Seeking Alpha

forexdossier's  Instablog

forexdossier
Send Message
  • Trend Or Range? Market Gravity Predicts  0 comments
    May 6, 2013 4:06 PM

    Market Gravity predicts both trends and trading ranges. This tool is of great benefit to traders because they can combine the context of an expected trend with an indicator that works well with trends, like an exponential moving average. But the benefit doesn't stop there. Traders can also use momentum indicators or oscillators to pick the tops and bottoms of trading ranges when the Market Gravity context predicts a trading range.

    Most traditional technical indicators have become more and more intricate. Layer upon layer of complexity has been added to try to account for the fact that no one really knew how to objectively identify whether a market was going to trade in a range or trend over the time frame for the trade. This increased complexity has resulted in compromise readings which tend to signal entries later in the price move and exits longer after the extreme price has been traded. Bottom line, you get a little better risk management, but a lot less trading profit.

    Market Gravity is the invisible force that moves price and sometimes keeps price from moving. If you are aware that this force exists this will dramatically change your perspective of price movement. Things begin to make much more sense. Price movement is much more predictable and if price doesn't move the way it's supposed to this is also a big heads up or red flag. However, if you are unaware, then price will sometimes move according to your technical studies and sometimes the movement appears completely random. Your momentum study gets overbought. You sell and without explanation, price continues higher. Or price comes down to a supporting moving average. You buy, and price slices right through the support. Why does this happen?

    The short answer is that traditional technical studies do not predict. They simply present the past in a way that is more pattern friendly. So, let's take a step back and look at why price moves. The first thing you want to notice is that price doesn't change without market orders. As long as all the bids are lined up at or below the present bid and all the offers are lined up at or above the present offer, price will not change. You need a market order to hit the bid or lift the offer if price is going to change. For a price move higher in a range context, you need a preponderance of buyers over sellers. For price to move higher in a trend context, you need the buyers to buy and you need the sellers to buy.

    "Need the sellers to buy?!" Yip, you did read correctly. When price is trending higher, the reason is usually that the sellers are trapped in short positions and every time price dips a little, they (the sellers) are there to buy to cover their short positions, at break even or worse. When price is trending higher, everybody is on the buy side. Herein lies the first key to predicting whether price will trend tomorrow. We need a tool to tell us if buyers or sellers are trapped and underwater. Market Gravity is the objective tool that does exactly that.

    Keep checking back here for more information about Market Gravity and how it can work for you.

    Alan Gunn, M.Sc., CFA, CIM, DMS, FCSI has over 30 years experience in investment management and derivatives trading including Chief Investment Officer of an algorithmic hedge fund engaged in forex trading. Most people lose money in forex trading for 15 reasons. I am here to help. Get my Free Forex Trading Dossier at http://www.forextradingdossier.com/free-dossier.html

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To forexdossier's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.