Original subtitles

The right context for applying the Wyckoff method.

In this module, we will address some key ideas that we must keep in mind if we

are to apply the principles of the Wyckoff method in the most productive

possible.

We will learn about which markets are the most suitable for trading in, as

as those that we should avoid.

Wyckoff and the Forex Market As we already know, one of the great

the Wyckoff method is the universality of its principles.

which enables us to trade any asset at any time following exactly the same

premises and strategic ideas.

If we take this to the outermost layer of reasoning, we need to dig a little

deeper to continue defining that idea.

To do this, we must consider the type of market according to its degree of

formalization, that is, the type of market depending on whether it has a

centralized order book or not.

The main difference is that in centralized markets, there is a single

book, which is responsible for connecting all the participants in that

while in non -centralized markets there are multiple order books, as many as

there are market makers, where the lack of transparency regarding market depth

is clear as, in most cases, only the price of the last bid and ask is shown.

It is also important to know that there are many different prices for the same

asset. due to the very nature of these types of non -centralized markets.

In other words, if we want to trade the Euro -US dollar currency pair, each

market maker will offer us a different price and volume.

The slide shows three examples of the same asset, the Euro -dollar currency

from different decentralized markets, FXCM, Pepperstone, and Oanda.

If we look carefully, we can see that the candlesticks are not exactly the

so it is likely that the listed prices also differ.

The problem here is that any analyses we perform with these types of markets

will be based on data which, whilst a meaningful and valid representation of

entire market, does not in reality genuinely represent all trades.

To ensure the data we have is reliable, we need to analyze said asset in a

centralized market.

Continuing with the example of EURUSD, we should analyze the futures market,

centralized market, which corresponds to the ticker $6E.

Therefore, the recommendation is, if you don't have enough capital to trade in

the futures market, you can analyze the asset in this futures market and execute

the trade through another more affordable financial derivative, such as

a good broker, not a market maker.

An intermediate option would be to trade the small version of the future, the

micro future, which corresponds to the ticker $M6E in the case of the EURUSD.

If we open a chart of the future 6E and the CFD EURUSD, we can see that the

price movements are practically the same, even though they are different

markets. This is possible thanks to an arbitrage process carried out by high

-frequency algorithms, which takes place systematically between both markets.

Financial arbitrage is a form of trading that consists of profiting from the

price differences between similar instruments.

The algorithms used in this approach identify the difference between both

and then buy in one market and sell in another until both prices converge,

obtaining a profit from said differences and facilitating market efficiency.