FX TRADING STRATEGY


liquidity. On exhaustion of these moves, price can ‘rebalance’ through this spread or gap to the last point of liquidity, a move that can be pronounced as


institutional


algos manage both inventory and adverse selection risk from the previous price run.


Figure 3 - Daily Market Structure Behaviours - GBPUSD Detail


In previous articles for FX Trader Magazine (Q2 and Q4 2016), I explored strategies that trade inefficient price runs


across daily highs and


lows (former Olympian and World Cup Bobsledding champion Chris Lori is by far the best practical resource on order flow inefficiencies in FX). Here, in contrast, we will show how within the context of the market structure results captured, we can exploit market microstructure - order flow and transacted volume - within the range of the previous day.


Figure 4 - Weekly Market Structure Behaviours - GBPUSD Detail


more participants over time reaffirming interest and confirming structure.


• The detail for GBPUSD on daily and weekly timeframes shows the same nuances.


Exploiting Market Structure Behaviours


How can we exploit the clear 50 FX TRADER MAGAZINE October - December 2017


structural behaviours that exist for both daily and weekly timeframes, together with the difference that exist between them?


Price movement is a function of


liquidity. An inefficient


price move is not necessarily a sign of volume; an absence of bids or offers can ‘spread’ price as it reaches for available


Trading Liquidity


Pullback


Figure 5 shows this idea in action for GBPUSD. Price extends below the previous daily high (or low), and returns to a previous level of liquidity, where a manageable trade can be taken, within the context of the 1 in 5 chance of price extending into an outside day.


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