Good analysis ForexUnlimited, supply and demand for me is the foundation of all business, whether trading stocks, forex or widgets.
For me, I take s/d a few steps further than Sam Seiden’s excellent teachings on the concept.
I ask myself three questions when contemplating demand or supply for a currency;
Who …Why …and How.
I got badly burned back in the dot com bust (thankfully I’m recovered :)), on studying what went wrong with my thinking back then I concluded that I recognized the fantastic demand by both institutional and retail, they were the Who, the internet startups were the How, I totally disregarded the Why, the Why made no sense so the sensible thing to do was to ignore it.
Sam concentrates on Past price behaviour to give the clues as to likely Future demand/supply, he is right, it does indeed provide such clues.
When I add my three elements to my thinking then the future becomes a little clearer.
Who… is creating, forming or driving the demand/supply.
In my early endeavours I concluded that it was the Banks, I later came to realize that no, in fx they are the How.
Then after much research I concluded it was the Commercials.
That theory falls down when ‘the market’ as a whole is considered, the obvious interaction in currencies, stocks and commodities told me that despite perhaps a particular demand by a commercial for a currency the demand does not remain consistent.
The who was staring me in the face all the time, it was so close that I failed to see it, every time I saw market price reactions across the board it was there, risk adverse, risk on, it was there … The Investor.
I once posted that the market lives in the future - the market respects only one body of thinking - the Investor’s (or I should say it’s perception of the Investor’s thinking).
I’ll give a current example of the creation of demand it’s tradability.
Surely this is folly, as Mack said in post 69, there is no grey area - price is destined to fall. If ever there is a re-enactment of the dot com this is it, price has risen dramatically on seemingly insatiable demand, all the signs are a fall is imminent, no stop loss - has this man learned nothing from his experience of 13 yrs ago?
Indeed in the days that followed many ‘experts’ talked of an ‘important’ high that had been made in cable, some data on GBP was negative, some data on USD was positive, price continued to make lower lows and lower highs h1, and to add to the mix a major risk aversion geo political event.
Yet, strangely price was like the phoenix rising from the ashes, it went down but continued to rise back up. There seemed to be a strange demand despite all the negatives.
There was one huge difference between this scenario and the dot com rise, this rise had a foundation, a reason, a Why.
Post number 70 on the same thread, this portion, a copy of my own journal for Feb12:
this note released at 10.32 on 12th this month is significant in that it refers to the future, is probably conservative and will maintain a pressure on upward interest rates:
“BoE Raises 2014 UK Economic growth forecast to 3.4% from 2.8%.”
The Asian low of Feb12 was 6440, the low of the 10.00am candle was 6440, the BOE announcement was not entirely unexpected.
That was my glimpse into the future, (note that I used that term in the notes) the market and the investor live in the future, this was the Why for the demand that was driving price up, it was built on a foundation - unlike the dot com
Just me thinking out loud, all the time trying to ‘see’ the right side of the chart
I’m not following what you’re saying here? Appreciate the compliment though, but, are you saying I was “afraid” to take a position? I went long @ 1.3725 in this post and provide a screenshot from my broker software? If there is any confusion, I apologize.
Please don’t use terminology like that though - it doesn’t do anything to further enhance the conversation on this thread.
I’d rather just wait and see what price does rather than use brain-power to try and analyze all these factors - which the sum is just you coming into the market with a bias.
Price rules almighty above any external analysis. Caution needs to be aired on any instrument you trade, whether it is forex, common stock, futures, commodities, etc. The reckless trader is the one who blows their account 3, 4, 5 times.
No offence meant just confused your post with another poster.
Yes, I do have a bias on the short side. There is nothing wrong with a bias bad for intraday traders but for me I like to short a pair. Bull markets are too much effort and most retail traders buy the tops of trends. A short move could finish in a matter of days after weeks of Bull activity. Also this pair has a natural long bias anyway, this is evident with open interests on it.
Price does rule. I prefer a 3 dimensional approach, ration, fundamentals and technicals. They all must add up. By the way I never took a trade. I’d rather wait for the alignment.
Fairly contradictory there, not to mention a rather disparate analogy.
If you know price will react at a certain point, it’s usually been fairly obvious beforehand. A “deeper understanding” won’t help when it fails, nor would a “deeper understanding” help you know why it succeeds.
Trying to validate why the market moves puts one in the same category as the talking heads on CNBC. You nor I nor god him/herself will ever fully be able to explain market moves. Rallies counter to bad economic news happen all the time. So do selloffs on good news.
By the time you sniff around and decide things look decent enough for you to stick your toes in the water and check the temperature, I’m probably in it, and already eliminated risk with a stop move to B/E. All the while watching SpongeBob.
Nice to see your still posting MT… started to feel a little lonely in here as most of the ‘old school’ have sought fresher pastures? SpongeBob? Really?
