A theory of trading

of course good luck Tunera! sorry I am late.
I was long at gbpusd but closed with small lose just before the moment - the price action was definately not the one I was expecting and no volume at 6450-6460 where I was expecting it.

ahah it didn't worked out for me, i was out with a -5 pips yesterday.
nice actions today!

see you tommorow.

Foostie, 5min chart





Let's see what happens.

hello guys,
many months passed, I am wondering if you still are in the buisiness?
how is your trading going?
regards,
S.

I guess not sorry to see that. for me that were very fruitfull months. I am much better trader now good luck to all!

Some people here are just wrong in their understanding and theories. The whole assumption that only the buyers and sellers (traders) move the price is just wrong! The fx market in the way it exist today is not pure auction. It's a little bit more complicated.
Think of the market as two sides.
1. The SELL side - these are the Liquidity providers and the market makers.
2. The BUY side - these are the liquidity consumers. (all traders, large and small, hedge funds, and all other market participants who trade in order to exchange currency for business/corporate transactions).
Over 98% of the fx liquidity is provided by 15-20 banks, and about about 80% that liquidity comes from just the biggest 5-8 banks.
The SELL side not only controls the market - they ARE the market, they own it! This is THEIR game. Not the game of the traders(regardless of size).
If for some reason the market makers want to move the price 1000 pips in 5 min. - they can do that! The traders CANNOT!

When you see the price suddenly jumping like crazy and creating this long big single bars on your chart(usually just after news release), what do you think happened there? You think this a result from huge volumes ( traders buying/selling)?? NO it is NOT!. There is very little volume done during these moment. What actually happens, is market makers pulling/removing their limit orders. (They reduce their risk by providing less liquidity on the risk side of the market). Of course the buy side( the traders) have some influence, but nothing significant. When the news hits the wires, the liquidity providers will be the first to react. That's their job.

Then, when there is no news and no risk events, this is the other side of the game called price manipulation and stop hunting - take the lows, take the highs, creating fake breakouts and squeezing traders on both sides. Why market makers doing all this? Because volume = profits for them. If price doesn't move, nobody trades. No volume from the buy side = no profits for the market makers. So they will do anything they can to provoke the traders to trade. They will move the price all day long searching for the buy side. Less than half of the price movement is actual buying/selling from traders.

I'll give you very good analogy to make it easier for some people to understand price movement.
Imagine that the price/market is rubber band. The thickness/strength of the band is the available liquidity.
The force stretching and pulling the band from both sides - this is the traders (the liquidity consumers, buyers and sellers).
The stretching(price movement) of the rubber band is a direct result from different ratios of thickness and applied
force.
Thick and strong rubber band + weak applied force = no stretching ( no movement in price)
Thin and weak rubber band + strong applied force = huge stretching (huge price movement)
As you can see the laws of physics can be universal and apply even for non physical things in this case the financial markets.