DEFINITION of Trade Price Response
Trade price response is a technical analysis strategy that establishes a position based on what the price of a security does after it reaches a certain critical level. This is generally known as a security's resistance and support level. After the security has reacted to the level, the security's positive or negative reaction is used to set up trades. Traditionally, for technical analysis methods, the critical levels are areas of resistance or support for a security's price.
BREAKING DOWN Trade Price Response
For example, say that the $25 level of a stock has been an important level of resistance, and it has had difficulty in moving above that level several times. A trade price response would be the setting up of a trade based on what the price does once it again reaches the $25 level. If an upward move toward this level were to slow, a trader may enter a short position on the stock as the price has again failed to move above the level. On the other hand, if the price moved above the $25 level, a trader may enter a long position in anticipation that the price will head higher after breaking through this critical level of resistance.
Foreign exchange traders often use trade price response techniques. Because foreign exchange transactions occur regularly, as an asset class, it offers a rich data set, which is particularly attractive to trading methods that utilize historical data. Strategists will carefully monitor how a security performs at varying specific price levels; this helps to better predict an optimal course of action to take regarding a security after it crosses certain price thresholds again. This type of strategy sets up nicely for the massive market opportunity FX presents. As the largest asset class in the world, foreign exchange transaction volumes swamp nearly every other asset. In fact, in April of 2016, an estimated $5.09 trillion traded hands per day on average. What's more, traders love that FX markets operate continuously. Yes, that's right. They're open 24 hours a day, except for weekends.