Price Attraction Points

Practically every trading system/method/approach i've seen, read or heard about is based on finding a Reason for Entry.

Its a trend line or s/r level, its a moving average or a momentum indicator, its a harmonic step or a fibo or a fibo confluence, its mercury crossing venus, its even an airplane in the night sky like a shooting star (save your wishes for later).

So when the Reason presents itself, we take entry, wait and hope.

The trade has a profit target or exit rule. A trend line, a s/r, a moving average, a fibo extention, a box projection, a bollinger band, a heck that'll do i'll grab it now etc.

But does the trade (price) have a Reason why it must reach that exit price level? Are there points on a chart that act as Price Attraction Points?

(This is why you hold your breath after you pull the trigger.)

If there are, and if we could recognise those, this approach would turn trading on its head. Why? Because you would trade based on a Reason for Exit, rather then a Reason for Entry.

I have an awkward habit of over complicating the elementary, so by way of example consider the following:

If you knew that the euro would reach 1.60, rather it must reach 1.60, you would buy and wait. You would not panic if the position was against you for a while (time aside), because the price must go to 1.60. You would not panic if the position was against you several hundred pips (leverage aside) because the price must go to 1.60.

That is to say you would take a trade based on having determined an exit price, as opposed to an entry price.

An example of this approach is gap trading where the assumption is that a price gap will be filled and so the level is targetted til it is.

But i wanted to ask about price action. Are there market structures, wave structures or candle stick patterns that attract price? (Such that you will always witness price returning to those levels.)

I have some thoughts/observations, but am keen to hear your input and see your examples.

(If you want to discuss this offline. Just send me an email or ping my skype.)

Let's take an arbitrary example. If we observe say EUR/USD trading at 1.4050 and then see it trade up to about 1.4095 before turning around sharply; ie. price spent very little time in that region - in terms of orders, can you propose a possible explanation for that observed movement?

Regards,
xXTrizzleXx

Mean or median line is a target that price is supposed attract price.

For example you can use a simple moving average of say 100 bars to (somehow) predict the target that price will come to in future.

Price is used in the calculation of the moving average. Thus if anything, the moving average will actually follow the mean movement of price over a period of time, not the other way around. The rate at which it follows price, depends on the length of the period. In a sustained downtrend or uptrend, a moving average will certainly have no power to attract price, because there is no reason for it to 'move' to it. In any event, what determines what period length is he supposed to use?

Not trying to offend here, but if Organisation A for what ever reason needs to transact $X million EUR at a particular price, or is interested in keeping price at a particular value, what concern do they have for a moving average that in most cases only you, and perhaps a fraction of the retail market are watching?

Regards,
xXTrizzleXx

Hello,

Price have always a reason to reach a particular point, infact the best way of trading is knowning your exit, and guessing the entry.
In this way, even if your entry is not perfect you still don't care because exit is what will create the profit.

Knowning the exit point is however the hard part, but during certain situations find those points is not soo impossible, especially when a clear trend is defined.

Below an image that i hope can help!

Hi wmd,

first off, I really like your "deadly accuracy" thread , it's a gem, and the methodology described therein is quite similar to what I've been doing.

I'm not sure whether you have ever looked into Market Profile (MP). I'm not referring to the whole theory behind and around MP, just the profile itself on a chart.


In case not, by looking at the chart attached, you will probably realize that you have been trading off of the "valleys" and "peaks" in the profile most of the time.





To get to the topic of this thread:

Market profile derived price levels are the places on the chart that can serve as future targets.

The market trades from one level to another, that's the critical place where the battle between sellers and buyers takes place since ( esp. in case of the peaks) that's where a siginicant amount of positions have been initiated which will be defended, closed, stopped out or reversed and thus lead to significant movement that could be the basis of a new trend.

So, the next significant level away from your current position can be a reasonable price target. Thats where I become alert and watch out for possible reversals or continuations with the help of other tools.


That's just one way of looking at it, no holy grail, of course.

Calculating targets with high accuracy and probability is so much harder than obtaining a good entry, since the former takes places further out in time than the latter. ;-)

Thanks for your responses.

Perhaps to illustrate with a practical example.

If you trade patterns you will be familiar with quad formations.

