Price Behavior Part 4
[00:11] – Welcome to the fourth video in our forex trading training series brought you by ForexMinute.com. This is characteristics of Price Behavior Part 4. This is a slide from our previous video. When I introduced this slide in the previous video, I mentioned how price trends and how price ranges and I asked the following questions: How does price behave and what patterns are formed at the end of a trend, and I showed some illustration and price charts to answer that question. In this video we will be going to answer the second question. How does price behave at the end of a range?
[00:57] – When price ranges it moves sideways. Price repeatedly moves up and down within two areas of the market, but the overall or the general direction of price is sideways. All ranges do come to an end and quite simply, price either breaks out of the top of the range, or break out of the bottom of the range. And then more often or not, price trends. If price break out of the top of the range, price uptrends; if the price break out of the bottom of the range, price downtrends. And let me demonstrate it on a real life price chart.
[01:45] – This is a weekly chart of Pound against Japanese Yen. I have chosen this weekly chart and this currency pair because there is a lot I can show you from this data that is in front of you that goes hand in hand with what has been taught in the last two videos.
First of all, we have our range prices moving up and down but in a general sideways direction. And to make that more clear, let me place two lines on the chart. There is the first line, and there is the second line.
It is important to note that these lines are specific prices that price repeatedly bounces off, but rather they are general areas. You will notice that price reverse each time at the bottom of the range. But price is on slightly level; it is general area where price is reversing. And the same is on the top of the range, price reverses repeatedly but is not in exactly at the same level in which time is just a general area where price is reversing. You will notice eventually that price does break out on the upside and as illustrated in the slides price then uptrends. If price broke on the downside, it slightly the price would have down trended.
Now the reason why I wanted to use this weekly chart is first demonstrate the wide range of charts that are available in trading forex. So far, we have used a variety of charts, including 5 minutes, 4 hour charts, now weekly charts and some others. But also I wanted to show you the price action of this uptrend.
We obviously have outstepping motion of pushes, and pullbacks. But let us see what happen after this pullback that creates a lower low. We have a very clear head and shoulders pattern which I taught in the previous video. We have first shoulder; our head; our second shoulder and then price goes on the downside. I though notice that the price falls heavily on the downside and that was the great opportunity to go short and profit as price moved in a downward direction.
[05:09] – So from this weekly chart you can see the profit that can be made from trading these patterns. We have clear highs and lows of an uptrend, and also a range on how price breaks out of a range. It is a great chart to demonstrate the different price behaviors or market types I have taught in last two videos. In a future video, I will show you how to trade these break out. When price breaks out of a range, there are specific ways we can trade those break out to profits as price moves from the upside to on the downside.
[06:00] – To summarize, price ranges will end; price eventual breaks out, that’s how ranges end. Price breaks out by moving high on the upside or lower on the downside. When compare to previous projection of price reversals. And more often or not, price breaks out of these ranges because of the news events. And as mentioned, in future videos, I will show you how to trade price breakouts.
That’s the end of our four part Price Behavior series. Our next video, VIDEO 5, will be Reading Japanese Candlesticks Part 1.
Thank you so much for watching this video.