What is price dynamics in trading?
To get a more global and generic idea of the market situation and the dynamics of the price in trading, we can use several charts with different time periods, following the sequence: monthly, weekly, daily, 4 hours and 30 minutes and if we are going to trading Forex intraday we also add the 5 minute chart.
Normally, the confluence of several elements is sought to find the areas to enter and exit the market using some additional element as a filter or selection to discard certain entry signals and thus improve the effectiveness of trading operations. On each of these charts, starting with the daily and going up to the 5 minute chart, we plot lines at the relevant highs and lows.
Afterwards, we focus on the monthly chart to get a first idea of whether we are in a long-term uptrend, downtrend or sideways trend. In addition, we can also take into account some relevant fundamental factors such as inflation, unemployment and interest rates, to make a better assessment of what the long-term trend will be.
Considering these elements as a whole allows us to estimate what the evolution of the markets will be in the long term. But within this long-term trend we can be in an impulsive phase or within a correction of said trend. This fact can be seen in better detail if we move to the next lower time horizon chart.
For the analysis of the graph we can use tools such as moving averages, channels and other technical analysis tools that help us define areas of possible reversal and continuation of the trend. The relevance of this graph lies in the fact that we must take it into account so as not to take positions against it.
Once these elements have been analysed, we move again to a lower time horizon. This analysis in shorter time horizons will allow us to make entries in favor of the main trend but in specific areas that make it possible to greatly reduce the size of the stop loss. For the analysis of 4h, 1h, and minute charts, it is essential in trading to pay maximum attention to both price and volume.
In trading, it is important in these timeframes not to lose sight of the fact that what best describes the movement of the price is the price itself and also its volume, therefore it is necessary to graph in detail, the use of tools such as Pivot Points being useful. , support and resistance, channels, chart figures, the study of candlestick patterns, Fibonacci retracements and their projections, etc. You can use these tools whether you trade Forex, Stocks or Futures.
An RSI, CCI, momentum or stochastic oscillator can be used as visual support, but the fundamental thing in these frames is to observe the dynamics of the price, the volume of transactions and pay attention to the news calendar in case they are going to issue any data that may affect to our positions.
In a strict sense, we could consider that the price moves in a chaotic way with plots of order. But in practice, during market hours on intraday charts when the volume is high enough, the price usually moves in an orderly manner precisely due to this increase in volume and the presence of a mass of investors intervening at the same time and subject to the same stimuli. from the chaos zone.
How to enter the market?
Consequently, both in the Forex, Stocks or Futures market, it is possible for us to join their movement in one of the three following situations:
A. The price moves laterally between two values or with a very weak trend between 0 and 10º describing a channel. When we are in this situation, we can use pinbar candlesticks or a pullback (we will see the bottom in all our courses) with line confrontation to enter the market and set the stop loss.
B. The price moves in a trend around 45º, (between 30 and 60º). These are trends that usually prevail for a longer period of time than the rest, making it possible to enter the market on retracements with small stops and high reliability. The way to enter these types of trends is by joining pullbacks, using a trigger pattern.
C. The price moves in a determined way in an extreme slope between 75 and 90º. It usually corresponds to moments of panic or euphoria and to the hours of news broadcasts. In this case, the way to enter is more aggressive, but the expected profit is also higher.
It is important to keep in mind that every trend must end, frequently, at the end of a bullish or bearish phase, certain patterns usually appear in the price movement, usually corresponding to exhaustion patterns that warn us of a trend reversal. The most common among them are double bottoms and double tops, head-shoulders, inverted head-shoulders, rounded bottoms, and one-day return patterns.
Sounds interesting to you, right? Keep learning trading with DTP with upcoming articles on our Blog.