DISCRETIONARY TRADING

Purely discretionary traders rely on their experience, gut feeling, and reading of the price action to make trading decisions. and for FX traders this means coming to grips with what makes the market tick. Intra-day FX prices are shaped by Haws, and as we know these flows may be the speculative bets of a large hedge fund or they may simply be the hedging activity of an exporter. Either way, supply and demand is what sets short-term prices, which is why we say that in FX there is no such thing as a fair price. Even if the macro backdrop favors a dollar decline, a large buy order will disrupt prices in the short run and drive the dollar higher until the demand is satisfied. For the intra-day trader the thinking behind these flows is not important; price is all that matters.

Getting a proper "feel" for the market comes down to understanding the price action. Price action is that magical thing that scares traders oU{ of their positions and lures them into traps. Watching the bids and the offers get hit is the equivalent of the old-(jme tape reading made famous by Jesse Livermore and other "punters", who used to read the ticker tape attentively in an effort to gauge short-term price trends according to price and volume. Price action reflects the tug-of-war that is constantly going on between the buyers and the sellers in the market, and to the experienced trader it can also be a window into the market's footing.

Since shol1-term price movements are largely dictated by the maneuvering of the "big boys" in the market, it is in the interest of every small speculator to closely rol­low the price action in order 10 find the "footprints" that all large players inevitably leave behind. Needless to say, reading price action is easier in exchange-traded markets, where volume information is available and institutional block orders are more easily detected, but in FX those with no flow information can still glean the market's intentions by looking at the order How information lefl behind in (he form of chart patterns and noting how prices react near important pivot points. Correctly reading price action is not something that can easily be taught. and over lime traders find that it is more of an art form than a science