Flinstones never come on any more:( But I do like an occasional trip to South Park.
As for HoneyBooBoo, I would rather try to catch a .45 slug with my teeth. The only think missing there is mud, and a squiggly tail. I hate “reality” tv, unless it’s Chip Foose fixing up a hot rod. I do however watch a lot of movies. Favorite genre being science fiction. An occasional Bond flick works too
I’m not married to it – I was trying to illustrate my point by using an analogy, but it may not have come across as accurately as I would have liked.
May you explain what you mean by this a bit more – sorry I’m not picking up what you’re puttin’ down? What I was getting at was that “Supply/Demand [analysis] coupled with basic price action principles” are far more superior methodologies than the majority of strategies which are most prevalent today.
It may seem that buyers stepped into a market because an oversold stochastic level lines up with a FIBO to a novice trader. But, the reality is that @ that current price, there was interest to buy because of underlying supply/demand dynamics. Clearly this is just terminology used to explain that interest.
Sorry – not sure what you’re getting at?
You’re right – that would be a gargantuan and fruitless task. Not trying to claim anything other than how I interpret movements in price as related to the principles of supply and demand.
Can’t disagree there.
One of my favorite tactics is to fade news-related rallies. In the last few weeks alone we faded:
[ul]
[li]USDCAD on 2/26 intraday after a positive USD housing figure
[/li][li]USDJPY on 2/26 intraday after Rosengren’s speech
[/li][li]USDJPY on 3/7 post-NFP
[/li][/ul]
So, Ad Hominem attacks aside, may you please explain how you came to this conclusion based off my short tenure on this forum?
Personally speaking though…[for the record]…I’m more of a Rugrats type of guy. A sponge living in a pineapple under the sea with a pet snail and star-fish for a best friend? Little bit too far out there for me…haha. That show does have some adult humor in it though which is pretty funny at times. But, I’m on Team Pickles all the way.
Price reacting to a level of supply/demand shows itself repeatedly. Sometimes it’s a stationary number, other times it’s a moving target. The very levels you are describing can be found and noted for further reference via a simple line. You seem to think lines are useless, and are just something to give yourself a visual aid at best: (from post#2)
a FIB and a trendline are nothing more than lines on a chart - I honestly place zero value in them to provide trading opportunities, other than simply using them as a visual aide.
While I agree that fibs are no more useful than a myriad of other indicators (largely because of the ineptitude of the person drawing them), I certainly don’t subscribe to the thought that a line I draw is useless. I get high value risk/reward setups all the time using nothing more than a few lines.
Overbought and oversold are two of the stupidest market axioms ever invented. Chances are, if a stoch shows it is at one extreme or another, it’s peaking on a line I’ve already had on the radar for a while.
You tout a “deeper understanding” is the way to go. It actually falls into the same category as rallies on bad news, and selloffs on good news. There is no “deeper understanding”. Fact is, if the BIS needs a few billion euro, there is no deeper understanding that will help you with EUR/USD short. You’re hosed even though when you got in all the deeper understandings in the world pointed to a lovely short trade. It goes along with market sentiment. This isn’t about the attitude of most traders, it’s about the direction of the most dollars. Most of them could come from one source, and overpower legions of trades in the opposite direction simply because of the size.
You’ve repeatedly pointed out that once price hits certain levels, you watch and then decide what to do. I’ve found that more often than not, if I sit around once price hits my levels and watch, I’m still sitting on the bench when the train leaves the station. Watching tends to lead to late entries. Late entries equate to larger stops. I don’t like large stops. At the end of the day, price is a creature of habit. There’s no need to understand why it moves, just as long as you can identify WHERE it will move.
One other thing, I’m not really seeing ad hominem here. I just pointed out that by the time price rolls into my radar, my thinking is done. You have to watch it when it gets into your zone. It’s a simple difference in application. My wording may have been creative, but it illustrated the point.
I would rather watch old Looney Toons. Bugs is a personal hero.
EDIT: Speaking of attacks, one could say that the use of LMGTFY was rather passive aggressive by assuming “ad hominem” wasn’t understood. Somewhat an ad hominem act in itself wouldn’t you agree?
I feel a lot of novices get stuck focusing on horizontal lines as “lines in the sand”. In the sense that a trader places orders off levels, I do hold that lines are useless – and that’s my opinion. You’re definitely spot-on though, maybe 2 or 3 times out of 10 a level can be a simple line. From a purely mechanical standpoint, if you and I are both getting in @ one specific price, then a horizontal line would make the most sense to capture where you’d like to get in.
