Forex Day Trading Academy BLOG-The Traders Guide to The Price Movement Mechanism

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The Traders Guide to The Price Movement Mechanism

Written by Joseph/ November 2021

***Before you continue... you agree and understand that the information on this website and the blog articles are information and education only!!! these are not trade recommendations and if you are not in the coaching program you wont have access to updated information on these trades that I talk about in this blog posts. please do not chase a trade.

How To Trade EVEN Better

You've been trading Forex and it's not going well, right?

Wrong!

Don't give up on your dreams of success just yet because I have some tips for you that might help get you on track.

It's time to trade forex differently.

The information in this guide will show you where you should put your focus because there are plenty of trading strategies, many of them actually work but if you don't understand the Price Movement Mechanism, you're likely to continue to struggle.

Im going to break down the Price Movement Mechanism into sections.

What I am going to show you is sometimes referred to as "price action" or "price structure".

If you watch a video on YouTube about these subjects, you'll find that many of them (the guru making the video) doesn't really have a strong understanding of these concepts

and they gloss over it with a simple explanation of it.

Others will refer to the Price Movement Mechanism that I am going to show you as "trading with the banks" or " trading with the smart money" and again,

many of the videos on YouTube don't explain precisely what it is, how it works and what to look for on the chart.

If they do have a strategy for trading the "price action" they usually use some simple trendline break, indicator or Fibonacci strategy.

This is (in my opinion) the problem.

While traders can sometimes see the pattern or the movement shaping up as a possible breakout or reversal, they don't understand the mechanism that creates the price action that they are watching on the chart.

This is important because if you can understand the Price Movement Mechanism, you will know who is trading at certain levels, (smart money or inexperienced traders, I will show you more about this in a moment) and you will know when to stay out of the price activity which is often consolidation prior to the move you're waiting for and...

you'll have a better idea of where the best place is to execute your order with a higher probability of experiencing a winning trade that could make you a lot of money.

You'll need to find the end of a trend or move.

Either a top or bottom.

Next you'll be looking for the consolidation or range bound price action that typically occurs at support or resistance (highs or lows) and these consolidation ranges are referred to as either Accumulation (consolidation at the lows) or Distribution (consolidation at the highs) see schematics for both below.

In order to adopt this methodology, you will need to start thinking of consolidation as either accumulation or distribution.

It's important that you learn to identify this and treat the consolidation with these ideas in mind. In each case (accumulation or distribution) there is a certain type of price behavior that you will learn to identify which will show you who's doing what...

smart money is either distributing before a big move to the down side or smart money is acquiring before a big move up, (this is a very simplistic explanation)

and the retail trader, (the inexperienced trader) who is only using a indicator or Fibonacci tool is going to try and trade in and out through the phase of consolidation and if you've been trading long enough, you know this is where a lot of traders lose money. (this is NOT beneficial)

Instead, when you learn to identify the accumulation or distribution ranges, you can actually see when smart money is stepping in to build up their position and you can actually trade along side them making a lot of money in the process.

Additionally, the price movement within the accumulation or distribution phase is the constant battle of supply and demand.

Lets look at a chart

Accumulation (consolidation at the lows)

This is a 4 hour GOLD chart, you can see on the left side of the chart the down trend that came to a final halt.

We call this a Selling Climax. This is also confirmed with the volume indicator.

(I will make another article on how to figure out where and when the trend is likely to stop based on a exercise that I call "Counting the Waves".

For now lets just look at this chart from a high overview level so you can see the pattern.

Once the two green candles confirm the "stopping action" price starts to move sideways and turns into consolidation (accumulation).

The reason the accumulation occurs is that the smart money will "acquire" shares at the test of the lows that was set in place from the "Selling Climax".

Smart money wont try to acquire shares at the highs of the consolidation, they wait for price to retest the lows and they acquire more at support before the big move up.

This all takes time and you need to know this to safely trade it.

This is the Price Movement Mechanics behind all of this price activity. This is also referred to as "building a cause" for the new uptrend.

Institutional buying and selling is characterized by the up-and-down price action found in a trading range.

The inexperienced trader will look for bullish candle patterns that develop inside this accumulation phase and they execute a trade. When it doesn't break out right away, and it comes back down to test the lows again,

the inexperienced trader becomes frustrated and they close out the trade. (I used to be one of these inexperienced traders)

In most cases, they are completely oblivious to these concepts and this leads to only using simple trading strategies that they don't fully understand. If they learned these concepts first, and then applied their simple trading strategies, they would likely have better luck trading and finding a better trade location with low risk and a high probability trade that earns them money.

When you know what to look for, you will confidently sit back and wait for all of this to play out and you'll be able to get into the trade just before the big breakout to the upside.

So what are we specifically looking for that will tell us when it's finally made it's last test of the lows and price is about to breakout???

Please notice the hammer towards the right side of this chart.

In the most simplest explanation, the last strong attempt for price to breakout through the lows and attempt to resume the trend to the downside very often includes a lot of volume and effort , which often caused by inexperienced traders assuming that the trend is going to continue to the downside.

This is a trap!

And smart money knows how the inexperienced trader will act at these levels.

The smart money waits and acquires more shares which is the result of that hammer forming on the chart.

That is our clue that the lows are likely set in place for the time being and we can start looking for the last few retests of support to get into the trade.

Sometimes price will provide really good entries before it actually breaks out of the accumulation range and other times we simply wait for the breakout of the

range and the last final test of the highest point of the consolidation.

As I mentioned before, this is a very high level overview and there are some very specific characteristics that you need to be aware of in order to confidently confirm that the price is now ready to makes its move up and out of the range.

For example... price swings are usually wide and with a lot of volume during the initial start of the consolidation that is forming, this after we've confirmed the stopping action.

This phase of consolidation is what we refer to as Phase B and we generally stay out of the market during this time. It's much too choppy and volatile.

When the smart money has done most of the work through out this phase, the volume levels tend to diminish (also giving us another clue to the smart money activity)

There are many different versions of accumulation and distribution as they don't all look the same and volume along with trading range bars or candles can tell more to this story so you'll need to spend some time learning these characteristics.

If you want to learn more about the Price Movement Mechanism, I have a FREE training video that you can watch right now.

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