Sunday, May 17, 2009

Price action pattern formation--


Here's where another personal philosophy of trading comes into play... I do not believe price action in the currency market actually goes up and down, rather I believe it just goes in a continuous circle. I think the way price is displayed on a candle or bar chart is completely wrong and inaccurate because on a chart price is displayed as moving in an up and down motion which gives the false idea that price has a true starting and stopping point, a top or bottom, or a beginning and ending point. I believe the price of a currency has no top, bottom, beginning, or end. If a currency did have those things that would mean there's a starting and ending point, a place where price could ultimately be unable to increase or decline in value; a final resting place. There cannot be an absolute price for any currency purely on the nature of how they are paired together. There is no such thing as a single currency that stands alone, so there cannot be an absolute price because each currency is valued against another. Just because the EUR/USD went to 1.6048 last July and has not returned there since does not mean the EUR/USD will never go to 1.6049 and beyond. Price is continuously in a state of repeated replication. During today's trading the EUR/USD hovered roughly between the 1.3550 and 1.3700 level. In 2008 at a certain moment in time it hovered at the same exact levels. In 2007 at a certain point in time it hovered at the same exact levels. In other words, price has completed a circle of replication and this is exactly where I find price action patterns that have been repeated in the past. Pattern recognition is nothing more than observing the past, analyzing the data from the past, and connecting the past to the present to get a probability on the future when price is in the replication process. I'm running out of space to continue this commentary but hopefully this gives you some more insight to how I utilize this aspect of trading. I want to finish up by giving you a beautiful price action pattern for the GBP/JPY that formed this morning. This pattern formed today, it's formed in the past, and based on what the market did every time this exact pattern sequence formed, I was able to make a trading decision with a probability, knowing exactly what to expect because price had replicated itself which gave me a look into the future...

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