I hope that BabyPips are open enough to allow me to post the following. This could be a very interesting topic among traders and I would love to hear what others have to say. Good or Bad. (Wanted to post this not under the beginners section, but do not have a choice at the moment.)
I have recently posted a YouTube video “PROOF that Forex is RANDOM”. One of the things I disproof was SUPPORT and RESISTANCE. I then had the following question below and I think this is worth mentioning at BybyPips for discussion.
From Chris:
“This is awfully honest and heartbreaking to watch. But I think a psychological support or resistance do exist. For example, there is a strong consensus that EUR/USD dont exceed 1.16, as 1.16 or above is the price before ECB announce QE, and now ECB announced QE so it is highly unlikely EUR/USD would back to the old price. I think everyone have their own psychological S/R, so S/R does exist, but delicate lines on the chart is not reliable. Please tell me if my logic has flaws”
My Answer:
“I have not been following Market news lately, but my opinion would be that anything is possible. The news events are already reflected in the market by the time it’s released. So the ECB QE release was higher than expected which drove the market down even more. So I must believe that the market is now again in 100 % equilibrium based on THAT news. Level 1.16 is so close to the current market price (only 250 pips off). One small change in OIL could easily takeout that level again. The other point which I did not cover in my video is that the market “They” always want to trade the maximum orders OR “they” wants you to fail. So if this is the “Consensus” then it means that a lot of traders will now be in a long term SELL and will thus have their stop loss just above 1.16. The market will SEE this, most likely takeout all the stop loss above 1.16 first and just as everyone is reversing (BUYing again) since a RESISTANCE was broken (and are now support) the market will shoot down and make you lose two times in a row. This is why you will notice that you do not even have a random 50% change in Forex. The market can see all the Orders and Stop losses and they use it against you. This is another reason, why you as a home trader, just don’t win on the long run.
So will the market ever break the 1.16 level again. I am 99.9 % sure it will. I just don’t know when(could be next week or in a year’s time.)”
So I believe Support and Resistance gets used against you and get broken all the time to your disadvantage.
I wonder if this THEORY is true, if it could be used as a trading strategy?
(O. I forgot. I do not believe in Support and Resistance
The market is not random. How can it be random and be stop hunting at the same time?
S/R gives an increase in probability of a change in direction at that point. But additional info is needed to determine the probability. Mainly determining the supply/demand balance upon testing s/r.
Yes, the market does hunt stops and pros stay a step a head of the crowd. They are the hunters. That’s who I follow. Good luck in your search. The truth is out there. :48:
Lol support and resistance exist very well and off course the Euro will go above 1.16 even 1.17 i would say so. But in the longterm, we are expected to see the euro fail below 1.10 due to european economic in general and american economy is getting much better. The market is not random at all but it become random if you don’t know what you are doing. Also forget about those moving average and focus on price action. That’s the key to success. I make consistently 3000 micro pips per week, if the market were random, no way i could’ve been doing that.
If you are a newbie, you have a lot to learn more.
I watched your video on youtube and I can understand where you say the market is random, but only to a very small extent. If you look at all the price action on the 4hour charts and up you will see that IF USED WITH THE CORRECT RISK MANAGEMENT such as 2:1 profit and trailing stops anyone can be profitable. Yes the market has huge spikes but who would allow a spike that large to drop their account??? Only the very very inexperience will. I’m not trading real money yet, but I’ve watched thousands of videos over the last few years and read thousands of help articles and e-books. I’m ready for the real deal, but I have to get back to work and save money to trade successfully. My point here is mainly use a correct stop loss to profit ratio, and know where to enter the trade at and you will be on your way to a successful trading career. Also remember the higher time charts show what the big banks are doing. One of the biggest things to watch for are the large candle wicks along with the levels. They show the reversals and when they do that big banks aren’t just randomly doing that for no reason.
After watching this video “Traders Millions By The Minute Season 1 Episode 1 Full Episode” today, I saw how successful traders are looking for OPPORTUNITIES in the market after news events. They basically get a strong REASON why they believe the market should move in a certain direction. If the market moves in the other (wrong) direction, this then gives them the opportunity to get in and make some money.
So instead of putting the emphasis (wrongly) on Support and Resistance lines getting broken, Chris might have a very good idea (Reason) why the EUR/USD might still move more down in the future.
I mentioned that I believe the market is 100% at equilibrium after THAT (ECB QE) news. The difference here is that this news(ECB QE) was not just a once of result (like most other Forex news) This news has future implications. So in this case could I be wrong? Was the 2600+ pips fall in the last 10 months due to OIL? or is the full extent of the ECB QE announcement already absorbed in the market? (as suggested by the “Passive Investing Theory, part 2: The Random Walk” clip.)
So if we are now in a downward trend then each retracement up should be a good entry point for down. Irrespective if your support or resistance lines get broken or not. This would be a long term strategy, but we still don’t know how far it will retrace, which support or resistance lines will be (falsely) broken, do you have enough money in your account, is the ECB QE already absorbed in current price, at what time will some other external factor have a larger opposite effect?
So many questions so few answers. What do you say?
Thanks for watching my clip.
Keep me updated on how your are doing with your live trading.
I had a lot of nice discussions with many other traders after I posted that clip.
Maybe I should have stated that Forex is Mostly random (with very small opportunities of non randomness.)
Basically I believe that if you just trade technical, without looking for opportunities in News events, you just wont make it. (Just a theory for now.)
