Q: What is the most effective application to use or measure a price change on a rebound or decline? And how to Project a price call?

In a series of Q&A; we were asked this question:

NT101 LogoQ: What is the most effective application to use or measure a price change on a rebound or decline? And how to Project a price call?

A: There are a few effective methods to approach this kind of trading scenario that can best be applied, namely summarized as follows:

First (2) logical steps to this approach:

1. Define the market condition on the fundamental and technical stand point. Fundamental means when and how the next risk events would affect price action; while on the technical is how the trade-setup looks in its configuration. Select best time frame between the Asian, European and US Trading session.

2. Identify benchmark price levels as price point reference for the corresponding resistance and support if prices are confined within a specific range bound price movement. Or a particular chart pattern can likewise be recognize.


3. Corrective movements can be reflected as a change of market sentiments or based on a fundamentally driven market. When fully absorbed, price action tends to follow the direction of the prices relative to the report which drives price swings in a rapid fashion, but under normal conditions should tame itself from volatility in between trading sessions.

4. Most common application used by traders is the Fibonacci Retracement Method; where the reference points comes from the lowest to the highest price points which projects the corresponding levels of percentage correction within the specified trading range. Again, it depends on the time frame preference one chooses to view because of the time table which traders may want to choose based on their intent to trade over a period of time.

5. This would also provide the projected price levels as an objective for the rebound or decline of the instrument being traded. Take note that such levels may take some time to retrace or achieve the price objectives with a few exceptions when price action is in a rapid fire mode along with increase in momentum and velocity of the prices driven by fundamentals.

6. Projecting a price call can be attributed more towards applying the Elliot Wave theory where traders would try to measure and position trades properly executed within the next probable wave that can deliver a market price potential aligned with their respective objectives.

7. Price Movements, Volumes and Open Interest relative to Spot and Financial Currency Futures can also be applied to determine the price change or reversal point not necessarily defined as a trend reversal. But his would assist to identify a next probable price change before it actually happens. Although, the complexity of this process would take a little more due diligence if traders are not as familiar with trading both spot and futures markets.

8. Price action analysis can best serve the traders by applying the three-to-four day method, as a short-term approach in trading the market which tend to change within the period covered. As this strategy can cover the major market sentiments from Asia, Europe and the US trading sessions in a nut shell using the above process.

9. Last but not necessarily the least is knowing the idiosyncrasy of the specific currency pairs or financial instrument being traded. As they do follow an average pull back levels or retracement not only in price levels but the total number of pip movements / net change between their respective range parameters. 

There are a few major currency pairs not including the cross rates that can be identified to this pattern based on their historical price changes from the high and low points. Currency examples are the Euro, British Pound and the Swiss Franc when they do a full run in either direction and normally retraces half way through its established trend. However, this does not apply towards a reinforced trend where prices are deemed to stick to their full trend direction driven by secular / external forces not normally seen in the market.

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