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Price Action Trading: Why take profit ahead of a large bid

GBP/USD 8 August 2018

One question that should always come to mind when you see a large order is: is it real? But this only tells you so much; perhaps more important is what do others think of the large order and how likely is it to affect others’ trading, so the question you should be asking is about the market’s psychology.

How do you know what the market as a whole is thinking? In short you can’t. What you can work out is what certain traders are likely to do; this comes from understanding the move that comes before the large order is met. If a market has fallen a long distance (think larger than current ATR) then two things about trader’s positions can be deduced:

1. Profitable shorts held by short term traders may soon be bought back
2. Contrarian traders will be looking for buying opportunities

So, if a large order appears at a level, there are at least 2 reasons to buy in that area, shorts will want the best price to take profit and contrarian longs will want confirmation the order is real to front run. If the large order proves to be real (trade into it and the order remains in place) there can then be a rush to buy causing a short-term bounce.

The context surrounding a move down to a large order in GBPUSD and how this can give a trade opportunity is discussed in this live Axia debrief which also discusses the importance of the information gained by watching how the market trades the large order and the implications for trade he next day.

 

 

Large orders and how trades can be constructed around them are covered in Module 8 of the Axia Price Ladder Course where exercises and replay drills are used to practice and enhance your trading skills.

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