How and why do markets move, and how can you profit from them?

Hey guys!

I want to begin by saying that all opinions are welcome and I hope that this might spark a great discussion on whatever the topic ends up being.

I’ve been trading for couple of years now as a hobby more or less. I’ve gone thru tons of different strategies and even though succeeding with them, I’ve always ended up looking for something else. In the past two months I came more aware of auction market theory and of course market profiles with it.

That's when I realized that all of my strategies were more or less focused in some indicatior or candle to act in a certain way, but I never questioned why those things worked or didn't work They usually simply signal that the preferred side of traders may move the market in one of two ways. But because of my stubbornness, I just can’t help but wonder, why?

So I've begun to monitor the DAX (mostly because the daily turnover of the DAX is much lower than that of the E/U) to see if it's possible to identify traders positions. I know this could be done much more easily using dom and footprint charts, but what I want to know is where traders place their buy/sell limits, as well as their SL and TP. To see how price reacts, I've mostly used volume and pivot lines from intraday swing highs/lows. What I've discovered is that when price is arriving to a pivot line with high volume, it usually is followed by another high volume large candle before reversing.


(This isn't an ideal example, but it illustrates what I mean. I also have Laura's roadmap template, which thread I highly encourage to visit the thread if you haven’t yet.)

Here you can clearly see that after (as I see it) sell limits gets ’hit’ price forms high volume candle on pivot line. After that you can see another big volume candle where SL’s get’s taken out. As a result, the price is overpriced, and there is no genuine buying, resulting in decreased volume and price finding orders below the price.

I'm looking for opinions and knowledge from others who have been able to take advantage from this kind of thinking, as well as any great resources from which one could learn more.

Today was a mystery for me. Why did the highest volume occur at the top of the swing? Also, why did price trade inside this range for the rest of the session? Did they clear market of limit orders above the opening price?

See how once again there were orders at the low of the open candle and price 7 points below the open with some volume to trigger SL’s.

Also, I want to make it clear that even tho my screen shots are taken with phone I do not trade on my phone

Attached Image (click to enlarge)

Hi Lemppari

The highest volume is often the top of the swing because Sellers on a up swing are facing capitulation of their trading accounts. So it’s not buyers not interested in trading but sellers becoming barren and non existent.
It probably stayed within the range because lack of interest from both buyers and sellers.
We need to see imbalance of orders 3 to 1 before we get any real movement, there can’t of been enough desire in either camp.

Cheers

MA Channal Number?

I can share some of my experience and I must confess I have no clue why price move except knowing how it moves and how to follow the PA.
I was at your stage now many years ago and I know how you struggle to find the right answer. Sometimes you think you have the answer but the result disappoints.
Actually it's very simple and why it's so is because i already knew how to follow the PA. This may sound arrogant and offensive to most but the truth is just that. I don't know how to put it in another way.
I have outline how I did it in my thread. Just 1 simple MA and coupled with a fixed value will tell the whole process on how price move. I won't reveal what the fixed value is and you have to find out yourself and once you know then you will find it's so simple just like me. No fanciful indicators nothing nada.
Hope it helps.

Cheers.

That makes sense, thanks for the insight Rick!

It was interesting to see how the overnight inventory drove up the price to the highs of the peak where there was no more buying, again. The next day, it doubled the previous day's range and created a much larger valley. However, this time the poc of the move was at the bottom of the move, but there was overall more volume on the bottom.

Attached Image (click to enlarge)

This time, the price moved directly north. Could this be a big player acquiring a position, or do they want retails to open sell orders with a stop loss to let them bid higher?


That makes sense, thanks for to insight Rick!

It was interesting to see how the overnight inventory drove up the price to the point where there was no more buying. The next day, it doubled the previous day's range and created a much larger valley. However, this time the poc of the move was at the bottom of the move, but there was overall more volume on the bottom.

This time, the price moved directly north. Could this be a big player acquiring a position, or do they want retails to open sell orders with a stop loss to let them bid higher?

Go check out Laura’s Roadmap thread.

That's fantastic! I am also in a fortunate position because I am profitable, but I lack confidence and answers as to why it is working. My trading is mostly done by feel, and it’s missing statistical/ researched setups that gives a ’known’ probabilistic outcome. I'm not sure if this will backfire badly at some point, but for the time being, I've been able to make some good money. But, before I can increase my account and try to make this my profession, I must first find answers to these questions. And that’s one of the main reasons I thought it would be a good idea to put my thought process into writing and hopefully gain valuable knowledge from fellow traders.

I draw two lines to represent the high volume area on this peak. I was curious to see how price would react if it returned to that zone, because I couldn't see any structural reason for volume to be so high there at the time. On Friday, the price broke above the zone and encountered some heavy buying within it, but it was unable to break below it.

Yesterday, during the first half hour of the London session, the price made another valley. However, take note of where the price found itself buying once more. Why is it attracting such a large number of orders? There is no structural reason for this, in my opinion.



Here’s another picture of the same area on M30 charts. There’s nothing to the left obviously.

Maybe I shouldn't be so interested in figuring out why markets behave the way they do. To see things as simplistically as I'm trying, there must be too many variables to make it possible.

Today was a great example of how valleys may provide a lot of information. I marked the nearest complete high volume nods from POC with the upper green zone. Low volume nods were also marked to see if price could "fill" them.

Take a look at how these zones were remembered by price. Even though there were only a few high volume candles inside the zones, they were enough to keep the price from moving through them, at least for a while.

Here are two possible trades that I would have taken during today's trading session (I didn't have time to trade). However, the first one lacked the volume that I prefer in such setups. Normally, I prefer to see lesser volume after an SL hunt candle, however in this case, volume increased in the next candle. But the location was simply too good to ignore.

The next trade on the other had did present the type of volume I like to see.

Literally forgot the existence of this thread, lol.

Biggest change is that I've taken a step back with the horizontal lines. It's easy to analyze those afterwards, but not too easy to find the valid ones day after day. Also came to the conclusion that subjective drawing on the chart ain't my strongest quality.

Yesterday took only one trade on E/U. Day before yesterday price found buying around .1806-1801 zone. And when the price yesterday retraced to that level and made the pattern where first candle is down candle with big relative body followed by lower volume opposite candle, a stupid proof setup was ready.

It was interesting to see that the price didn't hunt all the SL under the day before yesterdays lows even though the setup was pretty clear.