Monday, September 3, 2012

Price Action Trading Daily Report 31st August 2012 Russell TF Futures

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text Courtesy Of Wikipedia
The concept of price action trading embodies the analysis of basic price movement as a methodology for financial speculation, as used by many retail traders and often institutionally where algorithmic trading is not employed, and at its most simplistic, it attempts to describe the human thought processes invoked by experienced, non-disciplinary traders as they observe and trade their markets.[1][2][3][4] Price action is simply how prices change - the action of price. It is readily observed in markets where liquidity and price volatility are highest, but anything that is bought or sold freely in a market will per se demonstrate price action. Price action trading can be included under the umbrella of technical analysis but is covered here in a separate article because it incorporates the behavioural analysis of market participants as a crowd from evidence displayed in price action - a type of analysis whose academic coverage isn't focused in any one area, rather is widely described and commented on in the literature on trading, speculation, gambling and competition generally. It includes a large part of the methodology employed by floor traders[5] and tape readers.[6] It can also optionally include analysis of volume and level 2 quotes.
The trader observes the relative size, shape, position, growth (when watching the current real-time price) and volume (optionally) of the bars on an OHLC bar or candlestick chart, starting as simple as a single bar, most often combined with chart formations found in broader technical analysis such as moving averages, trend lines or trading ranges.[7][8] The use of price action analysis for financial speculation doesn't exclude the simultaneous use of other techniques of analysis, and on the other hand, a minimalist price action trader can rely completely on the behavioural interpretation of price action to build a trading strategy.
The various authors who write about price action, e.g. Brooks,[8] Duddella,[9] give names to the price action chart formations and behavioural patterns they observe, which may or may not be unique to that author and known under other names by other authors (more investigation into other authors to be done here). These patterns can often only be described subjectively and the idealized formation or pattern can in reality appear with great variation.
This article attempts to outline most major candlestick bars, patterns, chart formations, behavioural observations and trade setups that are used in price action trading. It covers the way that they are interpreted by price action traders, whether they signal likely future market direction, and how the trader would place orders correspondingly to profit from that (and where protective exit orders would be placed to minimise losses when wrong). Since price action traders combine bars, patterns, formations, behaviours and setups together with other bars, patterns, formations etc. to create further setups, many of the descriptions here will refer to other descriptions in the article. The layout of descriptions here is linear, but there is no one perfect sequence - they appear here loosely in the sequence: behavioural observations, trends, reversals and trading ranges. This editing approach reflects the nature of price action, sub-optimal as it might appear.
Algorithmic trading, also called automated trading, black-box trading, or algo trading, is the use of electronic platforms for entering trading orders with an algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention.
Algorithmic trading is widely used by pension funds, mutual funds, and other buy side (investor driven) institutional traders, to divide large trades into several smaller trades to manage market impact, and risk.[1][2] Sell side traders, such as market makers and some hedge funds, provide liquidity to the market, generating and executing orders automatically.
A special class of algorithmic trading is "high-frequency trading" (HFT), in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe. This has resulted in a dramatic change of the market microstructure, particularly in the way liquidity is provided.[3]