When the market is more “emotional”, it tends to swiftly break through important levels, and this creates profit opportunities for calm and disciplined traders. For trade to be taken from the stand point of price overextension there are very distinctive factors to consider. In order to execute flawlessly this method, you need to possess reflective mental discipline. Price overextension is the quickest method to make profit, but it’s mentally challenging to keep your emptions under control.
Remember that people who are disciplined and patient are rewarded as they know how to take advantage of “emotional” market behaviour. It's highly rewarding to wait for clear signals instead of forcing trades when there is none. Don’t look for challenges and excitement there.
So here is the breakdown of Forex Price Volatility and Price Overextension:
Price must expend to the new territory and penetrate to fresh level. I'd be very cautious to look for a trade where price was already revisiting multiply times of the range of that significant level. Over 80 precent of volume is expected in trading environment, and as a result the market frequently overshoots and then corrects itself. In other words Price Volatility trading is related closely to volume spread factor vs time. The more price overextensions can be noticed, the more volume spread movement. As the price comes back to fill in the gap, it creates the balance and stabilizes towards equilibrium of spread liquidity.
The key here is volume. The real time information for FX market is not a magic indicator. You need to look at the chart and search for the answers there. There is another misconception taught out there, but anyways, to keep this post short and concise I want you to look at the Volume as not a number of positions traded, but number of price changes during a specific time period of time.
The major objective in Price Volatility method is to identify features of overextended price action that will cause retracement back to the fractals range. When observing price action regardless of currency pair it can be noticed that volatility within specific fractal range tends to exceed significantly from time to time. These events create price overextension. When price spikes rapidly from fractal range, penetrating through levels, the move is very vulnerable to pull back into range. It may happen immediately or at the later time, but the occurrence is very common.
During only one day you can notice 3 occurrences of price overextension. Note the Supply Zone which plays very important role here. Price spikes in the overall bullish trend leaving a gap. This price overextension is very vulnerable to pull back into the dealing range. Obviously I didn’t have to wait long that day to bank the profit. This occurrence is very highly probable and happens over and over again.
Another example this time on Daily charts. These gaps created by price overextension are almost guaranteed to get filled either immediately, or later in the future.
On this chart you can see very similar price action on different currency pair. The price is usually very parabolic, in fact the more parabolic the better. After when price hits significant technical level or exhaustion point, very often it can be seen price comes back to the range. In the second situation on the chart you can see price didn’t come back right away, as a matter of fact bounced off very important technical level on the fractal seeing on the left. That’s why is essential to scale out at the anticipated points of market natural reaction. Read on Scribd...