RSI, but was just following the general market sentiment.... Anyone else as frustrated as I am?!
Click to expand...
 
Second income trader said:
I'm interested in people's views on this observation relating to Price Action. As someone who follows PA closely it's became more apparent to me that a lot of price action is following market sentiment rather than support resistance etc. So for example I'll often be following a particular currency pair, say AUDUSD on a 15m or 1H chart and I'll see the price hit a support/resistance level, whilst forming a Pin and showing overbought/oversold on a CCI or RSI. Confluence on 3 counts I'll be thinking. The Price will then bounce as predicted and will turn a profit. I'll have that warm glow and self-satisfaction from seeing the price behave as it should and reacting correctly to the S/R level etc. :D But my self satisfaction wanes when I then look at other currency pairs, say EURUSD and GBPUSD and see that the price has turned at exactly the same time, without the benefit of any S/R level or Pin bar etc and I'm left thinking that the reason the Price turned on AUDUSD had nothing to do with the S/R level, or Pin or CCI/RSI, but was just following the general market sentiment.... Anyone else as frustrated as I am?!
Click to expand...

There is nothing more confluent than when the whole market place agrees at the same time.
Develop this observation and make it work for you, it should serve you well.
 
forker said:
I rarely see retail traders speak of S&R in it's true form. Some of discussions around the topic refer to S&R with expectations of it being respected. Others don't trust using it because they have experienced more failure than success.
S&R zones are about as useful as an astray in a motorbike without sentiment governing the direction. In other words, they are merely reference points where orders are likely to be waiting.
To understand S&R a trader needs to understand trends. A trend has a starting point, [n] number of price legs, and an end point. Trends characteristically exhibit strength that can be represented by a children's swing. At the beginning it starts out sluggish but quickly speeds up. Usually the biggest leg represents the end of the midpoint of the children's swing. From this point onwards each of the remaining legs exhibit a loss of energy. The last leg is where you reach the other end of the swing where price will rest.
This is the trends' lifecycle which requires a thorough understanding before a trader can make money in my opinion. There is no mystery or secret method for using S&R. Its a function of reference points within the lifecycle and nothing more.
Click to expand...


top posting.
 
There is a fundamental flaw in the way average traders view S/R, and TA in general. I read comments all the time about how a price "bounces off" a support/resistance level or moving average.

S/R levels and moving averages are created by prices, NOT the other way around. The ONLY reason these indicators seem to work at all is that enough people (traders?) think this way. But as we all know, predicting how people will react to anything is... well, unpredictable for the most part.

Price patterns work because (and only when) enough traders are convinced they are reliable signals.

Yes, I take patterns, S/R levels, and MAs into consideration when setting stops or looking for profit targets, but only because that's what the majority are likely thinking, not because there's any magic in the numbers themselves.

Consistently winning traders are not likely to be following the herd mentality or trading systems.
 
I find the easiest way to understand it is to think literally. Support and resistance do not exist. Nor for that matter does the chart you look at.

It's just a picture, that's all.
 
Consistently winning traders are not likely to be following the herd mentality or trading systems.[/QUOTE]


That last statement if true sure would shake up my whole motivation down to the core! If people and large institutions didn't trade with any regard to patterns I would have no hope of ever making money in the stock market...I might as well play the lottery!

It is the emotional views of traders regarding price action that cause market movement. That is what I trade, other peoples emotions. I look at a chart and I see fear and greed, it doesn't matter what the market is, we all want to make money and we all don't want to lose.
 
numbertea said:
Consistently winning traders are not likely to be following the herd mentality or trading systems.
Click to expand...


That last statement if true sure would shake up my whole motivation down to the core! If people and large institutions didn't trade with any regard to patterns I would have no hope of ever making money in the stock market...I might as well play the lottery!

It is the emotional views of traders regarding price action that cause market movement. That is what I trade, other peoples emotions. I look at a chart and I see fear and greed, it doesn't matter what the market is, we all want to make money and we all don't want to lose.[/QUOTE]

Certain activity creates certain patterns, that's why they repeat. That's about all there is to it I suppose.
 
My point was that professional traders (and consistently winning non-pro traders) do not trade emotionally, nor do they trade like the majority of players in the market.

Numbertea, you see the fear and greed in the price action. This is definitely not what the average player sees nor how they trade. That comment alone makes you stand out among the majority.

As for shaking your "motivation", players TRADE patterns, large institutions (smart money anyway) MAKE patterns for them to trade. Why do you think there are so many false signals, head fakes, and unexpected reversals? Not big ones mind you, just big enough to hit the stops, weed out the weak positions, and make a ton of cash for professional traders.

