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Is price direction predictable?

  • #41
  • Jul 21, 2015 9:56am Jul 21, 2015 9:56am
If you study Market Profile, Auction Market Theory, Supply & Demand, Volume Spread Analysis, Order Flow, or a few other market methods/paradigms/indicators, you will conclude that price is not completely random. And if it is not completely random than it is somewhat predictable. But if you want to move to the head of the class, you will become one with the following statement:

While predicting price may be possible to some degree; to be a successful trader, predicting price is certainly not necessary.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #42
  • Jul 21, 2015 1:01pm Jul 21, 2015 1:01pm
Quoting HiddenGap
....to be a successful trader, predicting price is certainly not necessary.
I concur...
  • #43
  • Jul 21, 2015 2:14pm Jul 21, 2015 2:14pm
New to the world of trading here, so please excuse my inexperience
But can anyone make sance of commodities falling in price(cattle, gold, crops) and yet commodity currencies AUD and NZD becoming more bullish for the last day or two.
Would sure like to hear an opinion of experienced trader on this
Thanks
  • #44
  • Jul 21, 2015 3:10pm Jul 21, 2015 3:10pm
Quoting Ponzi Jr
....I do know that the only thing moving prices is supply and demand. No formula, number, square root, etc, is going to tell you whether bulls or bears are going to have the upper hand next. There is no link between these methods, and changes in supply/demand. If people claim that methods such as these are consistently profitable, then that can only imply that price is not predictable. You may as well toss a coin to decide where price will go next...?
I believe that price movement is predictable, but only in terms of how you define prediction. Here's my 2 cents. As you stated, supply and demand are what drive the price. This can be seen visually on a chart. When one force overwhelms the other, the price moves. We can predict within a degree of confidence, at what price (approximately) demand would overwhelm supply and vice versa based on price history, but we cannot determine ahead of time when it will occur or how far the price will go when it does. In some cases, price may never get overwhelmed at a certain price level. We also cannot predict the momentum at which the price will travel either. It may rise and pullback several times along the way, or it could simply spike or gap up. These things we cannot know ahead of time. A coin toss would give you 50/50 chance of entering in the right direction, which is true, but it does not tell you how to manage risk which as you stated is super important. You can have 50% probability of picking the right direction, but that doesn't mean that every other trade will be profitable. It could mean that the first 50 trades are unprofitable and the next 50 are profitable and you still could be broke. Furthermore, you would have to address, how much are you risking on each trade in terms of pips or position size? With a 50% probability you wins will need to be larger than your losers for you to be profitable. How do you know that your entry will give you the range necessary to profit before hitting your stop loss? Can you predict volatility at a given time? Not really. We can make educated guesses about it. You can be right about the direction and wrong about the time or distance of the price range and still be broke. There are for more variables to trading than most people realize. Price direction is almost the least of them all. You can trade in any direction and make profit if you enter at the right time and exit at the right time. Probability of a larger move is increased when trading in the direction of the overall trend of course. Long term price movements have fundamental reasons why they move. Every movement has a reason, but fundamental reasons can help determine how long a trend may last. Of course this only applies to long term positions in which time is less of a factor. The more time there is for a trend to play out, the stronger the trend can be.
  • #45
  • Jul 21, 2015 6:11pm Jul 21, 2015 6:11pm
Quoting kalesattrom
In 95% cases it's predictable on basic pairs like EURUSD GBPUSD, but with exotic pairs like TRY ZAR MXN it's not as much predictable as basic
I'd say that exotic pairs are not predictable at all. Used to trade TRY, lost a lot. Since then I don't trade any exotic at all.
  • #46
  • Jul 21, 2015 6:46pm Jul 21, 2015 6:46pm
Quoting HiddenGap
If you study Market Profile, Auction Market Theory, Supply & Demand, Volume Spread Analysis, Order Flow, or a few other market methods/paradigms/indicators, you will conclude that price is not completely random. And if it is not completely random than it is somewhat predictable. But if you want to move to the head of the class, you will become one with the following statement: While predicting price may be possible to some degree; to be a successful trader, predicting price is certainly not necessary.

If we look around us we see this simple equation of Supply Demand.

Not enough Supply, Demand takes over and prices go up
Not enough Demand, Supply takes over and price go down

Oh.. if it were only that easy.. Actually it is that easy.. Where the hard part is = Determining where the Supply Demand level is...or is it?

