Is price direction predictable?
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Thread: Is price direction predictable?

  1. #1
    Reading many articles on here, I am starting to believe that price direction is not predictable. I've seen so many profitable systems that seem to have no logic behind these, like people asserting they can predict where prices will proceed by finding the square root of the last few periods; people drawing contours; using'magic' formulas and amounts. There's not any rationality for this.
    I might not know much about markets, but I do understand the one thing moving prices is demand and supply. Number, no formula etc is going to tell you whether bulls or bears are going to have the top hand . There's not any connection between these approaches, and modifications in supply/demand.
    If people claim that methods like these are always profitable, then can only indicate that price is not predictable. You might as well toss a coin to decide where price will go next...?

    I am not saying that (consistent) profitability comes down to luck, but maybe the one thing that matters is money management?

    What do you believe? Is it possible to tell where price is more inclined to go next, or if we stop trying to figure and focus more?

  2. #2
    If you study Market Profile, Auction Market Theory, Supply Demand, Volume Spread Analysis, Order Flow, or a few market methods/paradigms/indiors, you may conclude that price isn't entirely random. Than it is somewhat predictable and if it isn't entirely random. But if you want to move to the head of this course, you will become one with the next announcement:

    whilst predicting price could be possible to some extent; to be an effective trader, forecasting price is certainly not needed.

  3. #3
    Quote Originally Posted by ;
    ....to be an effective trader, predicting price is surely not needed.
    I concur...

  4. #4
    New to the area of trading here, so please excuse my inexperience
    However, can anybody create sance of commodities decreasing in price(tle, gold, crops) and yet commodity currencies AUD and NZD becoming more bullish for the previous day or 2.
    Would sure like to hear an impression of seasoned trader on this
    Due

  5. #5
    Quote Originally Posted by ;
    ...I really do know the one thing moving prices is demand and supply. Number, no formula , square root, etcis going to tell you if bulls or bears are going to get the upper hand next. There's absolutely no link between these methods, and changes in supply/demand. If folks claim that methods such as these are consistently profitable, then can only imply that price isn't predictable. You might also toss a coin to decide where price will go next...?
    I believe that price motion is predictable, but just in terms of the way you define forecast. Here's my 2 cents. As you stated, demand and supply are what drive the price. This can be seen visually on a chart. If one force overwhelms another, the price goes. We can predict within a level of confidence, at exactly what price (approximately) demand would surpass supply and vice versa based on price history, however we cannot determine beforehand as it will happen or how much the price goes as it does. In some cases, price might never get overwhelmed at a certain price level. We also cannot predict the momentum at which the price will travel. Several times along the way pullback and might rise, or it could just spike or gap up. These things we cannot know in advance. A coin toss would give you 50/50 chance of entering in the ideal direction, which can be accurate, but it does not tell you how to control risk which as you stated is super important. You can have 50% probability of picking the ideal direction, but that doesn't mean that every transaction will be profitable. It could indicate that the initial 50 transactions are unprofitable and the subsequent 50 are profitable and you still may be broke. You would need to address, how much are you risking on every transaction in terms of pips or position dimensions? With a 50% probability you wins will want to be bigger for you to be profitable. How can you realize that your entry will give you the range required to profit before hitting your stop loss? Can you call volatility at a time? Not really. We can make edued guesses about it. You can be correct about the path and wrong about the time or distance of the price range and be broke. Than most people realize, You will find for factors to trading. Price direction is the least of all of them. It is possible to trade in any direction and make profit if you enter at the ideal time and depart at the ideal time. Probability of a move is raised when trading at the direction of the overall trend of course. Long term price movements have fundamental reasons why they move. Every motion has a reason, however, fundamental reasons can help determine a trend may survive. Of course this only applies to long term positions in which time is less of a variable. The more time there is to get a trend the stronger the trend can be.

  6. #6
    Quote Originally Posted by ;
    In 95% cases it is predictable on fundamental pairs like EURUSD GBPUSD, but with exotic pairs like TRY ZAR MXN it is not quite as much predictable as fundamental
    I'd say that exotic pairs aren't predictable in any way. Used to exchange TRY, lost a lot. Since then I don't trade any exotic at all.

  7. #7
    Quote Originally Posted by ;
    If you study Market Profile, Auction Market Theory, Supply Demand, Volume Spread Analysis, Order Flow, or a few other market methods/paradigms/indiors, you will conclude that price is not completely random. Than it is predictable, and if it is not completely random. But if you would like to proceed into the head of this class, you will become one with the next announcement: While forecasting price could be possible to a level; to be an effective trader, forecasting price is not needed.
    If we look around us we see this simple equation of Supply Demand.

    Not enough Supply, Demand takes over and prices go up
    Not enough Demand, Supply takes over and price go down

    Oh. . If it were only that simple. . It is simple. . Where the part is = Deciding where the Supply Demand level is. . .or is it?

