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.
If the price movement is random there is no difference from a monkey hitting the buy & sell buttons randomly. For random price action you'll find out that over time your equity curve will tend to zero.
