Is price movement really random and unpredictable?

[proftradingjourney]

The market only “appears” to be random. Prices will move to where the most transactions will take place. That is the purpose of “making” the markets. It will also move in the direction of where the most pressure is being applied.

Because the market, at all times, has both bullish and bearish institutional players who are endeavoring to take money from each other, they each exert pressure to accomplish what they want. This pressure leaves footprints (i.e. patterns) that can be seen on a chart. Things such as reversal patterns and continuation patterns. Hence we see pullbacks, wedges, triangles, ranges, channels ….etc. These are the footprints left on the chart as the institutions exert pressure. Bullish institutions exert bullish pressures and bearish institutions exert bearish pressures. Sometimes a bullish institutions will behave as if they are bearish when they are really bullish hence we see false bearish breakouts. Bearish institutions will often times act bullish when they are really bearish so we see false bullish breakouts. Hence the uncertainty of the markets. Sometimes bullish institution are pushing hard for a BO but then bearish institutions simply overwhelm them. Then we do not know for sure which side will win the tug of war until it happens. One side will always win at some point. But we can judge by the patterns left where prices are likely to be pushed next. But then all of a sudden another institution may suddenly enter the market and do so heavy handed and push prices opposite thus causing the pattern to fail. Other times the patterns do or behave as they are thought they should behave.

It all seems random but it is not. The market always moves with intention. It goes in one direction for a bit then in the opposite direction or sideways. It always does this and any chart shows this action or behavior, even charts 10 or 20 years ago, and of course todays charts show this action too. The key is too be able to “read” the pressures correctly and trade accordingly. The transactions are one element (footprint) of the pressures. Even in a tight range a lot of transactions can be taking place. Why? No real bullish or bearish BO’s and price not going anywhere but transactions are taking place. Ask yourself why.

For instance, in a range (if price just had a bullish BO followed by a bull channel and now that channel is flattening out and a range is evolving) once that range is 15 to 20 bars then the flattening out is no longer a pullback but a range. Hence the market cycle has gone from breakout to channel to PB to range. We know that price in an established range will likely continue developing the range, because the market has inertia, and it is moving sideways. That sideways movement will likely continue at least for a while more as bullish institutions take profits, and bearish institutions want a reversal. Other bullish institutions who missed the move want a continuation. A range forms because bullish and bearish pressures are about equal. So, if we know that 75% to 80% of breakout attempts top or bottom of an “established” range will fail within 5 bars and price will likely move back to inside the range or at a minimum towards that direction then what will a trader do! Inertia…sideways movement…pressures about equal…these are known factors. Odds favor the range will continue at least for a while more until ONE SIDE WINS and we see another BO. But a successful one. And that will ALWAYS HAPPEN.

So what does a trader do when price is in a range of 20 bars sideways motion…knowing that a high percentage of attempted BO’s will fail? I know what I do I “fade” the BO’s and keep doing so until the market shows me a successful BO. But novices will see the same attempted BO of the range and trade in the direction of the BO and then get whip sawed as price goes against them and back towards the inside of the range. They throw their hands up in despair and chalk all things up to “noise” and then stay flat or go into revenge trading.


The market has inertia. Once a successful move (bullish or bearish) has started it will usually go at least a little more. So, once one side clearly wins and the other capitulates and we see a successful BO then we pikers jump on board to pick up the crumbs left in the wake of a successful institutional move and to hopefully even get bigger slices of the pie should the move be “very” successful. If not, we settle for the crumbs and the wife heads for Walmarts instead of Dillards!

So no, prices are not random. There is always a reason why price moves, even one tick. A BO can be from a range…or an area of resistance or support…or even a BO attempt of the previous bar’s high or low. Price is always in a channel. It is always in a BO. It is always in a range. The questions are on what time frame and a BO of what?

A pullback on a 15 min chart is a range on a 1 or 2 minute chart. How I trade that is whatever TF I am trading.

I prefer 5 min charts because I see 20 sometimes double that amount of decent trades in any session of ES. Occasionally I will trade 1 or 2 minute charts if 5 min is like slow drying paint.

Every move, even one point, says something and relays information based upon “how” that 1 pt move was made. It is important that it was made but also of equal importance “how” it was made.