Within the Supply Demand method I trade two structures. I trade the major trend or the extremes of the range. ( only method I know of one can successfully trade both trend and range markets ) Both are directional trades. I am not a believer in that price is Random. If that were the case, then markets would not display the same patterns day in day out, day after day, week after week, month after month for frigg'in years. ( Are there variations, of course..) New pattern arise as old patterns die yet the simple Supply Demand equations holds true.. Is the basis for the move = Directional. If your believe in Algo's there is even more of a case to be made that price is not random but predicable. If price was random Algo's would not work.

Here is where I think Fundamental and Technical analysis meet - at Supply Demand. Prices went up from here, prices went down from there = Directional. Why.. ?? Buyer and Sellers are doing what they do, buying and selling. Let's look at stocks for a moment. There is all kinds of Fundamental aspects to a stocks price that cause it to move up or down..Take Enron - Went from 90.56 in Aug 2000 to JUNK by Nov 2001. What does this have to do with Direction.. Everything.. There was an abundance of Supply (nobody wanted the stock) for whatever the reasons, not matter what the gurus were telling you.. Its Direction was predictable and REAL obvious !! The housing bubble.. Whole lot of Demand.. not enough Supply.. Made prices Predictable. They went up ( go figure, funny how that works ) Then prices turned.. Supply stepped in and prices fell like a rock. Directional...

The point.. Supply or Demand comes into the market, whatever market, and causes a Directional change (for whatever reason).. ask yourself what is Supply or Demand doing in a particular instrument? Can we see it Fundamentally, can we see it Technically, can we see it both ways.

It is our ability to "see" these events, allows us to see Direction. But unfortunately, all to often, a trader trades what they think and not what they see. Let me explain. Scenario 1 - The market is falling.Supply-Directional. Trader "thinks" the market will go long, enters, and gets stopped out. The trader is trading what they think and not what they see.
Scenario 2 - The market is falling. Supply-Directional. Trades "sees" the market going short, enters, and gets out with a profit. The trader is trading what they see not what they think. The trader is seeing a Fundamental or Technical change in the market that is creating (in this case) Supply.
Scenario 3 - The market is falling. Supply-Directional. Trades "sees" the market change direction, enters, and gets out with a profit. The trader is trading what they see not what they think. The trader is seeing a Fundamental or Technical change in the market that is creating (in this case) Demand.
Interesting, we seem to always end up back at either Supply or Demand.
Obvious there is more to this but, we are discussing Direction and its most basic premise which, I think, is all to often overlooked creating loss for more traders.

Lastly.. This business, as with all businesses, are based on Probabilities and not Absolutes. Using simple Supply Demand to determine Direction gives one a higher Probability of being profitable.

Whether you use Fundamental or Technical, or both, using them in the context of Supply Demand will help give you the higher Probability and help determine the Direction you should be trading.

I am firmly in the camp of Supply Demand ( obvious ) as I believe this is how the Smart Money really trades. As they take the other side of the market it is the only way I can see them making profit. Supply Demand allows them to define Direction.

just my 3 pips

good trading to all

TSD
  • #47
  • Jul 21, 2015 8:06pm Jul 21, 2015 8:06pm
http://www.forexfactory.com/showthre...=489893&page=3

