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Why it is possible to predict price movement?

  • #21
  • May 1, 2012 10:54am May 1, 2012 10:54am
If you could somehow get a feed from all the brokers and big banks as to where the large orders are, you could sort of know where the market will change direction at what level aswell, now theres an idea...
  • #22
  • May 1, 2012 11:21am May 1, 2012 11:21am
Quoting GDR3k
If you could somehow get a feed from all the brokers and big banks as to where the large orders are, you could sort of know where the market will change direction at what level aswell, now theres an idea...
That's what the Market Depth/Level II is for.
  • #23
  • May 1, 2012 11:25am May 1, 2012 11:25am
Quoting jeanlouie
That's what the Market Depth/Level II is for.
On ctrader with fxpro they say its level 2 pricing.

However what I meant was, if there was a way to feed some sort of overlay onto your charts, a feed from all the brokers and big banks, which had pending buy and sell orders and of what size, if that make sense.
  • #24
  • May 1, 2012 11:33am May 1, 2012 11:33am
Quoting GDR3k
How would one go about attaining level 2?
Level 2 is 'the order book' of the market. It lists all the bids and offers with quantities that are currently entered into any trading network, in otc forex, this would be ECN.

MT4 isn't properly equipped to handle a market depth (but MT5 can), so if you want it you'll simply have to go with a broker that offers it. As far as I can tell the market depth is most helpful in stocks/futures/commodities as these instruments are all centralized into exchanges so you'll see the depth of the aggregate of all/almost all traders, wheres otc fx market depth you'll only see the depth of participants that deal with that broker ie. other clients.
  • #25
  • May 1, 2012 11:36am May 1, 2012 11:36am
Quoting GDR3k
On ctrader with fxpro they say its level 2 pricing.

However what I meant was, if there was a way to feed some sort of overlay onto your charts, a feed from all the brokers and big banks, which had pending buy and sell orders and of what size, if that make sense.
Hm, best way I see would be to acquire an account with a large broker that provides access to an actual exchange, get a programmer to code an indicator that pulls data from the level 2 and prints it on the chart.
  • #26
  • May 1, 2012 11:50am May 1, 2012 11:50am
I do not personally see how we can get a feel for orders when the market is global and decentralized.

What your broker or brokers for that matter quote is a small percentage of market share. Even at a large spec level, the premise continues to be that the currency market is a speculative market when it really is not.

It is money, money that facilitates trade. Clearing houses, Banks, brokers, exchange houses around the world would have to be analysed for accurate volume, and order flow.

That is why the COT looks at the futures market, but even that does not encompass level 2.
AVT INVENIAM VIAM AVT FACIAM
  • #27
  • May 1, 2012 11:53am May 1, 2012 11:53am
Quoting mfoste1
short term, price is completely random......however long term I believe price does become predictable
there is a study by Georgetown university, regarding market micro structure.

Attached File(s)
File Type: pdf market micro structure.pdf   523 KB | 2,341 downloads
AVT INVENIAM VIAM AVT FACIAM
  • #28
  • May 1, 2012 11:55am May 1, 2012 11:55am
Quoting jeanlouie
Hm, best way I see would be to acquire an account with a large broker that provides access to an actual exchange, get a programmer to code an indicator that pulls data from the level 2 and prints it on the chart.
Sounds good, this would be a BIG advantage.
  • #29
  • May 1, 2012 12:17pm May 1, 2012 12:17pm
For me, it's a question of culmination. Enough time spent staring at this seemingly random pattern of price movement over a few years will begin to open your eyes to oft repeated patterns. Patterns in waves, in candlestick formations and with how price reacts at particular historic levels.

Then bolt on some understanding of voume, both immediate and background.

Add to that an understanding of market cycles, trading sessions and the likely impact of economic data releases and you're getting there.

If you then throw in some correlation stuff and try to shunt up your probability further, you're further toward where you want to be.

The real key to it for me though is trying to meld all that together whilst watching the way that the immediate action "behaves" at your identified watch level. That takes great time and a real knack.

