According to Eugene Fama’s: Behavioral finance is not a justification for price movements, but an approach to identify the behavior of traders, which leads to recognizing liquidity flow in the market.
This is the definition of a trend. We do like to trade in the direction of a trend, because this is where we deal with the great traders and their money.
Behavioral finance, regardless of the past and whether or not there is a pattern in the market right now, finds the current behavior of the influential traders and tells us how the money moves based on the available clues.
There are two possible ways to reach these clues:
- Price Action
It is a method in which a trader uses the volumes available in the market to trade in order to find the clues of price changes. To understand whether the price will be bullish or bearish in the future, the trader looks at the volumes that are likely to be traded by other influential traders in the market. This alone has methods, techniques and tactics through which we can use footprints.
However, it’s obviously more desirable in lower time frames, because you need to have access to that data. If the broker or currency exchange you work with offer you several prices, you should know if they are higher or lower than the current price. You need to understand whether you can buy or not, and you have to know whether it is even possible to access the footprints in the market you are. In the Forex market, for example, such data is not available at all.
It is focused on the price movements, and is based on the changes made by trading orders and traders’ actions. That is how a trader realizes if the price will rise or fall in the future.
The difference between Price Action and Footprint
As we mentioned above, Footprint focuses on the volume and its changes, but Price Action focuses on the price and its movements.
It is quite clear that the price provides us with much more data. In Price Action, we can use more tactics and techniques as no trading orders either left behind for any reason, or canceled and removed before activating them, have impact on the market. The price itself is real and filtered, so we no longer need to find and separate those orders.
Consequently, we are no longer limited to lower time frames and we can even use much longer periods – weeks and months.
The advantages of Price Action over Footprint
- Price movements are much more stable
- Institutional and professional traders use this method, so we can identify the cash flow they generate in the market
- We literally trade in the direction of a trend in the market
If you are a bit familiar with financial markets, you must have realized that to succeed in any trading, you need to know everything that is happening behind the scenes. By looking at the current price, you can easily become proficient.
Join us to become proficient and easily identify profitable trading positions with a very high probability.