The whole idea of full time trading is to identify repeatable events and be consistent in profits while minimizing the loss.
Some traders might argue that some indicators work really well for them,
Ask the question: “How consistently do they work for you?”, because a flip of a coin can work 50 % of the time.
BOLD STA STATEMENT: TEMENT: Most the time, traditional technical analysis does not work.
It makes sense, however there are enough “big boys” who are highly capitalized enough to manipulate most traders mindset.
BOLD STAT STATEMENT EMENT:: A method that works far better - Price Action!
Most traders have never heard of this little known idea of trading the price, instead of trading the indicators
The truth is that Price Action is far superior to any indicator available availabl e in the marketplace.
The whole idea of full time trading is to identify repeatable events and be consistent in profits while minimizing the loss.
Some traders might argue that some indicators work really well for them,
Ask the question: “How consistently do they work for you?”, because a flip of a coin can work 50 % of the time.
BOLD STA STATEMENT: TEMENT: Most the time, traditional technical analysis does not work.
It makes sense, however there are enough “big boys” who are highly capitalized enough to manipulate most traders mindset.
BOLD STAT STATEMENT EMENT:: A method that works far better - Price Action!
Most traders have never heard of this little known idea of trading the price, instead of trading the indicators
The truth is that Price Action is far superior to any indicator available availabl e in the marketplace.
Understanding Candles
Bulls Win
Bears Win
High
High & Close
High
High & Open
High
Close
Open
Open &Close
Close
Open
Low
Low
Low & Open
Reversal Bars
Low & Close
Low
Narrow Range Bars (NRB’s)
Wide Range Bars (WRB’s)
Topping Tails (TT’s)
Bottoming Tails (BT’s)
Multiple Candlestick Patterns
Candlestick interpretations
Narrow Range Bar
Wide Range Bar
Topping Tail
Bottoming Tail
Forces you to be “present”, in the “moment”. Candlesticks help to keep you in the “here and now” mentality.
Once you place capital in the market, emotions get involved resulting in a state of “denial” of the actual signals that are occurring. If you choose to ignore the signals, you choose to ignore valid information, not subjective indicators.
If you still choose to ignore the information, perhaps the problem is YOU, not your analysis!
Fundamentally, an indicator will only move after price has moved.
So Price first makes its move. Then the indicator will react and calculate its value according to price actions move.
Price moves again, then the indicator takes what price did and calculates a new move. Do you see something wrong with this analogy?
The indicator is always following price. It never leads price, and it’s always behind price. It only moves after price has moved. In essence indicators are always late.
How can a trader actually be successful using lagging indicators to trade? The answer is they can’t. They are always late to enter, late to exit and get whipsawed around.
One thing is true, indicators never lead price. Price leads and the indicators follow. Here is a novel idea- why not trade using the price?
Let’s see what price does and trade off the PRICE ACTION itself.
Occurs when the Real Body for a price bar is larger than the Real Body for the previous bar
Indicates a potential reversal of the previous trend
Bullish
Bearish
Engulfing
Engulfing
Occurs when the Real Body for a price bar retraces more than 50% but less than 100% into the Real Body for the previous bar
Indicates a potential reversal of the previous trend
50%
50%
Bullish
Bearish
Piercing
Piercing
Occurs when the next bar opening for price action completely gaps over/under the Real Body for the previous bar
Indicates a very high likelihood of potential reversal of the previous trend
Bull Trap
Bear Trap
Bullish Reversal
Bottoming Tail
Topping Tail
Bearish Reversal
Down-Up-Down
Up-Down-Up
lower third of bearish bar
upper third of bullish bar
Natural pullback
Down Up Up Down Natural pullback
Down
Up
Price Action can only be described as: The interpretation of the daily price movement as to the continuation of the trend or lack thereof.
In other words watch how the price moves and you can deduce where price will go. This is very simple to understand and implement in day-trading.
Price behaves in only a few certain ways.
It can go in an uptrend, downtrend or consolidate sideways.
If Price action behaves in a way that is an uptrend, then we can make decisions based on that analysis.
If price action is trading in a range then we can deduce certain factors from this behavior.
If we can learn to trade the price and its action without relying on indicators, then we as traders are on the leading side of the trades, and not the lagging.
TARGET
Price Action
STOP
RISK ENTRY REWARD
ENTRY REWARD RISK TARGET STOP
LONG Entry Up trend Higher Highs & Higher Lows • •
Short Entry Down trend Lower Highs & Lower Lows • •
Price action can show us where price will be in the very near future by looking at a test or re-test of the highs and lows.
