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Using Balance and Unbalance to your advantage

  • #21
  • Aug 16, 2015 1:27pm Aug 16, 2015 1:27pm
Unabletrader, really this is just getting too technical, too deep and a bit pedantic. What is being conveyed is simply demand and supply, whether you want to call it buyers/sellers, buying volume/selling volume, or whatever. Demand more than supply, price goes up. Supply more than demand price goes down. We tend to have a lot of expert theorists, but not actual successful traders. Let gspajon get on with explaining the actual business of trading profitably.
  • #22
  • Aug 16, 2015 3:15pm Aug 16, 2015 3:15pm
Awesome thread, Gspajon! I've subscribed. I'm glad I found it to better understand why prices move and then stagnate. I've read bits and pieces about this online from time to time but I haven't seen quite a clear discussion about it until this thread.

I read on investopedia that futures markets are "order driven" while forex is "quote driven". How do the big banks providing liquidity and making markets in forex hedge their risks in unbalanced, trending markets?

I've read also read online that forex is the biggest market in the world transacting over $3 trillion a day. Without DOM, just how much actual liquidity are the banks actually providing? Is it accurate to say that the big banks have "virtual warehouses" of foreign currencies to make markets on?
  • #23
  • Aug 16, 2015 7:23pm Aug 16, 2015 7:23pm
OK, OK, OK!!

Lets try and keep our eye on the ball. The general idea here is that order flow, no matter how you wish you express it, is what results in price movement...Whether you chose to call it "aggressive" because many are transacting on the market (as opposed to planning and submitting pending orders) or if you want to simplify the concept and say there are more buyers than sellers...price moves BECAUSE of order flow...NOT the other way around.

From this I can state categorically that the math formulas that many use to trade (MAC-D, Moving Average, Oscillators-of any kind) will always be late to the party, thereby increasing your risk that when you enter it is more likely that price moves against your position than in favor.

Why is this? No matter what math formula you chose to use...you are using price...price that was in the past...even the most recent tick is already in the past...as priced is the END result of order flow...anything using price as its multiplier, common denominator, divisor, etc will always lag, and will give you signals that for the most part are too late to take action...IMHO.

Every successful trader I've spoken with, tells me that one must ANTICIPATE price based on the order flow. The only way to get ahead of the price action is to anticipate a change in the order flow and take appropriate action. To anticipate that change is, honestly, not so difficult IF you know what to look for.

Step one, learn to recognize a balanced market...QUICKLY. Watch for balancing order flow. Again this will become obvious the more you look. That ranging market that occurs...is telling you something about the order flow...WHERE it occurs is extremely important as well.

Many technicians refer to these areas as "levels". They are places (price areas) where order flow balanced in the past and they ANTICIPATE a change in the order flow (Unbalanced-->balanced) in roughly the same area. Thus they will place pending order there...These areas tend to attract more and more attention and as price approaches it you will see it accelerate into this area...(Exhaustion).

Will price reverse? Will price continue? NO ONE KNOWS. But we can watch and observer what happens...price comes into the area...pauses (which is another word for balancing)...then unbalances again...all we have to do is watch which way it will UNbalance and hop on board.

Of course it is more complicated than that, but the general idea is simple enough. After a balance you will either get a reversal or a continuation...or my favorite...a fake out. Fake outs unbalance in one direction (usually looks like a reversal) then quickly turn and stop everyone out. Those stops drive price even further and faster in the original direction.

All we need to do is become aware of and competent at "seeing" the order flow underneath the candles (or bars) we look at every day.
  • #24
  • Aug 16, 2015 7:54pm Aug 16, 2015 7:54pm
Another opportunity I just found...EUR/JPY. Again, note the last few weeks have shown a clear balance area, which this week broke decisively. As a side note, look where the break out stopped...right at the last balance area (seen on the weekly chart)...hmmm...Magic? No order flow.

I have placed pending longs at the areas you see here...not also the daily chart is currently balancing over the past few days...an indication that all that previous "bullish momentum" was really just shorts stopping out and now the market can't seem to move any higher...for right now.

It is quite possible that price moves higher if a new round of buying enuses...but it is MORE likely that price will retreat back to where buying overwhelmed selling...remember...all those stops from the shorts were really pending buy orders that were triggered and have now seemed to 'poop out'.

Lets see what happens this week
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  • #25
  • Aug 17, 2015 5:38am Aug 17, 2015 5:38am
Quoting gspajon
Another opportunity I just found...EUR/JPY. Again, note the last few weeks have shown a clear balance area, which this week broke decisively. As a side note, look where the break out stopped...right at the last balance area (seen on the weekly chart)...hmmm...Magic? No order flow. I have placed pending longs at the areas you see here...not also the daily chart is currently balancing over the past few days...an indication that all that previous "bullish momentum" was really just shorts stopping out and now the market can't seem to move any higher...for...
nice one mate. i like the idea is it is also welcoming to learn something new. i am a little lost as to the areas you are refering to. for future purpose, you can use arrows, vertical lines or even write on the chart so I/WE can know the exact point you are referring to. between, nice thread
  • #26
  • Aug 17, 2015 7:32am Aug 17, 2015 7:32am
Quoting Emmpoli
... i am a little lost as to the areas you are refering to. for future purpose, you can use arrows, vertical lines or even write on the chart so I/WE can know the exact point you are referring to. between, nice thread
Here you go mate...I have circled the areas where obvious balance in the order flow has occurred on the weekly chart and indicated that same area on the daily chart. The problem with doing that is that it mucks up the chart so you can't really see the price action. There is no magic or skill to it, simply look for the areas as I described in the first post.

