Originally posted at forexfactory on February 17, 2011:
Yesterday I read there were a larger option at 0.9850 at USDCAD and if you look at the chart, there has been some attempt to fight for it.Now it finally gave away, but in my mind, that has to be some kind of inefficiency. Because if you say that banks hunt the option to save their own ass, then price has moved down irregardless of value. If it moves down irregardless of value then the price is inefficient.
Therefore the price isn’t efficient and now that the option hunt is over, my order flow mindset tells me that this would entice traders…
Why buy at 0.9850, when you can wait for the level to be broken and buy at 0.9840 / 0.9830?
What makes you think there are aggressive buyers to take the price up 100 pips? Sure price may have made a false breakout to 0.9820 and bounced, but does that necessarily mean the the fundamental value is at 0.9950?
Also take note there is probably another option barrier at 0.9800. The people hunting probably do not want price to spike 100 pips.
How do you know that the inefficiency you are describing has not already taken place and any market moves have already happened?
Why hasn’t the price moved up yet? What is the market waiting for? Where are the order flow generators to move price up? What is taking them so long?
The longer you hold such trades into the few hours to few days, you become susceptible to the order flow from market sentiment. If the sentiment stays bearish or accelerates to the downside, then your trade is smoked.