I only discovered after I posted my clip that I am not the only person believing that the market is random. Best seller books like “A random walk down wall street” was written on this subject. I was very surprised to find that they believe that ALL markets are random. The best video clip I could so far find on this subject (which is only 5 min long) is YouTube: “Passive Investing Theory, part 2: The Random Walk” (My clip shows randomness from a more technical perspective.)
I also found a lot of other traders that believe the market is random MOST of the time, but they are looking for those non Random events (opportunities) in the market to trade on.
To get back to Support and Resistance: If the market then does hunt stops, then it also applies that support and resistance get broken all the time since stops are mostly above or below these lines. Which implies they are not constant. Maybe they work 50% of the time from just a pure technical perspective.
Please note that my own view are not cast in stone. This is part of my search for the Truth. I hope I can one day say, I was wrong.
So maybe my clip is there to show traditional technical traders that it just does not work. More importantly ,it shows WHY I say so.
Glad that we agree on the 1.16 level getting broken again.
Not sure how long you have traded, I would appreciate it if you have done live trading for longer than a year to mail me a graph of all your trades for the year. Proof me wrong. The other reason I posted that clip was to find out what is the real % of people making money. Also what is the average yearly % profit to expect realistically out of Forex.
rross if you have checked my posts you would see I haven’t live traded a forex account, but lots of demos which i mainly lost in or blew up the account. I can give advice though because I’ve read thousands of posts and watched thousands of videos and until recently i am very consistent on my demo trading(profits). I was always looking at the market the wrong way. Just like you said the market is mostly random, but those turning points are why traders make money. I think once someone has looked at forex charts long enough to realize what makes them move the way they do you can consistently make profits. Even if your wrong when you use at least a 2:1 profit/loss ratio the odds are strongly put in your favor. I guess you can compare it to Blackjack gambling. If you can count cards(which very few can) you can make a killing off the casinos. That’s because your giving yourself a huge advantage by your skill of counting cards. By the way I think counting cards is harder then the forex market lol. Seeing those turning points in the markets and knowing how those turning points/trend-formations gives you a big advantage too. If you check my post in the “Introduce yourself section” you will see really who i am and how i came to understand forex. I’m laid-off right now and waiting to get back to work to make some cash to trade forex. The lay-off is what actually put me full throttle back into forex trading(demo), but i finally realized how i can make cash off these markets.
And again it’s all about odds. The purport of S/R is that price has a bit higher % of probability of fluctuating insider S/R levels than outside of it. For example, for 1M timeframe it can be 2%, for 5 min it is 4% for 15M it is 8% and etc.
S/R levels don’t have to work and IMO it’s dumb to put this principle exclusively as a ground for some trading system, cuz trading on low probabilities is similar to gambling.
I use S/R as a breakout signal combining to fundamental news.
News events are usually spikes in price action. Market makers use them and usually in anticipation of the news event. S/R zones are like fib zones. There physiological levels. Points where you can anticipate price targets and stop losses. Supply and Demand. Failure points or breakouts.
There are some, babypips school included, who would say S/R zones are very real and perpetuated by the expectation of traders and the execution of trades based on the expectations of traders.
Fundamental Outlook: The euro’s value declined towards 1.05990. The decline occurred as investors opted for the USD, as they believed that the Federal Reserve would prolong its hawkish monetary policy. The minutes from the Fed’s latest policy meeting implied that the central bank would persist with increasing interest rates until there was evidence that inflation was under control. Moreover, the upcoming release of the core PCE price index on Friday could provide additional indications on the tightening cycle path. Conversely, the European Central Bank is expected to continue raising interest rates after stronger-than-anticipated data showed Eurozone output growth improved in February to a nine-month high due to more efficient supply chains and increased demand.
Technical Analysis: The currency pair is currently experiencing a bearish trend as indicated by the downtrend line. The 8-day exponential moving average, represented by the red line, also confirms this decline. Looking ahead, the key level to watch for potential bullish momentum is at 1.0645. If the pair can break above this level, it could signal a shift towards an uptrend. However, if the 1.0580 level is breached, it may indicate an increase in selling pressure and potentially lead to further declines.
yes,its true. He will manipulate with market this way,that you will jumpt into it,the simpliest way is to stop price at specific level several times ( 2-3) .Next time He knows you will open there ,and not only you,but alot of people as well,this gives HIM liquidity. When you open buy,because of suport line (the one that he made for you) you buy his SELL limit order,you bought ,He sold, price falls. Your stop loss of your BUY order is SELL LIMIT ORDER (vice versa of ur initial trade) .Your SELL limit order (stopp loss) is HIS TAKE PROFIT. Because HE SOLT TO YOU AND NOW IN ORDER FOR HIM TO PROFIT HE MUST BUY BACK. And his buy order will be filled by your SELL LIMIT ORDER (your stop loss)
HE works only with limit orders, he cant buy or sell the amount he needs. Lets say for example HE wants to buy 1 milion shares of facebook (stock market),HE can not do it by market order,because HE wont be filled,there are not so many willing to sell to HIM,so what HE does is - he collects liquidity by manipulating market with limit orders .
The problem is : people dont want to learn how markets work,they just look charts all day long. They think they will understand market if u draw some lines add 100 indicators and so on…There is too much money to be that simple. People must understand how markets work first of all,what is happening behind bars on your screen,and only then to start to trade.