Hope this helps.
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  • #27
  • Aug 17, 2015 1:43pm Aug 17, 2015 1:43pm
Quoting danjuma
Unabletrader, really this is just getting too technical, too deep and a bit pedantic. What is being conveyed is simply demand and supply, whether you want to call it buyers/sellers, buying volume/selling volume, or whatever. Demand more than supply, price goes up. Supply more than demand price goes down. We tend to have a lot of expert theorists, but not actual successful traders. Let gspajon get on with explaining the actual business of trading profitably.
I've been waiting a long time for this thread.

But there are some things that should be cleared up:

1. Supply and Demand is actually a misnomer when speaking about something that has no finite amount. Forex is not like the market for Iphones, where the number of Iphones is finite, or even like stocks, where the float (the number of shares outstanding and available for trading) is fixed. In Forex and futures, all you need is a buyer and a seller and a contract can be created.

2. Buying volume/Selling volume closer but still not there. If you are speaking about contracts at the Bid vs contracts at the ask, you can talk about the difference, which is called DELTA. And while there may be more contracts sold at the bid, than at the ask, there is still one buyer and one seller for every contract.

3. It's all about AGGRESSION. Price only moves when one side, the buyer or the seller is more Aggressive. If the buyer is wiling to "pay up" and accept the bid or offer, he is willing to transact at the market. In this case the buyer is aggressive (willing to trade at the market), while the seller is passive (just waiting for his limit order to be hit).

AGGRESSION moves the markets.

To say there were more buyers than sellers is in error. To say the buyers were more aggressive than the sellers is correct.

Now, let's let gspajon get on with explaining the actual business of trading profitably.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #28
  • Aug 17, 2015 1:49pm Aug 17, 2015 1:49pm
Quoting HiddenGap
{quote} I've been waiting a long time for this thread. But there are some things that should be cleared up: 1. Supply and Demand is actually a misnomer when speaking about something that has no finite amount. Forex is not like the market for Iphones, where the number of Iphones is finite, or even like stocks, where the float (the number of shares outstanding and available for trading) is fixed. In Forex and futures, all you need is a buyer and a seller and a contract can be created. 2. Buying volume/Selling volume closer but still not there. If...
  • #29
  • Aug 17, 2015 9:25pm Aug 17, 2015 9:25pm
Quoting gspajon
{quote} Here you go mate...I have circled the areas where obvious balance in the order flow has occurred on the weekly chart and indicated that same area on the daily chart. The problem with doing that is that it mucks up the chart so you can't really see the price action. There is no magic or skill to it, simply look for the areas as I described in the first post. Hope this helps. {image}
Gspajon
Exactly... And in all TF's I might add. When I look at a market chart, any market chart, its what I see or....what I am looking for. Yes, some can be more obvious than others but if you trade this method long enough .. its almost impossible not to see this.

Nice thread you have going here

TSD
  • #30
  • Aug 17, 2015 9:26pm Aug 17, 2015 9:26pm
Quoting HiddenGap
{quote} I've been waiting a long time for this thread. But there are some things that should be cleared up: 1. Supply and Demand is actually a misnomer when speaking about something that has no finite amount. Forex is not like the market for Iphones, where the number of Iphones is finite, or even like stocks, where the float (the number of shares outstanding and available for trading) is fixed. In Forex and futures, all you need is a buyer and a seller and a contract can be created. 2. Buying volume/Selling volume closer but still not there. If...

Hey HG,

Spot on as always.. Well done

TSD
  • #31
  • Aug 18, 2015 7:40am Aug 18, 2015 7:40am
Update on GBP/USD:

Below you can see we are currently leaving the balance area. I still have my test position on, but didn't get triggered on my pending entry. I missed by only 3 pips...most likely the spread messed me up. (Yet another reason why I prefer futures.)

Assuming price closes somewhere around this level or higher, we will officially have an UN-balanced market. How far will it go? I really don't know but I suspect somewhere around 300 pips before we start to see some serious push back...just have to wait and see.
Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD.PNG Size: 57 KB
  • #32
  • Edited 8:08am Aug 18, 2015 7:48am | Edited 8:08am
Update on EUR/JPY:

Price has pulled back and triggered the first of two positions...actually now that I look at this it hasn't actually triggered yet...DAMN SPREAD. It should fill (and did) as I write. So we are long and will look for a similar rise as we saw on the Pound.