It's really just a whole series of hints. Nothing will ever predict where price will go for you nor would you ever predict with absolute certainty where it will go next yourself. What you can do though, with time and patience, is build up enough understanding of the hints that the market lets you have that you can begin to trade with a degree of reasonable certainty that price will head in the direction that you suspect it will.

The next step then is to know when you are wrong and how to minimise the damage
  • #30
  • May 1, 2012 12:23pm May 1, 2012 12:23pm
Quoting GDR3k
Sounds good, this would be a BIG advantage.
Eeh, yeah sort of. Even on a centralized exchange for fx, like trading currencies on the Chicago Mercantile Exchange, L2 only displays information of prices close to the current bid/ask eg. you may see Goldman Sachs wanting to buy 1K contracts at some price 3 pips away that will draw increased orders in that direction, you won't see info on what's happening say 300pips away. So use of L2 is best suited for second-to-second, minute-to-minute, tick-to-tick or spread betting traders. And even then you'll have to put more money on the table to make trades that last that long worth while, also many traders would have that info too.

Go here Floored episode 5, at 9:45 you'll see just what L2 would be like, and at the beginning of episode 6 you'll see some other guys too. Granted what they're looking at is just the price feed but imagine it with info of sizes on bids and asks above and below current market, like here Wall Street Warrirors 2min in you'll see info that L2 is about if you were to deal with stocks.
  • #31
  • May 1, 2012 12:29pm May 1, 2012 12:29pm
Quoting kk007
This sounds a simple question, but it is not indeed. There are a lot of trading methods claim working. Nevertheless, I wonder in general what logic these methods based on in predicting price movement.

Can anyone give me a good answer?

Thanks,
kk007
This will sound illogical but it is true. Price is irrelevant. What matters is order flow. Price moves for one reason and one reason only. Because there is an imbalance in order flow. If there are more buy orders than sell orders price will rise, and vis-e-versa. It doesn't matter what the price is, if there are more orders on one side of the order flow than there are on the other, price will move to reflect this imbalance.

You can "Predict" price movement to the extent that you know the order flow but absent that you are only guessing. There are many skilled traders that can anticipate a change in order flow and position themselves just ahead of that change. I would like to count myself among them but I am still polishing that skill.

It doesn't matter to me where price is or in relation to what or what some stupid line on some chart says, what matters is if I can detect a coming change in the balance or imbalance or the current order flow and position myself to take advantage of that.

My main clue in doing this is seeing what the "systems" out there say to do and then do the opposite. This is because I know that all those that trade these systems will lose and I want their losses to come into my account.

Does that predict price movement? No, it predicts "loser behavior".
  • #32
  • May 1, 2012 12:29pm May 1, 2012 12:29pm
Quoting jeanlouie

in otc forex, this would be ECN.
That would be a bit like looking at your ISP's customer base to see how many people are on the internet!
  • #33
  • May 1, 2012 12:33pm May 1, 2012 12:33pm
Quoting gspajon

My main clue in doing this is seeing what the "systems" out there say to do and then do the opposite. This is because I know that all those that trade these systems will lose and I want their losses to come into my account.

Does that predict price movement? No, it predicts "loser behavior".
Nice idea but unfortunately it doesn't work, been tried in numerous different ways but still doesn't work!

It's not (necessarily) the system which is responsible for trader losses, it's the trader. You could hand a profitable system to some people on a plate and they'd still lose money, there are independent studies and trials which demonstrate that point.
  • #34
  • May 1, 2012 12:41pm May 1, 2012 12:41pm
Quoting jeanlouie
Eeh, yeah sort of. Even on a centralized exchange for fx, like trading currencies on the Chicago Mercantile Exchange, L2 only displays information of prices close to the current bid/ask eg. you may see Goldman Sachs wanting to buy 1K contracts at some price 3 pips away that will draw increased orders in that direction, you won't see info on what's happening say 300pips away. So use of L2 is best suited for second-to-second, minute-to-minute, tick-to-tick or spread betting traders. And even then you'll have to put more money on the table to make...
Just watched that Floored episode you posted, it made me laugh when that woman was sat there infront of about 9 screens and she says this is all the exercise I now get, and moves her finger asif she is clicking a mouse, lol.
  • #35
  • May 1, 2012 12:48pm May 1, 2012 12:48pm
Quoting pipmutt
That would be a bit like looking at your ISP's customer base to see how many people are on the internet!
I know, that's why I said "wheres (typo 'whereas') otc fx market depth you'll only see the depth of participants that deal with that broker ie. other clients."
  • #36
  • May 1, 2012 1:02pm May 1, 2012 1:02pm
Quoting jeanlouie

