I'd like to share a quite radical approach to this forex trading arena.
I'm going to give a "live" scenario as an example.
In this scenario, banks have their own insider/volume/positions info as an edge.
Scenario: EUR/USD trading
Start time: 8 Dec 2010 bottom (1.3180)
At this point of time, there were lots of buy-limit positions (entry and exit positions) below 1.3180 but only few sell-stop positions, so it was definitely very difficult for the price to go down further.
Also at this point, there were already lots of buy-stop positions above 1.3180 but only few sell-limit positions.
Banks saw this fact, so they decided to "move" (manipulate?) the price up abit. They bought EUR/USD and moved the price up a little. Since there were lots of buy-stops but few sell-limits, so the price easily kept going up as buying volumes were larger (buy-stops vs sell-limits).
By the time EUR/USD hit 1.3320, the scenario was reversed.
There were now lots of sell-limits and few buy-stops above, but lots of sell-stops and few buy-limits below. Banks who could see this info decided to again "move" the price down abit. Now the price easily kept going down as selling volumes were now larger than buying (sell-stops vs buy-limits).
When it hit 1.3164 bottom, the condition was again reversed back to what it was when EUR/USD bottomed out at 1.3180 before. Banks, again, "moved" the price up abit and voila, it's been going up until recently.
Now, banks are waiting to observe whether there are lots of limits and stops above or below.
If later there are lots of buy-stops but few sell-limits, banks will likely "move" the price up. If there are lots of sell-stops but few sell-limits, banks will likely "move" the price down. Whichever will be easier for the price to move.
Conclusion:
Forex prices almost always go to a direction where there are lots of stops but few limits so it's easier for prices to move in that direction. Forex trading is a stops-pounding/smacking arena. Obviously far more stop positions are usually triggered/executed than limit positions.
The only exception is if there's an intervention by central bank, but even central banks normally have difficulty against the market.
Therefore, we have to be careful in putting stop-losses.
Is this approach true?
I'm going to give a "live" scenario as an example.
In this scenario, banks have their own insider/volume/positions info as an edge.
Scenario: EUR/USD trading
Start time: 8 Dec 2010 bottom (1.3180)
At this point of time, there were lots of buy-limit positions (entry and exit positions) below 1.3180 but only few sell-stop positions, so it was definitely very difficult for the price to go down further.
Also at this point, there were already lots of buy-stop positions above 1.3180 but only few sell-limit positions.
Banks saw this fact, so they decided to "move" (manipulate?) the price up abit. They bought EUR/USD and moved the price up a little. Since there were lots of buy-stops but few sell-limits, so the price easily kept going up as buying volumes were larger (buy-stops vs sell-limits).
By the time EUR/USD hit 1.3320, the scenario was reversed.
There were now lots of sell-limits and few buy-stops above, but lots of sell-stops and few buy-limits below. Banks who could see this info decided to again "move" the price down abit. Now the price easily kept going down as selling volumes were now larger than buying (sell-stops vs buy-limits).
When it hit 1.3164 bottom, the condition was again reversed back to what it was when EUR/USD bottomed out at 1.3180 before. Banks, again, "moved" the price up abit and voila, it's been going up until recently.
Now, banks are waiting to observe whether there are lots of limits and stops above or below.
If later there are lots of buy-stops but few sell-limits, banks will likely "move" the price up. If there are lots of sell-stops but few sell-limits, banks will likely "move" the price down. Whichever will be easier for the price to move.
Conclusion:
Forex prices almost always go to a direction where there are lots of stops but few limits so it's easier for prices to move in that direction. Forex trading is a stops-pounding/smacking arena. Obviously far more stop positions are usually triggered/executed than limit positions.
The only exception is if there's an intervention by central bank, but even central banks normally have difficulty against the market.
Therefore, we have to be careful in putting stop-losses.
Is this approach true?
Tra-X