Something to note that I find fascinating every time I see it...if you look at this level on a smaller chart, say 30 or 15 min you will see price accelerate into this area where more buyers were waiting...How often does that happen to you? You see a good "trend" its going well, you enter and it immediately reverses? All your technical indicators pointed to strength and continuation...but yet price moved the opposite as it was supposed to?
Attached Image(s) (click to enlarge)
Click to Enlarge Name: EURJPY.PNG Size: 53 KB
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  • #33
  • Aug 18, 2015 8:03am Aug 18, 2015 8:03am
TraderinSD (I assume San Diego), HiddenGap. Thank you for your kind words. HiddenGap, you and Unabletrader both have used a term I am unfamiliar with, "aggression". I take that to mean traders at the market (as opposed to setting limit orders). However I think we are talking about the same thing really. You mention that "aggression" moves the market and I have firmly believed that liquidation is what moves the market. So I got to thinking about stop orders. A stop order is really a "pending market order". When a stop price is hit your order is converted to a market order and you are filled at the bid (sell) or the ask (buys). So in that vane I agree wholeheartedly.

I mentioned before the "whoosh" that gets things started...that is the sound of all the stops getting hit which usually unbalances the market for a time. You can see that happening right now in GBP/USD. And that is what happened at the end of last week on the EUR/JPY.

One can see this happen every time price breaks to a new high or a new low...that surge you see in price is the stops getting hit or as HiddenGap and Unabletrader mention..."aggression".

Hope you all out there are understanding this. It is a very important shift in one's thinking. Learning to "see" the order flow in the price charts you look at everyday can have a dramatically profound effect on your accuracy and profitability.
  • #34
  • Aug 19, 2015 1:19am Aug 19, 2015 1:19am
Be sure, It will be rolled back on schedule. In general if there is dramatic changes, in near time you may wait a reverse movement. With that, judging by the first graph we can expect further growth (rollback) on the EUR / JPY. And thanks you for this thread. It very informative.
  • #35
  • Aug 19, 2015 12:51pm Aug 19, 2015 12:51pm
Just a quick update a few minutes before the FED minutes announcement. The basic point here is to show that using the larger time frames allows you to absorb most of the volatility associated with large announcements. Both position are positive and still have pending orders outstanding. Stops are at the bottoms of last week's lows...

I have not moves any stops yet this week, and will not until at least this evening...depending of course on how things work out.

needless to say order flow has been pretty much balanced all day today.
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  • #36
  • Aug 19, 2015 4:14pm Aug 19, 2015 4:14pm
Hello all,

Just looking at the charts at the end of the day and found this opportunity on USD/JPY that seems fairly clear. A clear area of balance that has broken down and closed indicating an imbalance in the market. This following the FED meeting minutes today.

You are looking at an 8 hr chart here, bu it is equally obvious on a daily chart as well. I have set two pending sell orders back into the area where selling has overwhelmed buying. We'll see if tonight, we get a retrace and trigger. As this chart is a little faster than what I normally trade, I will probably have to monitor this more often as well.

The news this afternoon has caused many of my position to go into the green, including a long on Gold that I had going before I started this thread. So we'll just have to see what happens from now to the end of the week...happy "hump" day.
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  • #37
  • Edited 8:26am Aug 20, 2015 6:25am | Edited 8:26am
Good morning...I was up early so I decided to check the ongoing trades. Here is an update:

EUR/JPY: has moved well after yesterday's news. Price is now in an area where I anticipate some "push back" by the sellers. I have eliminated the additional pending order and moved the stop up to less than 20 pips. As I write there is currently 137 pips profit
Attached Image (click to enlarge)
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USD/JPY: the first of two short positions has triggered and price has pulled away slightly. I have made no adjustments to this trade but will check it at the end of the day.
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GBP/USD: While this trade remains positive if only slightly, I am growing concerned that price has not "lifted off" out of this balance area. I will give it to the end of the week.
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Click to Enlarge Name: GBPUSD.PNG Size: 56 KB
  • #38
  • Aug 20, 2015 6:37am Aug 20, 2015 6:37am
Quoting gspajon
Good morning...I was up early so I decided to check the ongoing trades. Here is an update: EUR/JPY: has moved well after yesterday's news. I have eliminated the additional pending order and moved the stop up to less than 20 pips. As I write there is currently 137 pips profit {image} USD/JPY: the first of two short positions has triggered and price has pulled away slightly. I have made no adjustments to this trade but will check it at the end of the day. {image} GBP/USD: While this trade remains positive if only slightly, I am growing concerned that...
Keep going mate. I am understanding you better now. Can I use this on LTF?
  • #39
  • Aug 20, 2015 6:39am Aug 20, 2015 6:39am
Quoting Emmpoli
... Can I use this on LTF?
LTF? I am unfamiliar with that term
  • #40
  • Aug 20, 2015 6:47am Aug 20, 2015 6:47am
I think he means lower timeframe
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