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Old Jan 21, 2011 9:24am
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Default "vacuum"

hi,

thought i'd share my point of view cause it's without a doubt one the most interesting thread out there.

My first attachment is the picture that DS once attached showing different market participants interacting. I would see this picture as being the search for the most accurate fundamental value of a pair or the equilibrium in price. Now, when the price shifted to the right it caused disequilibrium in the market. Why ? First off, because now there are more latent interest in the right side than there is in the left side. So, this tells me that the value traders (fundy traders) are seeing the market as undervalued. Especially when the latent becomes limit orders which means that they are actually going to do smth about it. So the best option would be to join those informed traders and going long is the only thing to do. Furthermore, you can also notice the vast amount of tech traders who are seeing the same thing (technically) and thus are interested in going long as well. So, now you got: 1) value traders on your side 2) tech traders on your side.

Now about the so called vacuum. That vacuum is actually what caused the price to shift out of it's fundamental value. Cause being a stop hunt in its nature it has nothing to do with the "fair value" of the underlying currency pair. Moreover, that stop hunt creates unordinary volatility and without some crazy shit happening to the economy the fair value of a pair can't possibly decline that fast.
Also, like one member said, that vacuum doesn't have to be a vacuum literally. Of course it will be filled with orders. But who's orders ? If the fundamental value of the pair is not changed then this vacuum can only be filled with uninformed traders (weak holders). Cause no value trader is going to short that pair at these new low levels. (This is where my second example of AUDUSD is coming into play). And those uninformed traders will again start to create liquidity to the upside when their stops are starting to be taken out. And that's how the ball is rolling.

Just my 2 cents. Feel free to comment or disregard it.


My question is: can this latent interest be exploited somehow (and even further, can that shift to LMT orders be exploited) or one just has to be good at economic environment to figure that out himself (which can definitely be done, i believe). I think this is where the vast amount of reading, knowledge and experience comes in, in the case of DS


PS. At this point of writing i'm looking for this vacuum to be created on AUD/JPY where the price would move below 81. But this move has to be supported of course (whether it's econ data or smth.) I think you get the point.
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