Agreed. It only appears random because bulls and bears are constantly battling which makes the price action harder to read...but the answer is always there. Just takes a lot of practice and screen time to be able to see clearly what's going on.

Probably just wise (for single instruments at least) to pick a time frame and study the hell out of the price action daily. Eventually you'll pick up certain commonalities that tend to occur and can create a trade strategy around it. Plus, it's fun this way. I'll give it a shot! Great post!

 

[proftradingjourney]

Hello my buddy Volpri,

Best post I read on ET website in a VERY long time. Al Brooks teachings on trading ranges is simply magnificent.

Al's teachings are alluring but all too consuming and complex.

 

[SimpleMeLike]

Al's teachings are alluring but all too consuming and complex.

Hello proftradingjourney,

Like all swords, they are used to eat and kill.

We all have to figure out how to kill and eat in the futures market.

Taking money everyday in the ES futures market has become like walking to me, VERY EASY for me to to do

 

[proftradingjourney]

Hello proftradingjourney,

Like all swords, they are used to eat and kill.

We all have to figure out how to kill and eat in the futures market.

Taking money everyday in the ES futures market has become like walking to me, VERY EASY for me to to do

Cool. Fyi, have you noticed this rounded bottom phenomena that occurs in /ES a lot? It's like price will cycle up, top out, and break down hard and fast, but then there are always these extended consolidations that eventually break out. I see it on the 1 and 5 min chart. Doesn't occur extremely frequently but high RR potential.

 

[SimpleMeLike]

Cool. Fyi, have you noticed this rounded bottom phenomena that occurs in /ES a lot?

Hello proftradingjourney,

No, I have never seen this before.

 

[murray t turtle]

Every trader is subject to the Trader's Equation? You mean like gravity?

I know you like to compile stats and make predictions. Do you think the probabilities you assign are more rigorous than Al's 60/40?

%%
NOT sure why he thinks anyone would put on a 50/50 trade ;
but since he implies mostly better, fine
Gravity+ laws of lift.....................................

 

[Specterx]

Rare events, Black Swans are underpriced.

In 2014 I switched from writing options, collecting "free" money to buying DOTM options. Have been doing that since.

The rest is history.

How large and lengthy are your drawdowns? Seems like a pretty tough game to bleed down month after month after month until Covid comes along, or a plane crashes, etc and you get paid off.

 

[savoir]

%%
NOT sure why he thinks anyone would put on a 50/50 trade ;
but since he implies mostly better, fine
Gravity+ laws of lift.....................................

Trader's equation, murray, trader's equation. Al says 50/50 is okay because distance to profit target = 2x distance to stop loss. You seem unconvinced but you can't argue with gravity.

 

[murray t turtle]

Trader's equation, murray, trader's equation. Al says 50/50 is okay because distance to profit target = 2x distance to stop loss. You seem unconvinced but you can't argue with gravity.

%%
OK savior ;
in hindsight i NEVER really knew 100% if i could make money in any of my businesses.
But like DR Brooks, desire helps, in a non random market ;
Just like he knew he wanted to be a doctor.
I knew I did not want to work for some else, except Savoir or SCHW or IBKR, helped some banks also some what.
50-50% are not the long term numbers for many, many UpmoVes in Stock Market.
Its not a horse race also;
even though good MAGazine ad on IBKR founding father riding a horse around a bunch of yellow cabs LOL
Bottom line in that IBKR ad ''NEVER chose an ordinary investment vehicle ''LOL, Turtles made a fortune way under 50% hit rate......................................

 

[savoir]

%%
OK savior ;
in hindsight i NEVER really knew 100% if i could make money in any of my businesses.
But like DR Brooks, desire helps, in a non random market ;
Just like he knew he wanted to be a doctor.
I knew I did not want to work for some else, except Savoir or SCHW or IBKR, helped some banks also some what.
50-50% are not the long term numbers for many, many UpmoVes in Stock Market.
Its not a horse race also;
even though good MAGazine ad on IBKR founding father riding a horse around a bunch of yellow cabs LOL
Bottom line in that IBKR ad ''NEVER chose an ordinary investment vehicle ''LOL, Turtles made a fortune way under 50% hit rate......................................

I get the gist of what you're saying, murray t, and I'm with you about the doctor making up numbers to fit his equation. In the interview clip, he can't even explain it himself without stumbling and bumbling. The doctor is plain goofy.