post # 56
  • #48
  • Jul 21, 2015 9:23pm Jul 21, 2015 9:23pm
Quoting TraderinSD
{quote} If we look around us we see this simple equation of Supply Demand. Not enough Supply, Demand takes over and prices go up Not enough Demand, Supply takes over and price go down Oh.. if it were only that easy.. Actually it is that easy.. Where the hard part is = Determining where the Supply Demand level is...or is it? Within the Supply Demand method I trade two structures. I trade the major trend or the extremes of the range. ( only method I know of one can successfully trade both trend and range markets ) Both are directional trades. I am...
thanks for the informative post.
do not you think as humans we are keen to find patterns everywhere even if there is non? my personal opinion is we are. this is the reason why humanity exist. we need "recognition", "familiarity", "awareness" for our survival, this why we love predictability. we hate randomness and unpredictability, because such situation would jeopardize our very existence. all these are stored very deep inside us for millions of years. do we accept it or not? this is a different matter.
how do you explain this chart from supply/demand point of view?
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As Above, So Below
  • #49
  • Jul 21, 2015 9:43pm Jul 21, 2015 9:43pm
Quoting Ponzi Jr
Reading many posts on here, I'm beginning to believe that price direction is not predictable. I've seen so many "profitable" systems that seem to have no logic behind them, such as people claiming that they can predict where prices will go by finding the square root of the last few periods; people drawing shapes; using 'magic' formulas and levels. There is no rationality behind this. I may not know much about markets, but I do know that the only thing moving prices is supply and demand. No formula, number, square root, etc, is going to tell you...
You can never know when and where and in wich quantity will be orders put in FX market, the best you can do is try to decipher where is the price moving to and do the same, go with the flow
Perfecting your entry will increase your profits
  • #50
  • Jul 22, 2015 5:34am Jul 22, 2015 5:34am
Price direction is predictable,if not,there wont be consistent profit makers on forex trading. fundamental traders make consistent profit as do technical and news traders. If price is not predictable then all forex traders are gamblers and gambling is a chance game of 50 50,therefore gamblers on forex would have made profit as much as they made losses. Those that believe price is not predictable have not made consistent profit or have no winning strategy. So, i urge them to read wide and meet with successful traders eventhough i have not start to make consistent profit,i have those who do around and i am planning to read wide and meet these guys. I am a trader not a gambler.
  • #51
  • Jul 23, 2015 7:30am Jul 23, 2015 7:30am
In general, I think that today's forex market is very difficult to predict without additional, honest information channels. Yes, you may try to use EAs, which use calculations and formulas of mathematics, but they are not able to answer and predict "What country would start a war?", "Where will be the next default?", "What country will have the highest GDP in the end of year?"ect. So try to mix all ways in order to get max. results
  • #52
  • Jul 23, 2015 2:23pm Jul 23, 2015 2:23pm
Quoting tashkent
{quote} thanks for the informative post. do not you think as humans we are keen to find patterns everywhere even if there is non? my personal opinion is we are. this is the reason why humanity exist. we need "recognition", "familiarity", "awareness" for our survival, this why we love predictability. we hate randomness and unpredictability, because such situation would jeopardize our very existence. all these are stored very deep inside us for millions of years. do we accept it or not? this is a different matter. how do you explain this chart from...
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As we can see price have turned multiple times.. Hence Supply and Demand created these turning points. If I may explain: We see many times where price has appeared to have turned for no apparent reason.. There was no Support or Resistance yet priced turned ( many times price turn sharply in the opposite direction ) Traders are left standing, asking " what the &$%!! " How convenient it would be if it were only Support / Resistance.. So what causes these turns, seemingly out of nowhere???

Let's look at the chart you have given. For the sake of discussion I do not know the: 1) Time frame 2) The instrument.. but never the less, we can see clearly where price has turned..( and turned strongly in some areas ) Yes there are some very obvious places where one could point to Support/Resistance and I will not disagree as I use a combination of both... Support/Resistance can?? tell you where prices may turn but Supply/Demand will tell you the "why" they should or did turn at the point. Not all Support/Resistance will hold.. yet many do.. Not all Supply/Demand will hold.. yet many do.. Not all Supply Demand has a obvious SR attached to it.. It's great when it does as it add confluence to the set up...So here is the Why ...Banks . large institutions, Smart Money, etc ( call them what you want ) They all do one thing very consistently.. They build large positions over time, they have lots of $$$$$$.. they are not going to play small. Now when they get ready to move something very dramatic happens.. Price takes off strongly in one direction.. Look at Demand 1, Supply 1 or Supply 2.. Prices moved away from these areas strongly.

Yes one can argue there was Support/Resistance involved but just having a Support/Resistance level does not mean anything unless there is a reason for price to move away or through these levels. Supply/Demand tells us the probability of what price may do? You can see where Banks . large institutions, Smart Money, etc build their positions preceding these area.... There like " Bulls in a china Shop, trying to wear socks" they tend to still make a lot of noise.

Lets look at Supply 1... See how price came up and entered this area..Very aggressive from Demand 1 ( Gee I wonder why? ) At Supply 1 the was rejection but not instantly..Banks, arge institutions, Smart Money, etc built positons to go Short.. Then they did the classic ( Text Book Fake Out ) See the spike above Supply 1 outside the area going long. Your TOP Brown line on your chart shows this area to be a Resistance as well. They know there are orders waiting to go long..Banks, large institutions, Smart Money have inventory ( so to speak ) They are Sellers looking for more Buyers ( gee I wonder were we can find some ?? ).