Why not trade the first break? Why wait for the second or even triple top? Is that really a head and shoulder or is it a mushroom top? Does the high volume mean supply covering demand, or is it a sign of rising demand? Heck, one could go on indefinitely defining patterns and signals and systems... In the end they are all the same. They work sometimes, and cost you money at rest of the time.

Now it's just my opinion but the "lottery" as an alternative to trading? Really? If you think your odds are that bad trading then you really should rethink your "motivation".

I'm not trying to be belligerent, or knock you down in any way. As I said, your perception of fear and greed is stellar. But the real "edge" is not in a system, or signal, or pattern... it's in your head and how you can control your own fear and greed during a trade.

I was taught that the ONLY time we have any control over a trade (including risk management) is before we place the order. After that, it's trade management and how well you can stick to your exit strategy. I consistently return 24 - 30% a month on my trading capital. That works out to 1-2% per trading day. I can guarantee you I do not trade like most people and I'm pretty certain those returns are better than the average player.

Since I have a hard time reading my wife's emotional state or intentions most of the time, I'll not trust my capital to the whims of a crowd of strangers.

However, if you are successful reading the emotions of the market participants, then you should continue with confidence that your strategy is in harmony with your own emotional control, and that my friend is the best edge you can ever hope to achieve.

Dave

Maybe we should open a thread on Fear and Greed???
 
Re: reply to op

Cracking good post :clap:

bbmac said:
Analysing potential technical support/resistance areas in any market is really just about looking fore the most likely areas where swing points may occur against the immediate prevailing price direction, but whatever tools you use to determine this, and whatever response price may make at such, you use you have to realise that;

a. It is not an exact science
b. You will never be able to identify all the areas at which every market turn results.
c. The analysis you complete in this respect is best viewed in context with the overall prevailing conditions of the instrument you are trading (ie is the instrument trending, strongly trending or ranging ?)...as you correctly say it is best to view this analysis in the light of general market sentiment (howsoever you detrmine that.)

Given the above, whatever tools you use to identify potential support/resistance, all you can do is asssess the graeter probability of such a market turn (howsoever temporary,) given the readings of these tools/studies (that may and probably should include price action itself and it's reaction to the potential support/resistance and may include volume etc...) at such areas of potential support/resistance.

Many times I see price turn at an area that I had not pre-identified as potential support/resistance and the only conclusion I can draw from this is that the methodology underpinning my analysis for determining such did, on that occassion not pick up such an area. On other occassions I have poptential support/resistance factor (s) pre-identified at which I would not act if price tests them as they do not fulfill the criteria of my trading edge.

Potential Support/Resistance analysis is not the holy grail but just another tool that can help us gain a trading edge....on it's own it is less useful than when combined with other factors that can indicate the greater probability. Just because a greater probability may be highlighted by a trading edge, doesn't mean that it will always play out, such is the nature of a trading edge.

In the example you give in your post of eurusd and gbpusd turning at exactly the same time as audusd with no visible reasons to suggest that this may happen could be because of the above and/or that these $ cross pairings can be highly correlated. Whatever the case the analysis you did on the audusd pairing and the one you traded resulted in a winning trade (although you make no reference as to whether it hit your target etc...) so why concern yourself with what happened on other pairings ?

Furthermore I really don't think that it is a question of deriving satisfaction or being frustrated by the resulting price action after you have acted on your trading edge (particularly on pairings/instruments that you were not involved in,) but of trying to remain dispassionate about your trading edge, trying to act at it with impunity and in so doing realising it's limitations. All of this involves the development of a robust psychological framework/skillset that can take years to enable you to consistently profit from your trading edge.

G/L
Click to expand...
 
I agree that the fear and greed were once a large problem for me and actually would work against my system if I allowed myself to interfere. Realizing this I started programming my complete trading system to automate the process. It is not complete yet so I should just shut it perhaps but I am recognizing that it is definitely possible to trade on the fear and greed of others. Emotion can be seen short term and long term and it becomes very predictable.

The large money movers do seem to cause stops to get hit for many and there is many times an observable "game" is being played out there but with careful consideration and realizing that history tends to repeat itself, money can still be made.
 
Nicely said numbertea. If you know important areas where other traders' fears/greed are likely to play out and you can see these emotions play out through reading price action, then you can do well and profit. Even scalping works well in those circumstances.
 
dbrawner said:
But the real "edge" is not in a system, or signal, or pattern... it's in your head and how you can control your own fear and greed during a trade.
Click to expand...

Good post Dave. Can't wait for the next one - in 2012/13?
 
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