For me, using a rectangle is a bit more representative of true demand/supply. Mainly because, all traders aren’t getting in @ a single price. Obviously it’s impossible to ascertain exactly where orders are placed, but, I do prefer to use rectangles to signify areas of interest on a price chart. I equate it to shopping for shoes in RL. If I walk into target, I personally don’t say to myself “I’m only going to buy a pair of shoes which are $59.50”. I say, “I’m willing to spend between $50-$60 on a pair of shoes today”. This doesn’t translate 100% to trading, but, it’s just how I approach the market.
I agree 100% - I now see what you’re saying. Like I mentioned above, your ability to plot an entry point via a horizontal line is most likely based off of years of experience watching price on a chart.
Agreed/Likewise.
Really can’t argue this because again you’re spot-on. However, I will say that I think the probabilities are in your favor if you trade with a robotic mindset. Wins/losses will be randomly distributed, so I don’t walk into any single position expecting anything to happen – neutrality is my approach. Sometimes I get tagged, other times I have a runner. There’s no way a price chart can encompass exactly what you mention, because we can only trade what we see and what has happened. Additionally, I don’t keep up with any fundamentals except for major economic releases – so I’d be even further in the dark.
I feel that if your system gives you a trade, you take it no matter what – like a robot – and over time, if you’re accurate, you can be profitable whilst accounting for the one-off scenarios like you’ve mentioned above. The term “deeper understanding” can indeed be misleading.
May you please point this out to me? My strategy couldn’t be further to the opposite end of the spectrum of this. 9.65 out 10 trades I’m setting pending orders @ a level and can care less what candlestick signal fires off before/after my entry. Around major news events, sometimes if I have the time, I’ll know my price and try to get a better entry intraday, but, the majority of times I’m not involved and just wait to be filled.
If I portrayed the belief somehow that I was watching price @ certain levels, then I apologize because this is not something which I’d ever advocate. I think the confusion may be on my part, when I mentioned that “It’s tough to put this all into words, because the concept is not one you can understand overnight. It takes training, and a lot of chart time to watch how price is reacting for each pair.”
What I meant toward the end of the sentence there, was that each pair “moves” differently. Certain pairs will react to certain news in certain ways, whilst others will do the opposite. Some are correlated, some are not. Some are more volatile than others – and some move at a snail’s pace. Some respect traditional horizontal support/resistance, some don’t. Apologies for the confusion there!
Agreed 165%.
Before I respond to this, I just want to say one thing: I didn’t join this forum to debate about debates lol. And, apologize to JRC for hijacking his thread. I liked his question, and decided to provide my opinion and insights into how I approach trading. This tangential crap is not my intention.
Honestly though, I think this situation (like almost everything in history which brews conflict/debate) came from a miscommunication on my part. Specifically, what I mentioned above about “watching price move”. I already clarified that and hope it makes sense. I literally meant sitting at your desk, behind your screen, watching how certain pairs move vs. others and minimally working that into your trading plan.
From one of my statements you thought I was “waiting” for price to do something, so you chimed in claiming a superior methodology. When in reality – we practice the same method. I don’t think I need to prove myself out on this, but, if it’s required to solidify my reputation or trust, I’ll send you the link to my youtube channel – in almost every video, at least 3-4x I specifically state that we’re getting in @ levels and not waiting for anything but to be filled :).
As far as the LMGTFY – I was just having fun my man :). Clearly this is an attack – but hey, you jabbed @ me so I jabbed back. Wasn’t going to bend over for free haha.
Have a profitable week MT – looking forward to more interactions w/ you in the future.
It’s not hard to connect 2 points to a 3rd on a chart after the fact.
Beforehand though, how would you have traded this? And, if I may ask please - did you trade it? If you didn’t, I’d be curious as to why?
Are wicks included when you draw your trend lines all the time?
If so, I’d argue that there is a ton of subjectivity, because any two points on a chart can be connected - and nothing more than two points are required to draw a line.
Check out my image:
Your line appears to originate from the “left” of that most recent swing point. I’m unable to copy the same trendline you see, without using the 3rd (most recent) point of contact.
I have four lines - hope you can see them:
[ul]
[li]Green includes all wicks, further back to the left of your chart, this trendline does not line up as you illustrate.
[/li][li]Blue originates off to the left, includes your most recent swing point, and cuts through this week’s action
[/li][li]Red is inclusive of bodys only, and cuts through the action over the last few days
[/li][li]Orange would be more representative of what you’re trying to depict, by connecting the two most recent swing highs.
[/li][li]Purple is a combination of wicks/bodies.
[/li][/ul]
Before that high was put in on your chart (the 3rd point of your trendline), all you would have had was the 2 recent swing highs to create a trend line. May I please ask - does your trading plan call for taking trades off two points? In other words, how many trendlines can one create on a chart, off two points?
I’m just trying to gain an understanding as to how you would have been able to project that rejection, seeing that the drawing of trendlines is subjective. How do you determine how far back you need to look on the chart before your satisfied enough to put a line down?
