Trading Tips to Improve Your Understanding of Price Dynamics

Trading Tips to Improve Your Understanding of Price Dynamics

Submitted by adil on Mon, 06/23/2014 - 19:00

So What's Price Dynamics All About?

You must have experienced quite often that a market goes back to a point from where the major move started just to regard that point before moving into another strong direction. Therefore, there are certain things that you should keep in mind when you are scrutinizing the charts. First of all, you should know that a trading market never forget the point from where that big move started, because it will bounce away from that same point where it started.

Let’s look at the chart in the image below to clearly understand the whole phenomenon. If you look at the chart, you will see that at 9735 – 9700, a key resistance or support level was formed. As a result, the event area was formed between that level and the point from where the big move started. Event area, also called a key level, is a particular area from where that big move starts. It can also be caused by price action signals, and if these signals co-exist with key support level, it creates a stronger event area.

After a period of one month, the first test was conducted that gave downward pin bar signals leading to a huge decline. The important thing that needs to be observed in this chart is that the market reversed back again as it tested the ‘key level’ when the pin bar signals were established. Hence, it shows that the market does not forget that key level or event area.

In the chart below, a subsequent test could also be conducted on an event area, which can be a ‘blind entry’ at the key level or event area. This entry is actually a ‘limit-sell entry’ that lies in the area where the pin bar was established along with the stop loss just above the resistance level near 9714 per pin bar high. However, being a trader, you should know that a price action signal in event area is a safer technique as compared to blind entry, because it confirms the entry. But as a trader, you must know how to scrutinize the charts and comprehend the dynamics of key level because it is not necessary that you would always get the price action signals when you want one.

In another chart of the spot Gold market, you will notice that the event area was established at a level of 1277 and it can be confirmed through a pin bar on August 7, 2013 subsequent to which a strong upward movement was observed. Therefore, you can say that 1277 was the event area or a key level that needs to be kept under observation if the price tests it in the future again. As seen in the chart below, it was tested again on October 2, 2013. At this point, a blind buy entry could work favorably with a stop loss below 1277. If, however, you failed to hit the entry because you were waiting that the price action signal would confirm that entry, then after two weeks on October 15, “fakey buy signals” at a key level or an event area can be clearly seen that caused an upward push.

Hopefully, these charts are great help for traders to get some understanding of event areas and key levels. If you get to spot these event areas, you can identify a high risk or reward situation when the market begins to hit these areas. This situation will definitely require your close attention so that you can tackle it properly.