Most important thing to know as an Intra-day trader

The most important things to be kept in mind while you trade an Intra-day chart, which is "context" and Below is the example of eur/cad which In which strong conviction was to break to the upside, But one thing was with the bears was the background which was very weak after strong trend, we had immense selling and price totally was in range.

In a trend there are always two type of "participants" First of all, there are innovators and then motivators :) Numbers will not help you (it's not about probability at all :) ), they reflect patterns in human psychology. If you take the whole number of market participants (speculators) involved in a trend, you will probably see significant growth as trend emerges. Those numbers show approximate percentage of participation.

Update on how they use to trap and we should wait for complete close.

So, idea behind this chart is that we should wait and see the behavior, why they are offering low price to enter again, and allowing a pullback entry at cheaper prices and the reason I have mentioned Innovators start selling the price from top, and motivators try to trap you to join the trend once again,

But the result is often different as in this case and I am still looking for much powerful decline in the pair.

Top-down analysis Yearly,Weekly and Daily Extremes

Here ! I’d like to share my ideas on top-down analysis with community. «Top-down» analysis is type of analysis that you do when you watch price action from big picture perspective.

Top-down analysis. Understanding different timeframes

«Top-down analysis» is not a «3-screen» system. Though it may be reasonable to analyze price chart on H1, D1 and W1 simultaneously but that’s not what I do. I use only M30 and D1. By «time-frames» I basically understand not charts but market participants with different perspective. First let’s make brief description on each timframe.

Notice – I’m not talking about retail traders with 100 dollars account, they can not move the market even on a distance of 1 pip, even if they will bring 10000 positions simultaneously in one direction.

I will be rather talking about interbank dealers, some of them will also act like day-traders – most of day time-frame traders will have no position until market close.

Domination

Core concept is that inside one period of time market is driven by certain market forces – either day-traders, short-term traders or institutional demand/supply. If market is dominated by day-traders, opportunity will be pretty limited. However, if market will be driven by institutional players, trend will be able to continue (market is supported by higher time-frame) Now let’s try to make classification of major market participants.

Day-traders

Professional day time-frame trader are usually market makers – in other words they tend to work near levels that accumulate enough volumes and avoid trading outside the range of the day. Reference points for them: previous day’s high and previous day’s low.

If you see that market goes exactly to previous day’s low and high, probably market is dominated by this group. It means that price action will have limited ability to go further in this case. Unless there are any clues for other time-frame trader (OTF), opportunity will remain to be limited.

Other-time-frame-traders !

Auction market theory has excellent word describing market participant that has perspective at least more than 1 day – «other timeframe trader». We don’t care whether market is driven by short-term swing trader or position trader from hedge fund – we assume that they have enough capital to move price and have some different perspective – what seems expensive for daytrader, maybe cheap for them. They even may not have charts – they make decision using other principles and criterias.

Stop running

Stop running process can be indication of OTF presence. Forex market has huge turnover and liquidity but positions of market participants are also huge – that’s why they often don’t have enough liquidity near certain price level to accumulate position. Remember – they don’t have brokers and buy/sell button. They have to deal with real interbank liquidity and accumulate position piece-by-piece.

If you see stop running in whatever direction, it may be indication of large OTF accumulating long/short.

Reference points

If you see that price is breaking out consistently weekly or monthly extremes (as well as 2-day or 3-day extremes), it can be indication that this instrument is «in play». We don’t know final destination though – it can be either short or long accumulation, we should remain flexible about destination.

That’s example of build up on Gbp/usd.

1. Price is breaking out previous days’ high (and possible executes stops of short sellers)

2. Price is breaking out high from (2 weeks high)

3. Price is breaking out previous week’ high.

This instrument is «in play». But what to expect? We can expect rapid movement in whatever direction. I personally was trading to the long side on violation of rotational center. But I failed to reverse this position though I had to – final destination was not defined. Nice move to the downside followed.

some trades updates ahead of ECB update

Price does reflect everything but when why every level is not important, Specially in strong trends while price bounces off support and resistance consistently, and provide you hints that price is about to reverse.

But when price start reacting with slow tempo, after the strong rallies, then still it would some more reasons for the reversals

Intra day Price action Reversals

The chart below of usd/chf is pointing towards test of high atleast but we have to cross that strong "new supply" for the price to gain momentum and react as expected and It has tried once but not succeed.

If we manage to stay below and manage to create a new low, then I would assume that downtrend is confirmed, but if we strong cover that area with ease, and price start gaining momentum, then short term reversal would confirmed.

Whenever we see opportunities, then we need to see the logic, means there has to advertising mechanism, when supply and demand exchange hands, and when that happens price use to trap retail traders, and when you plan to short rallies, ahead of big release then short covering give you heavy losses.

Now when stops have been taken both sides i.e longs and shorts price action has become neutral to breakout level. Below is my view about that opportunity.

Does price reflects everything and if every area is equally important for market.