So getting back to the original intent of this thread Is price direction predictable. IMHO the is a very high probability that it is! Within the seemingly mass unorganized structure of a given chart, there are patterns and structure that are determinable. Simple SR lines, Trend Line added to Supply Demand can help you determine a higher probability of direction. Of course there is a lot more to Supply/Demand but for this discussion, hopefully this helps in answering your question

Good trading to all
TSD
  • #53
  • Jul 23, 2015 8:23pm Jul 23, 2015 8:23pm
Quoting HiddenGap
you will become one with the following statement: While predicting price may be possible to some degree; to be a successful trader, predicting price is certainly not necessary.

Explain this.
  • #54
  • Jul 23, 2015 8:28pm Jul 23, 2015 8:28pm
if it were so predictable, more people would be successful traders.
  • #55
  • Jul 23, 2015 9:11pm Jul 23, 2015 9:11pm
Quoting TraderinSD
{quote} {image} As we can see price have turned multiple times.. Hence Supply and Demand created these turning points. If I may explain: We see many times where price has appeared to have turned for no apparent reason.. There was no Support or Resistance yet priced turned ( many times price turn sharply in the opposite direction ) Traders are left standing, asking " what the &$%!! " How convenient it would be if it were only Support / Resistance.. So what causes these turns, seemingly out of nowhere??? Let's look at the chart you have given. For...
i enjoyed reading your post. there are many good points and valid observations. I will pm you to inform little more about this chart and i do not doubt it will mesmerize you.
as i said earlier, human brain does not accept easily what it does not understand or find unfamiliar. our brain is always keen to make links, associate the points. have you seen pseudo images of human face on mars? have you seen images of animals or human figures looking at the clouds? i would bet many of us have.
it is the same thing with the charts, it is our human nature always to look for familiar patterns, if they do not exist then to find something similar to what we are accustomed with. and this is the biggest illusion.
however this does not mean patterns do not exist.
pattern and order is the core of the living and non living existence. the biggest ever mistake a trader makes is turning this into patternicity and mixing up the truth of pattern and order in nature with delusions of the brain. saying that, brain's search for pattern is one of the biggest bounty for humankind, but a trader must realize that this specific quality was developed for millions of years mostly for survival purposes. use of this quality in markets is not something advisable. to successfully trade, we have other qualities which we need to develop.
As Above, So Below
  • #56
  • Edited 10:43pm Jul 23, 2015 9:53pm | Edited 10:43pm
Interesting post Tash and not surprising given that the brain actually functions through pattern recognition. While we think that our thoughts are rational, the fundamental way the brain processes information is by receiving sensory inputs and then comparing the pattern of inputs received against learned responses associated with similar patterns held in memory. The brain constantly cross references inputs against a database of stored patterns with associated behavioural responses and hence when a particular pattern is received that previously through experience carried with it a reward for a particular associated behaviour, you know that the next time you receive that pattern, you should behave accordingly....(Pavlov's dog). It is simply human nature to look for patterns, so you have to be exceedingly careful in trading not to be fooled by random patterns. This is why statistics actually does matter when attempting to describe the behaviour of complex systems as the brain is not so well equipped to deal with complexity and frequently takes shortcuts.


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  • #57
  • Jul 23, 2015 9:58pm Jul 23, 2015 9:58pm
Quoting Copernicus
Interesting post Tash and not surprising given that the brain actually functions through pattern recognition. While we think that our thoughts are rationale, the fundamental way the brain processes information is by receiving sensory inputs and then comparing the pattern of inputs received against learned responses associated with similar patterns held in memory. The brain constantly cross references inputs against a database of stored patterns with associated behavioural responses and hence when a particular pattern is received that previously...
excellent my friend! you nailed it
As Above, So Below
  • #58
  • Jul 23, 2015 10:56pm Jul 23, 2015 10:56pm
Quoting Copernicus
Interesting post Tash and not surprising given that the brain actually functions through pattern recognition. While we think that our thoughts are rational, the fundamental way the brain processes information is by receiving sensory inputs and then comparing the pattern of inputs received against learned responses associated with similar patterns held in memory. The brain constantly cross references inputs against a database of stored patterns with associated behavioural responses and hence when a particular pattern is received that previously through...
Bullseye
i worshipped... Momentum
  • #59
  • Jul 26, 2015 1:52pm Jul 26, 2015 1:52pm
Price is as predictable as human crowds are under pressure and fear.
There is only a probability of price moving along the trend or channel and price areas which MAY want to show you the markets' actual decision.

TCC
  • #60
  • Last Post: May 18, 2018 8:19pm May 18, 2018 8:19pm
Price direction is predictable once you understand the structure. Understanding the structure is not easy, but it's doable through many years of trial, error, and even by accident.

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