I know, that's why I said "wheres (typo 'whereas') otc fx market depth you'll only see the depth of participants that deal with that broker ie. other clients."
Right, so not really a lot of use.
  • #37
  • May 1, 2012 6:23pm May 1, 2012 6:23pm
Hi Trotty,

Thanks for your input, but your reply seems to explain how to use some technical methods to gain an edge, instead of tell why these method works.

kk007

Quoting Trotty
For me, it's a question of culmination. Enough time spent staring at this seemingly random pattern of price movement over a few years will begin to open your eyes to oft repeated patterns. Patterns in waves, in candlestick formations and with how price reacts at particular historic levels.

Then bolt on some understanding of voume, both immediate and background.

Add to that an understanding of market cycles, trading sessions and the likely impact of economic data releases and you're getting there.

If you then throw in some correlation stuff...
  • #38
  • May 1, 2012 6:46pm May 1, 2012 6:46pm
Quoting kk007
Hi Trotty,

Thanks for your input, but your reply seems to explain how to use some technical methods to gain an edge, instead of tell why these method works.

kk007
Why? Because you have a theory that will give you an edge. You test that edge and it seems to work. That is why it works.

But knowing why it works doesn't mean you can make money out of it.

It is mentinoed by some other posters on page 1. You cannot predict price movement with certainty. There is always that "if i'm wrong" part in any trade (which is a concept some people of this forum does not seem to accept. Check out those martingale strategies)

It is always a probability game. The edge you have is giving you a higher chance of success. That is all.

The why of an edge is irrelevant to making money. The why you are seeking is merely a way to understand the chaos that you are facing. It only satisfies your curiosity and insecurity that you know nothing about the market (trust me, I myself and probably a majority don't either).

Good news is making money depends on how much you make when you are right and how much you lose when you are wrong. Knowing why is irrelevant.
  • #39
  • May 1, 2012 9:32pm May 1, 2012 9:32pm
Yes, knowing this why cannot make one be profitable.
But, I am interested in knowing that as a "scientific" knowledge.


Quoting thelws
Why? Because you have a theory that will give you an edge. You test that edge and it seems to work. That is why it works.

But knowing why it works doesn't mean you can make money out of it.

It is mentinoed by some other posters on page 1. You cannot predict price movement with certainty. There is always that "if i'm wrong" part in any trade (which is a concept some people of this forum does not seem to accept. Check out those martingale strategies)

It is always a probability game. The edge you have is giving you a higher chance of success....
  • #40
  • May 1, 2012 9:55pm May 1, 2012 9:55pm
Quoting kk007
Yes, knowing this why cannot make one be profitable.
But, I am interested in knowing that as a "scientific" knowledge.
The science behind it is not very scientific unfortunately.

Whatever people "predict" is nothing more than anticipating what the mass majority will do (or what the people with a lot of money will do - the likes of banks, george soros or ecb).

For example, you use a certain indicators like the MA crossover to enter trades. Some may say it works because they think the majority of the big players follow it. So if they follow it, they will turn out right more often than not.

Or another example is: Some people say that when you reach a certain resistance point, you should look to sell. Based on price action and risk/reward ratios, selling at resistance will have a higher chance of profit. Again, this is anticipating what the big money will be doing.

The market is made up of humans - all with different point of views. The trick is to follow the biggest players. Every tool or every theory or maths calculation is attempting to quantify human emotion in a way that we can meaningfully use. You should leave it as that unless you like to hurt yourself (and unfortunately doesn't really help you make more money either)

Just as with any human emotion, it is unpredictable. Hence there is no proven scientific way to predict price movement. The most scientific way is probably more of a psychology science than a mathematical science.

You would be better off studying psychology than maths in this case.
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