hi all, price moves because buyers and sellers interact with each other, continuously. for price moves, it is irrelevant why market participants trade (i mean trade intension here), one side can be a short term scalper, daytrader, or a hedger, the other side can be a longterm investor. they interact, and based on limit and market orders the price moves. i know, some guys analyze the interaction of market participants. be it a pure bar chart with or without any indicator, or the trading DOM. the trader seeks to find an answer to which side is more dominant. is there really a value in analyzing the interaction of sellers and buyers trade by trade or bar by bar? some will say "yes, of course. you can see hidden orders, absorption, size entering the market ..." my experience is somewhat different. i think, it doesn't f..cking matter. i have seen many many times in the DOM, that if one iceberg order appears, there will be other market orders that will hit this order aggressively. which side the market will move next is a 50/50 coin flip. iceberg orders doesn't f..cking matter! i used the jigsaw reconstructed tape for monthes to see size entering the market to catch moves before they happen. i could not find any edge with that. when size enters the market, it will drag the market up or down, but thats it. on the recontape you see what happened, there is no guarantee of follow through. next comes the bar chart: i think the bar chart is a good tool to see how price moved from A to B, and how volatile price was within the bar period. i don't think there exist any bar to bar relation, it is 100% random. i want to address one other issue, too. give the technical trader a chart, and he will start drawing f.cking patterns and lines on it and draw scenarios: 1.scenario: if price breaks and retest, enter. 2.scenario:if price fails to breakout on good volume, fade the breakout when price bar closes back within range. ..... most technical traders do not even know what the underlying markets represent. the technical trader will trade the ES like he trades CL. The ES represents underlying stocks. there can be 500 reasons why ES moved 10 points within 1 minute or why one 100 lot market order moves the market and then the other 100 market order does nothing. it can be a hedge, margin call, options related, stop run, something related to one sector, arbitrage, intermarket correlation. it can be something that just lasts for a minute, for 5 maybe. my point is, i think previous price action might be useful, BUT it might also not be useful at all. making trading decisions based on what happened is a 50/50 coin flip IMO.
"Can price action predict market moves"? Of course it can. That's why we have charts. Problem is you only get to "know" a little bit. And that little bit is "all you get", but it's worth trying to get on the right side of it. Beyond that, you have to play it by ear. KISS, baby!
Mean reversion between trend lines or regression lines. If it's only 50/50 enter in the direction of the Stochastic 50 level crossover. Guessing game of where the mean and extreme will be in the future.
Define 'price action'. Note that charts are just a visualization of the underlying numbers and one specific way to perceive those numbers. If you were to build and test a predictive model it would not be based on charts, fundamentally. Jim Simons spent about a decade, I think, before finally arriving at something worthwhile.
Aside from Madame Zorba and her crystal ball, nothing can predict the future. What competence in reading price action can do is let you know what is more likely to happen given certain conditions, that coupled with a solid trade plan based on said expectancy and the discipline to trade it is all a trader needs. All elements are easier said than done.
i think charts / price action / technical analysis shows shit. no prediction power at all. in hindsight everything looks crystal clear. you can make one thousand different predictions and future projections based on what you currently see, eventually one scenario will work just fine. PA/TA is so subjective that it is not reliable.