Hi traders! Everbody knows one of basic principles of technical analysis – price reflects everything. Let’s think about it for a while. Many traders are caught in the price action and ask – «what in the world does it (price) reflect?».

If fact, market needs some time to reflect demand and supply in the price action.

This is a weekly chart and you see that price action here really reflects activity of all major players who are interested in this market. This is big timeframe and takes 1 week to complete this figure. Strong side of the market (smart money, market movers) is automatically visible after bar (candlestick) is closed. If buyers were dominating the market, we see rising bar (candlestick), if sellers were dominating – we see declining bar (candlestick) e t.c. In this particular situation, we see that buyers were in control.

We immediately register much more ambiguity, volatility and uncertainty. Price goes back and forth. No one would say with confidence who is in control here.

So, we come to conclusion that, yes, price reflects everything but it needs some time to do that. On small timeframes price becomes advertising mechanism that fluctuates from high to low prices to attract buyers and sellers for whatever reasons. What does it mean that price is an “advertising mechanism»? It simply means that goal of the marketplace – to bring together buyers and sellers, to facilitate trading.

Market works as an auctioneer. Imagine some auctioneer that tries to sell something to the public. What will he do? He will claim starting price and if no one is interested, he will claim lower price until any buyer is interested. That’s how market operates, nothing new about this.

If you want to purchase something, will you blindly buy something just for the reason that it is advertised? No, you will not do that. You want to know fair price, in other words, you want to know not only price but also value. You don’t want to buy something overpriced. That’s a main difficulty of technical analysis. It’s been said that price reflects everything, but we see it only in retrospective. In real time we see semi-stochastic process of price action going back and forth.

Find where the value is To avoid being trapped by the price, traders needs to know where the value is. In a nutshell, value is a area of acceptance, area where all timeframes are comfortably trading with each other. To find value, you should pay some attention to parameter of time. The more time price spends near certain price level, the more accepted this level is. For example, on a sample below we see that market was holding certain high prices within some period of time, and when price tries to get away from this level, market rejects is:

However, time also is a double-edged sword. Too much time time spent near price level means that market is preparing for big move (thus, is not going to stay near this level):

Sometimes it’s hard to identify value. It’s not easy process and sometimes market will rotate waiting for more information.

Market profile

The most convenient tool that allows us to see how value migrates, is market profile. It is a tool that organizes data using distribution as a core principle. It shows – how much time price was touching every level within a trading day and builds «value area». Value area is an area that combines 70% of data within one blue rectangle. This is an area of acceptance. When price emerges from this area, it will most likely revisit this area again. But there are times when market builds new value higher of lower without revisiting former value areas. We call it a trend

price action basic and swing trading

«Thing that hasn’t happened is sometimes more important in the market than thing that has happened»

I want to start this thread with this strange sentence. We will talk about trading logic. How do you make decisions? Do you look for signs of buyer and seller and act accordingly?

Price action basics.

Think about simple thing –price action itself (trend, movement) will not allow you to benefit from that. Some movements are continued, some are reversed.

It depends on current market conditions, but probability of success will be close to 50/50 if you simply follow price action (substract spreads and rapid volatility spikes and you will get perfect strategy for failure).

So, what works?

If you dig deeper than simply following price action, you will understand that supply and demand will drive the market. But supply can be short-term, then transform into demand and vice versa. So, you have to rely on professional supply and professional demand and be able to distinguish it between other fluctuations.

all that we learn here is designed for that. Professional demand (or supply) in most cases is ongoing demand. But are we naive enough to think, that professional buyer will uncover his actions for you in easy identifiable and straightforward way? No, they don’t do that!

There are numerous attempts to capture signs of professional activity using volumes. Some traders think that if they have volumes, they have real information. Poor guys!

Volumes are also misleading. So, one can not be successful in trying to capture big buyer from the market… if he thinks in conventional way.

Market tells you a story and you should understand this story, combining nuances and clues (even number of volumes if you like) in the whole picture.

< 1. Market breaks out from a level and keeps level above. You see strange passive behavior of sellers –market shows you levels with very low volatility and holds there twice! If sellers were interested in this market, they would probably responded immediately. But you see no participation –something wrong with the supply is going on here. Therefore you can anticipate that big guys are buyers! They’ve collected all supply below and no one wants to go against them at least for a while.

Not surprisingly price breaks out to the upside again.

2. There’s neutral day after the breakout. If there were short-term traders who have made this breakout, they would liquidate pretty soon. But nothing happens –nothing at all! All day price goes back and forth with very low tempo. It means that probably those buyers were big (institutional) buyers.

Every time you analyze the market, you make narrative. Be sure that your narrative is reasonable and relies on solid market logic.

There are some important principles:

1. Institutional buyers will sell on the upside breakout (not downside)

2. Low volatility after high volatility (directional breakout) shows lack of participation. The less liquidity (participation) we have near current levels, the more odds that market will auction higher.

Is it complex?

Yes, it is. But this is mindset that requires from you some disbelief, some critical view, some commitment to dig deeper and see what is hidden. That what trading is about.