I've noted that after a quad break out, price returns to the quad, following that you have a swing back to trend, then continuation or reversal. So centre quad would be a price attraction point.

To date i've witnessed this with every quad bo. If any one has an example where it failed, i'd appreciate a look in.

I always base my trading on entry, sometimes not even knowing the exit, but when i think better, it has much sense what you are saying, price really has attraction points, i think i'm gonna pay better attention on that in the future. Let's say trend is up, in order to reverse (or retrace) price have to come to some kind of barrier, price will keep going until it reaches that barrier - level where bears are waiting. So up-move is safe until it reaches resistance level, that resistance level is an attraction point.

If we were to apply this approach (in theory) to the quad bo; when you see a quad bo and price has not returned, you would seek to trade the return swing.

You would do this because price must return to the quad and that will be your exit.


Another interesting structure is the hammer or pin which begins a counter trend rally. Any observations?

Hello MWD,

Although not trading forex, but stocks, I think I have a quite unique way of finding an exit price. I use ranges in 2 ways. A clever person must be able to use it somehow in forex, as i see some pictures mentioning ranges.

1st) to determine narrow ranges (NR) or wide ranges (WR) Markets move always NR-WR-NR-WR, etc, or differently spoken expansion, contraction, expansion, etc. The NR periods are not interesting to trade, as we need movement.

So now we have movement and take a look at the 2nd way.

2nd) to find a possible exit. When in an period of expansion (or trending) there is (sometimes) a relation between the opening price (O) and the high (H) and low (L). I measure the difference (O-L) and ((O-H)), yes it 's mathematical.

Now here is the fact: In an uptrend the O-L will become smaller every day and the O-H bigger. Of course not always.

In a downtrend it is the opposite way. So O-L getting bigger and O-H smaller.

Daily Price will move to one of both sides (H or L) first. So now we have part of the range and can calculate the other part..... or better said a possible EXIT.

I will try to upload an image in my next post, -as this will clear things- when i see this one is posted by the administrator, as it is my first posting in forexfactory.

http://i52.tinypic.com/2igm0x4.png

There is a relation........

The "quad bo" is simply a short term balance area, a high volume node or "peak" in MP terms. It is usually retested after the break out and is a good target.



Very likely it will return to the quad some time, but when ??

It's a warning sign of trend reversal...imho you will lose your shirt if you place trades based on these candles alone...but they sure can be incorporated into a strategy.

I'd like to put time and leverage/equity aside for the time being.

What interests me is that do price structures form where price 'must/will' return definitively rather then 'is likely to'; the evidence needs to be empirical. We can work out a way to trade them later.

i think mr market shows its spirit in candlesticks,and up or down formations,but obviously theres always stophunters which always shake u out a bit,

"But i wanted to ask about price action. Are there market structures, wave structures or candle stick patterns that attract price? (Such that you will always witness price returning to those levels.)
"
i dont see how they attract prices,what i think how movements can be calculated is by staring at it and loooking at the speed it moves in one side compared to the other there u get a feel for its spirit and false moves ,false moves would always have resistance the its speed and passion for that direction,but for staring at it all day u need a good days sleep,i use to do this before,but when i started thinking about mm i would always get nervous and stop following the movement,.rather than doing it without money

Interesting notion.
From what's posted there and my own convictions, I would presuppose areas calling for re-testing would be price attraction points: costs of doing business (moving the market) increase the more somebody is selling into your buying or buying into your selling. If you are unsure of amount of supply/demand standing against your interest, cost-effective solution is to probe price-motion junctures to challenge bulls/bears to come out of hiding (instead of pushing even further and potentially be hammered by them; this also establishes coordination function in the markets).
Gist of the proposed trading method is in my opinion pinpointing such areas of confluence that leave the side behind eventual break-out so unsure of what's left back, that it cannot be interested to propel price away.

Hi WMD,

Can you give me your definition of a " quad bo ". I tried to google it, saw a lot off nice motorcycles but nothing about trading. Looking at your examples it looks like some kind of short time range. Please explain.

THanks

hi will. are you seeing 160 on euro or was this just example?

please share

hi will.

is this a quad?

ps. i have sent you some email.

Yes it is.


(I replied to your email earlier, you should have it by now.)