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One very common thing in the market is the psychology of the market, but this has really thrown many traders off balance because many find it hard to understand the market based on bullishness, bearishness, and the trends of the market. It's very imperative to know that market psychology can never be approached based on the way it appears.
This is not far-fetched from the reasons smart traders always approach the market with strategies that aid them in milking the market profitably. Traders use strategies like trend line strategy, pattern strategy, EMA strategy, etc.
Although various strategies are applied when approaching the market, irrespective of this, various parameters like price, order block, bearish and bullish trend, etc. are considered during strategic analysis.
These parameters have helped many traders scale through, but they don't really give hundreds percent profitable assurance. It becomes a feared ground for some traders to think deeply before they leap into the market during analysis. Moreover, you can't give hundreds of percent assurance of a profitable move in the market; nevertheless, there are strategies that can give the right swing to take profit. This strategy is not far from PRICE CIRCLE, which many traders have leveraged.
What is a price circle?
Price circles depict the behavior of trading prices within a market. That is, how prices move within the element of trade in the trading ecosystem. Looking at the price circle definition, you will see something called an element. Prices do not move in a vacuum in trading; they are being controlled by some element. It is needless to say that the trading price moves within this trading element.
What are these elements? We have CONSOLIDATION, EXPANSION, RETRACEMENT, and REVERSAL. This major element in the price circle shows how the market moves within 24 hours. In other words, this element is the regular behavior of the market. When you pay attention to this, you definitely know how to analyze the market based on the price circle movement of the market.
For instance, if you want to analyze a trade, the price circle automatically gives you a good strategy to analyze the market. The first thing you look out for is the consolidation in the market before the indecision candle, which is the expansion before moving on to the rest. Let's see how this reflects in our trading lives.
The element.
- Consolidation = equilibrium.
- Expansion = Order Block/Zone
- Retracement = fill in any inefficiency price action FVG
- Reversal = Seeks to take out liquidity.
How the element behaves on a chart.
Consolidation.
This doesn't really have so much behavior in the market; it just depicts a level of equilibrium in the market. Where the market bounces in a certain direction. This always occurs when the support and resistance in the market are not too far apart from each other. The market moves to fill the highs and lows, so it bounces within the support and resistance to create a consolidation or equilibrium.
Expansion.
This is when prices swiftly move from the level or medium of equilibrium [consolidation]. That is,price breaks out of consolidation.
This simply means a consolidation has occurred within a chart, and then the price breaks out to form a very long candle. In other words, it forms a break in the market structure.
Equilibrium is just 50% of the highs and lows of the area where consolidation occurs.
Once the price expands out of the area of consolidation, it provides us with an area to execute a position from so that we can join the ride. It leaves either an order block or a zone. This simply means that when an expansion happens in the market, it must leave an order block for you as a trader to pick a position to enter the market.
Retracement.
Retracement is when the price is pulled back inside the recently created price range; here, the price range will be the expansion out of the area of consolidation.
After price expands in either direction, it must look for any inefficient price action created during the quick move; this will then give us an area where price can retrace and pull back too. This simply means that when an expansion occurs, prices move back to fill or mitigate an indecision candle that was created.
What does this do?
- It will help us identify any points of interest where we can place our order.
- Price expands, which may create inefficient price action.
- Price pullback to fill in any inefficiency to allow both buyers and sellers fair opportunities to liquidate the market.
- Then continue in the intended direction.
Reversal
This is when the price moves in the opposite direction from the current market direction [from an upward trend to a downward trend].
The aim of the reversal is to seek out any liquidity and take it out, such as:
- Trend line liquidity
- Equal lows
- Equal highs
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