Does it make sense to think of price movement in this way? | Forex Factory

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Does it make sense to think of price movement in this way?

  • #1
  • First Post: Mar 17, 2016 7:48am Mar 17, 2016 7:48am
I've always had an inclination to see the way that price moves as being like the way in which a particle/object moves. For example, suppose you had a car moving along a straight road. Then the following assumptions may be made:

  1. ​Unless acted on by some force, the car will continue moving in the same direction, at the same velocity, forever (Newtons First Law of Motion). This means that prices would hypothetically trend in a given direction, at a given rate, forever unless acted on by some external force.
  2. The direction of the vehicle cannot change instantly. By which, I mean that a car travelling on a straight line in one direction at 100mph could not suddenly change direction - it would have to slow down first (I.e. Lose its directional momentum). Applying this to the way price moves, we could make the assumption that a trend will never reverse instantaneously - it must slow down (give a signal that the trend is ending) first.

If this way of thinking holds any merit, then there would be a multitude of other physical laws which could be applied to develop my way of thinking about the market. However, I'm unsure of whether this comparison makes sense.

What are your thoughts on this?

  • #2
  • Mar 17, 2016 8:12am Mar 17, 2016 8:12am
If 1. held true the price would continue in straight line over the week-end since there is no trading activity to act on it.

If 2. held true you would only see rounded tops/bottoms and no pin bars.

If there was inertia in the market sharp acceleration couldn't happen
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No greed. No fear. Just maths.
  • #3
  • Mar 17, 2016 8:22am Mar 17, 2016 8:22am
Quoting PipMeUp
If 1. held true the price would continue in straight line over the week-end since there is no trading activity to act on it. If 2. held true you would only see rounded tops/bottoms and no pin bars. If there was inertia in the market sharp acceleration couldn't happen {image}
So concepts like momentum are not actually applicable to price? I find that hard to accept, given how many people talk about it.
  • #4
  • Mar 17, 2016 8:25am Mar 17, 2016 8:25am
Quoting Ponzi Jr
{quote} So concepts like momentum are not actually applicable to price? I find that hard to accept, given how many people talk about it.
You are confusing what most people term as 'price momentum' with your very specific prescription of how you believe markets work.
  • #5
  • Mar 17, 2016 8:37am Mar 17, 2016 8:37am
Quoting Ponzi Jr
I've always had an inclination to see the way that price moves as being like the way in which a particle/object moves. For example, suppose you had a car moving along a straight road. Then the following assumptions may be made: ​Unless acted on by some force, the car will continue moving in the same direction, at the same velocity, forever (Newtons First Law of Motion). This means that prices would hypothetically trend in a given direction, at a given rate, forever unless acted on by some external force. The direction of the vehicle cannot...
there's great saying "it's a foolish to think about things that others thought about ". so just read a book about market dynamics and price movements.there's 2book in my mind "random walk down the wall street" & "non random walk down the wallstreet". as far as i know linear math doesnt work in market but nonlinear maths are showed some
edge . for example u can look into fractals.i just finished reading ehlers last book(u most know things or two about math like fourier & digial filters) and seems reasonable the way it looks at price movements .
  • #6
  • Mar 17, 2016 9:57am Mar 17, 2016 9:57am
The market is not subject to common laws, or as we'd like the price of forex is not formed at the intersection of supply and demand. There are a lot of evidence in history. It can go on by pulse or against.
Fully crowd certainly cannot be fooled. Therefore, the market respects a lot of theories, different theories. In this diversity of theories can explain the movement only in history, but does not predict the future. Listen to the inner self. And green pips to you.
  • #7
  • Mar 17, 2016 10:19am Mar 17, 2016 10:19am
Quoting Ponzi Jr
Does it make sense to think of price movement in this way?
Simple answer: No
Forex is a losers game.
  • #8
  • Edited Mar 18, 2016 2:05am Mar 17, 2016 3:51pm | Edited Mar 18, 2016 2:05am
  • #9
  • Mar 17, 2016 4:04pm Mar 17, 2016 4:04pm
No, Laws of Physics does not apply to forex

