Enough of the semantics already. You are predicting direction from your probability calculations. Every loser I've come across in forex says the same thing, "I dont predict!" Any and every trader predicts something.
To see where orders are and aren't. What area will lack liquidity? Here's an example. Say that you have a market swing of 100 points down to it's daily lows and it bounces. Now lets say that the majority of the traders in the market are accustomed to playing FIB levels 38.2%, 50%, and 61.8%. Where are the sell orders going to be on this bounce? + 38.2 from the bottom....+50 from the bottom, and + 61.8% from the bottom. What happens if the market bounces to the 38.2% level, then goes through it. Where's the next pocket of resistance? 50%. So since there are no significant sell orders between 38.2% and 50%, the market will likely move to the 50% area. The whole idea behind this is that markets like to move through the area of least resistance. The whole idea is that there's no "prediction" of WHERE the market should be trading or where it's going to go. (however this does sound contradictory) Instead "probability" would be better for describing what should be done. There's a high probability that price will move through 38.2 and into 50%. Most traders will sell the 38.2% area and once it moves through, they will eye the 50% area for the next "add". The question is, if there's a VERY likely chance price will move into this area.....why the hell would you wait to sell that area? Instead cut your losses on the break and reverse your trade in order to take advantage of the move to 50%.
Yes. Probability is probably the best way at describing it. An example for everyone based on market probability. Look at the daily SPY chart here. http://stockcharts.com/h-sc/ui?s=spy (fill chart, 460 size) Count the number of "black" candles produced. It appears that the majority of the time the SPY has a black candle, the next day is red. (I count doji's as black). If we total the number of black candles there are 10 (assuming I know how to count ). 3 of those were followed by up days and 7 were followed by down days. Now the whole idea behind this is that the next time there is a "black" candle we can assume that there's a 70% chance of the following day being red. (PS. If you change the size of the chart to landscape and keep the "fill" chart option on...your probability will be increased when totalling in the additional black candles).
Here we go again. Prices move either up, down or sideways. If you want in on the market, you better make a decision (predict) on which way prices are likely (probability) to go. *sigh*
Yeah. That's what I was trying to get at but unfortunately from reading these posts I did a very poor job of it.
By the way athlonmank8, I am curious where you have gotten this 85% figure from? Why not 90% or 95%? Better yet, why not 84.692875729%?
You assume price is supposed to be somewhere. That's not the idea. Your goal is to assume (based on a probability) that price will move in x direction. Then your goal is to find where the likely (significant) support is in the market and allow the market to trade to that area. Man this post is starting to become a bit too abstract.
Lets see if I can clarify this a bit. The whole idea im trying to get at is price is not something that is INCORRECT. Price is correct. If you think the market should be trading at $40 a share and it's at $50.....then you're obviously wrong (at that moment). However the perception of price is changed over time. When, how much, and to what degree it will be changed is the goal of traders. So your goal isn't to be first in at $50 just because you think it's worth $40. However your goal is to discover at what point the market has weakened ( be second) to the point where your trade has the highest probability of going in your direction. Is this better?
Unless you are short. You said it yourself earlier. A traders goal is to assume that price will move in a certain direction. Over here, we call that prediction.