    Within the Offer Demand method I trade two constructions. I trade the major trend or the extremes of this range. ( only method I know of one can successfully trade both trend and range markets ) Both are directional trades. I'm not a believer at that price is Random. If that were the case markets would not display the very same patterns day in day out, day after day, week after week, month after month for frigg'in years. ( Are there variations, of course. .) New pattern appear as patterns perish the simple Supply Demand equations holds true. . Is the foundation for the movement = Directional. If your think in Algo's there is much more of a case to be made which price is not random but predicable. If price was random Algo's would not work.

    Here is where I think Fundamental and Technical analysis meet - at Supply Demand. Prices went from here, prices went from there = Directional. Why. . ?? Buyer and Sellers do what they do, buying and selling. Let us look at stocks for an instant. There is all sorts of Fundamental facets to a stocks price that cause it to move up or down..Take Enron - Went from 90.56 in Aug 2000 into JUNK from Nov 2001. What exactly does this have to do with Direction. . Everything. . There was an abune of Offer (nobody wanted the stock) for whatever the motives, not matter what the gurus were telling you. . Its Direction was REAL and predictable!! that is obvious The housing bubble. . Whole lot of Demand. . Insufficient Supply. . Produced prices Predictable. They moved up ( go figure, funny how that works ) Then prices turned. . Supply stepped in and prices fell like a rock. Directional...

    The purpose. . Supply or Demand comes into the market, whatever market, and causes a Directional change (for whatever reason). . Ask yourself what is Demand or Supply doing in a specific instrument? We view it Fundamentally, can we view it Technically, can we view it both ways.

    It's our capacity to see such events, enables us to view Direction. But unfortunately, all to frequently, a trader trades what they think and not what they view. Allow me to clarify. Scenario 1 - The market is falling.Supply-Directional. Trader believes the market will go moves, and has stopped out. The trader is trading what they think and not what they view.
    Scenario 2 - The market is falling. Supply-Directional. Trades sees the market moving brief, moves, and has out with a profit. The trader is trading what they see not what they think. The trader is visiting a Fundamental or Technical change on the market that's creating (in this instance ) Supply.
    Scenario 3 - The market is falling. Supply-Directional. Trades sees the market change direction, moves, and has out with a profit. The trader is trading what they see not what they think. The trader is visiting a Fundamental or Technical change on the market that's creating (in this instance ) Demand.
    Interesting, we seem to always end up back at either Supply or desire.
    Obvious there is more to this but, we are discussing Direction and its simplest assumption which, I believe, is all to often overlooked producing loss for more traders.

    Lastly. . This company, just like all businesses, are predicated on Probabilities rather than Absolutes. Employing Provide Demand to determine Direction gives one a Probability of becoming profitable.

    Whether you utilize Fundamental or Technical, or both, using them in the context of Supply Demand will help give you the higher Probability and help determine the Direction that you ought to be trading.

    I'm firmly in the camp of Supply Demand ( obvious ) because I believe this is the way the Smart Money really trades. As they choose the side of this market it is the only way I can see them earning profit. Supply Demand allows them to define Direction.

    Only my 3 pips

    good trading on all

    TSD

  8. #8

  9. #9
    Quote Originally Posted by ;
    quote When we look about us we see this easy equation of Supply Demand. Demand takes over not enough Supply and prices move up Not enough demand, Supply takes over and price return unnecessarily. . If it were only that simple. . Really it is simple. . Where the part is = Deciding where the Offer requisite amount is. . .or can it be? Within the Supply Demand method I exchange two structures. I exchange the major tendency or the extremes of the range. ( only way I am aware of one can successfully exchange both tendency and range markets ) Both are directional trades. I'm...
    thanks to the informative post.
    Do not you think as humans we are keen to locate patterns everywhere even if there's non? My personal view is we are. This is the reason humanity exist. We need awareness for our survival, recognition, familiarity, this the reason we love predictability. We hate randomness and unpredictability, since such situation would jeopardize our own existence. These are stored very deep inside us for millions of years. Can we take it or not? This is a different matter.
    How do you explain that this chart out of supply/demand perspective?

  10. #10
    Quote Originally Posted by ;
    Reading many articles on here, I am starting to believe that price direction is not predictable. I have seen numerous profitable systems that seem to have no logic behind them, such as people asserting they can predict where prices will go by finding the square root of the past couple of periods; people drawing shapes; using'magical' formulas and amounts. There is not any rationality behind this. I might not know a lot about markets, but I do know the one thing moving prices is supply and demand. No formula, number, square root, etc, is going to tell you...
    You can never know where and when and in wich quantity will be orders put in FX market, the best you can do is try to decipher where's the price moving to and do exactly the same, go with the flow

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