When Moves Like This Screw Up the Charts - The Other Side of the Coin - Forex News by FX Leaders

When Moves Like This Screw Up the Charts – The Other Side of the Coin

Posted Tuesday, October 11, 2016 by
Skerdian Meta • 2 min read

How many of you guys read the previous market update? We saw how the GBP charts looked; You couldn´t read them on timeframes above 30 minutes, those charts looked like deserts where you don´t know what to look at. The only charts where the technical analysis made sense were the short term charts, ideal for scalping.  

That´s one side of the coin of this mess, which the GBP crash created. The other side is where we have to question the credibility of the technical indicators. As we said in one of our updates on Friday, the liquidity in the interbank market was this because the move happened during the Asian session, so different liquidity providers which might be banks, funds etc offered different prices for the GBP that night. 

The move was fast and the buyers/sellers were few and far apart, so different liquidity providers offered different bid prices for your broker during that move. The lowest price on my platform is 1.1812, Reuters´s low is 1.1491, Bloomberg stands at 1.1841, while IG went as low as 1.12, although they have re-priced it now. 

There´s a huge problem with this, especially for us retail traders. All these different lows distort the technical indicators. These indicators follow the price, whether it is the highs and the lows of a candlestick or the opening and the closing prices. But if we all have different lows on our trading platforms, then all our technical indicators stand at different prices. If the 100 MA (moving average) in the hourly GBP/USD chart on my platform stands at 1.2450, the same MA comes at least 100 pips lower on a Reuters forex platform. The same goes for the Fibonacci retracement levels, Bollinger bands etc. 

These indicators only work as self-fulfilling prophecies, the more forex traders look at them the better they work. The force lies within the numbers, particularly when the big players are on our side. Normally, the price on my platform for the 100 MA is the same as the price on fancy platforms in any large hedge fund or investment bank offices.

But now that we all have different prices for the same indicators, the credibility of our technical analysis is questionable. A large hedge fund which uses Reuters platforms would open a short position at 1.2350, which is where the 100 MA stands at their platform, while I would wait for the price to get to the 100 MA on my GBP/USD chart which stands at 1.2450. In this case, I would miss the trade, because the big players are the ones who move the market.

On the opposite scenario, I would enter too early and probably lose that trade way before the price reached the same indicator on the platforms the big players are looking at. That´s a real problem guys, at least for a few more days until the higher timeframe charts stabilize. The best thing to do during this time is to keep trading the GBP pairs at a minimum. 

 

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About the author

Skerdian Meta // Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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