Indicators for the most part do not provide this info.
What about demonstrating false breakouts?
What indicator can predict a trade based on a false breakout that has just occurred?
Indicators can get you into a position on the wrong side because it has no way of predicting false breakouts.
How do we know the parameters of any indicator or correct? How about the moving average? Are the 20 period and 200 periods the correct parameters to use?
How do we know the parameters of any indicator or correct? How about the moving average? Are the 20 period and 200 periods the correct parameters to use?
We don’t, and we will never be right because of the changing nature of the markets.
But if we took a look at price action and recognized a pattern of 2 or 3 consecutive higher highs and higher lows, wouldn’t that demonstrate strength in the market regardless of where that technical indicator was plotted?
Hence, regardless of market volatility, or economic conditions, price action will outperform technical analysis indicators.
Scaling In
Scaling Out
Scaling In
Scaling Out
All-InAtOnce
AllOut-AtOnce
All-InAtOnce
AllOut-AtOnce
Multiple entries and One Exit
Multiple Entries and Multiple Exits
3
4 2 Minor Phases
3 4
Minor Phases
2
Down Trend
4
1 1
3 4
3 Up Trend
Minor Phases
2
2 4
2 1
1
Minor Phases
Expansion of movements Up Trend Up Trend breakdown
Down Trend Down Trend breakout
Sideways Price Action
Breakout
Breakdown
Up Trend and Price Movements
Associated with “Higher Lows” and “Higher Highs”
Focus on relationship of price action and “rate of increase” in price (i.e., slope of trend line)
The more price action tests the trend line and continues higher, the more traders perceive this trend line as support.
Down Trend and Price Movements
Associated with “Lower Highs” and “Lower Lows”
Focus on relationship of price action and “rate of decrease” in price (i.e., slope of trend line)
The more price action tests the trend line and continues lower, the more traders are recognizing the trend line and using it as resistance.
Sideways Price Movements
Focus on relationship of price action and “rate of increase” in price (i.e., slope of trend line)
Focus on relationship of price action and “rate of decrease” in price (i.e., slope of trend line)
The more price action tests the trend line and continues higher, the more traders perceive this trend line as support.
Range bound
Associated with relatively equal “Lows” and “Highs”
RANGE
Consolidation
SIDEWAYS TRADING PATTERNS
On lower timeframes; can find relatively equal “Lows” and “Highs”
Congestion
NO clear patterns of price action on lower time frames
CONSOLIDATION
CONGESTION
1
2
1
3
2
4
3
4
2 Price Action
2 2
3
2 2
1
2
Bullish moves on lower time frames
2 ENTRY
Major Up Trend Higher Highs Higher Lows • •
Higher highs and higher lows provide evidence of bullish price action/uptrend
Trading with the trending price action. 1 Use technical analysis for BUY signals
2
3
Use technical analysis for for SHORT signals
2
3 1
Review the average daily trading range to determine if price action is increasing/decreasing.
Add filters plus additional “weight-of-evidence” to time trades better.
Conduct volume analysis to determine whether volume is diverging with price action. Lack of volume to support potential breakout should reduce position size or wait for breakout confirmation
Filter example: Break support/resistance by x %
Filter example: Break support/resistance by x
Review price action on multiple time frames to determine the macro trend. Trade on the side of the major trend to avoid low odds trades. Review support and resistance to find risk and reward parameters for setups & entries at support or resistance. Look for congruency with E-mini futures for trading opportunities and setups.
points
Filter example: Multiple closes above/below support/resistance area
Determine whether price action is extended: Oversold or Overbought.
Countertrend breakouts perform extremely well.
Flags, pennants, broadening patterns
Trend line breakouts can be very good scalp trading opportunities
Short signals
1 2
Buy Signals Buying Signal
2
3 1
Short Signal
3
Can also include the category of chart patterns – pennants
Very common chart pattern found in existing trending price action
A
C
determine whether to continue or reverse movement
Parallel
Always proceed a dramatic or sharp price action move
Among the most reliable of continuation patterns
Rarely produce a trend reversal
Easily identifiable by parallel lower and upper boundary of
2 1
3
B
Represent a “pause” or consolidation of price action to
support and resistance; respectively
Relatively short term – countertrend movement in price action
Flags
Technical analysis measurements can be applied to project future price action continuations
More rapid development in downtrends
SHORT
A
200 MA
Parallel
2
C
20 MA
1 3
B Flags
Higher Timeframe Downtrend
