Is forex market profile strategies of teaching Reward to Risk Ratio Inherently Better Than Another? How are price formed in the Stock and Forex markets?
In the last article in the series, we discussed robust trading ideas, comparing moving averages with a channel breakout strategy, showing how the latter is of much greater value and how using a moving average system may show great results in back testing but can be fatally flawed in actual trading. The reason that channel breakout systems have stood the test of time is likely because markets trend in the long term and a new multi-month high is always going to have much more psychological significance than the crossing of two arbitrary moving averages. The findings strongly support the argument that any system based on predictable market behaviour, is likely to be much more robust than one based on arbitrary mathematical algorithms. This has been exploited in the futures markets with strategies such as the opening range breakout. The New Market Wizard’ by Jack Schwager. The most liquid period is the opening.
Liquidity starts falling off pretty quickly after the opening. The second most liquid time of day is the close. Generally speaking those patterns hold in almost every market. After graduating from college in 1960, J. Peter Steidlmayer moved to Chicago to become a pit trader. He made his living as an independent trader at the Chicago Board of Trade.
He was a respected trader in the bonds and commodities pit. While trading in the pit, Mr. Steidlmayer developed a feel for the markets and began formulating his views on how to trade the commodities markets. His ideas later on became known to the trading community as “Market Profile” in 1984. Steidlmayer sees the markets as a dual auctioning process.