TRADING SYSTEMS


FX


Figure 5- GBPUSD Daily Market Structure - Trading Liquidity on Pullback


the ‘market maker’ level at 1.0725 within the zone, similar to 1.


3. Price is extended on the previous day, with divergence the next day prior to the 127E.


4. Price moves inefficiently into


the extension zone with dual confluence


of a previous daily


volume low, and the ‘repair market maker’ level as described in article 1 (former Olympian and World Cup Bobsledding champion Chris Lori is the best practical resource on trading inefficient order flow in FX).


In most of the examples above, price reacts back into the current and previous daily range, responding at previous levels of transacted liquidity


as described in the Q3 2017 article. Te difference this time is that we are adding extension context for the initial trade back into the range.


Oſten, the problem with these types of moves – price inefficiencies or divergences - is that the inefficient price run may not fill intraday; volume at base or top may be suggestive of the accumulation and markup dynamics


of the higher


timeframe players. Similarly, divergence may only signal pause, not pullback.


Now, using the extension zone, we have a quantified feel for probability under these conditions of uncertainty. To quote Lasse Pederson, the markets are ‘efficiently


inefficient’, allowing enough


anomaly to trade before tightening back into efficiency. Consequently, any percentage information is useful in making the trade decision. Te extension context is important for adding that extra one percent; we know that price is c.80% unlikely to moving beyond the 162 extension. We now have the framing setup – we are using price inefficiency and momentum divergence as behaviours to trade context.


We can now play both sides of the market as discretionary quants.


Graham Harrison Independent trader


Author of “Dynamic Web Programming”


FX TRADER MAGAZINE January - March 2018 45


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