Forex is more closer to the "Tug of War" game, with people constantly changing sides
  • #10
  • Mar 17, 2016 4:37pm Mar 17, 2016 4:37pm
I think that in normal market conditions, the development of events (moderate volatility), a sharp change of direction will not. And in the case of high volatility (news), a sharp reversal is possible. This is a paradox, if we take into account your theory.
  • #11
  • Mar 18, 2016 1:29am Mar 18, 2016 1:29am
As far as my own observations of the market over the last decade or so are concerned, I think prices do follow some laws not dissimilar to Newton's laws. Yes, there are some continuing forces acting upon prices, otherwise they will stay the same.

There is a definite correlation between change of direction of price movement and change of momentum (divergences and reverse divergences). Also whenever price breaks through a resistance or support, it is usually accompanied by increased momentum, and when it respects them, there is loss of momentum found.
  • #12
  • Mar 18, 2016 8:35am Mar 18, 2016 8:35am
It's true that markets usually slowdown first before reversing direction, but this doesn't mean that markets goes by physical laws...I believe markets goes by statistical and psychological laws/concepts.
Simplicity is the key to brilliance.
  • #13
  • Mar 18, 2016 11:16am Mar 18, 2016 11:16am
Quoting Inceptionist
It's true that markets usually slowdown first before reversing direction, but this doesn't mean that markets goes by physical laws...I believe markets goes by statistical and psychological laws/concepts.
Yes, I agree with you. Sometimes it happens that the market is slowing down. And the market - does not obey the laws of physics, it is true. Because the market - it is a relative term, as all currency pairs. It really depends more on psychology.
  • #14
  • Mar 18, 2016 1:33pm Mar 18, 2016 1:33pm
There is a law of Physics which is applicable inversely....... F=ma. That is, the more people that jump on (mass), say a fast moving train (acceleration), the less force there is to continue So, don't jump onto a fast moving trend with the rest of the herd.
  • #15
  • Mar 18, 2016 1:42pm Mar 18, 2016 1:42pm
A very good example with F = ma - Newton's law. You are right that more people will be sold during the sharp fall, the weaker this movement. I can only say that often, traders lose inexperience when trying to keep up with the trend, rather than to predict it.
  • #16
  • Mar 18, 2016 1:47pm Mar 18, 2016 1:47pm
Forex trading follows the Laws of Fear & Greed.
The only motion is price perception.
What is too high or too low for you may not be for someone else.
Not so much "motion" but "emotion".
It never gets easier, you just get better
  • #17
  • Mar 18, 2016 1:54pm Mar 18, 2016 1:54pm
The price will move in the direction that causes the greatest financial damage to the greatest number of accounts.
  • #18
  • Mar 19, 2016 5:47am Mar 19, 2016 5:47am
Quoting Mingary
The price will move in the direction that causes the greatest financial damage to the greatest number of accounts.
'Price' has no intention, market participants do. Therefore a more appropriate way of phrasing your statement would be: A great number of accounts are positioned by retail traders to sustain the greatest financial damage from price movement.
  • #19
  • Mar 19, 2016 7:54am Mar 19, 2016 7:54am
Quoting Atokys
{quote} 'Price' has no intention, market participants do. Therefore a more appropriate way of phrasing your statement would be: A great number of accounts are positioned by retail traders to sustain the greatest financial damage from price movement.
indeed ..
Watching the herd positioning themselves for a disaster is a beautiful sight to behold.
  • #20
  • Mar 19, 2016 8:33am Mar 19, 2016 8:33am
Quoting Ponzi Jr
I've always had an inclination to see the way that price moves as being like the way in which a particle/object moves. For example, suppose you had a car moving along a straight road. Then the following assumptions may be made: ​Unless acted on by some force, the car will continue moving in the same direction, at the same velocity, forever (Newtons First Law of Motion). This means that prices would hypothetically trend in a given direction, at a given rate, forever unless acted on by some external force. The direction of the vehicle cannot...
Bill Williams already went down this road. Google Profitunity.
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