2 types of trading
I will be teaching you all about using Price Action for:
The main focus is swing trading but various breakout techniques can be used to add to your position as it goes further in to profit. I will save that for much later on though.
1 thing at a time
An Example Trade
So in this Image we have what I called the Core Trade.
Price broke through an Established TL
The PA created a Lower Low,
then in order to judge our Lower High entry with reasonable SL,
(and not have to use the previous High for SL)
We watched a new Resistance area be created,
then once that Resistance area was re-tested and a PinBar formed,
There is a nice entry point, SL, and TP all mapped out before entry.
This allows RR to be judged which in this case was 1:2
Re: An Example Trade
So lets use the last image I posted just above and make sure everyone understands everything I explained about that particular trade.. even right down to the reasons behind me drawing that TL where I did.
So please ask questions or at least confirm that you understand every single element of the trade as I explained it.
I believe everyone should understand each example in full before moving on to the next.
One more explanation from me before you ask questions though:
When I look at the move UP I see 3 waves of movement upwards with the 2 pullback waves. By looking at that alone I am able to understand what the current market swing sizes are, therefore giving me a scale of relativity to judge the future waves by.
I see that the last wave of movement up was much weaker than the previous wave of movement up signifying a weakening of that trend. This is then followed by a wave of movement down with is much more powerful that the previous wave of movement down (the pullback on the TL) AND it broke the previous swing low that was made on that TL.
It is at that point that you know you are waiting for a wave of movement up to reach an area of resistance that will help it maintain a lower high than the high created before the TL was broken. This will then give you the Lower Low Lower High scenario AFTER a TL break that is required for this type of trade... the Core Trade.
In this particular case I was waiting for price to come back to point A on the attached picture and give me some Indecision candles so I could find a trade but instead price pulled back to a different area and created a new area of Resistance which I have labelled point B on the attached picture.
Since point B was created as the new Resistance I then waited for the area to be re-tested and confirmed so I could enter a trade
Price came back and re-tested the area with a nice PinBar (please ask if you don't know what that is) and so at the time that PinBar closed I was able to find a price just below it to enter on, my SL would clearly be the new Resistance area and because we are following the lower low lower high scenario we are expecting another lower low, therefore aiming for a slightly higher low or equal low is playing it very safe.
It is at this point that you have an entry point plotted out, a SL and a TP also pre-planned (previous post picture), and you can now check to make sure you are not risking more than you are trying to gain (RR). Because this trade is going with the current trends direction in this example you are risking half the amount you are trying to gain and so this trade is an all systems go.
Thats about as detailed as I can get in typed words so please do ask questions about anything you don't understand.
This type of trade will work on any timeframe and you will always need a closed candle to decide on a trade. This means if you trade the H4 chart you only have to look at your charts once every 4 hours, if you trade an M30 chart you only have to look at your charts once every 30 minutes.. and so on
Re: An Example Trade
OK, so hopefully everyone is up to speed so far but I still want to break this first example down further because it is important that you understand every aspect of what you are doing. I am sorry this is a slow process but my experience in teaching has proven to me that this is the best way.
It is easy for people to tell you some way to find entries, but entering is only 1 piece of the puzzle if you wish to be successful on a consistent basis.
So looking at the same example again, everyone should understand how PA, SR, and TL's where used to intelligently find the trade.
Let's just take an even closer look at the exact entry point for the trade and why, the exact place for a SL and TP and why. There is a reason for everything you do, or at least there should be. This way when you are in a trade or just entering a trade there are no unanswered questions going on in you head. It is almost robotic because you know exactly what you are doing and why.
So in the picture I have outlined the Entry point, SL and TP once again.
The entry point was just below the Pinbar that had re-confirmed the new Resistance area and consequently what I believed would then be the Lower High that followed the Lower Low.
The SL was just above the newly confirmed Resistance area
The TP at a conservative level was a slightly Higher Low even though we were expecting a Lower Low due to the current PA and because even that level provided almost a 1:2 RR scenario which is very acceptable.
(in the next post I will explain the thought process during the trade)
Re: An Example Trade
Now that you are in the trade and you have an intelligent SL and TP, plus before you entered you made sure the RR was also intelligent.
How do you manage this trade also using just Price Action to make your decisions?
In this picture you will see I have looked down and to the left of price at the time of entry and found any "Obstacles" that may get in the way of the trade.
Point A is the first obstacle but it is too close to the entry point for my style of trading so it is ignored, if however you are a very safe player then this would be a good point to move your SL to Break Even (BE).
Point B is the next obstacle and this is where I moved my SL to BE, if you had already moved your SL to BE at Point A then Point B would be used to move you SL to actually lock in some profit.
Point C is of course the conservative TP initially mapped out. If you are a more aggressive trader then you would not actually place your TP at Point C but an Alert instead. This way if price was moving nice and fast you have a chance to grab some extra pips.
Advanced Note: As you will learn later Point C is also right before a HL Breakout trade that I keep my eye on as a place to add to my already entered swing position, this can only be achieved if you used an alert at your initially mapped out TP instead of a hard TP
Entry Triggers - Candlesticks
When it comes to candlesticks, the higher the timeframe the more powerful they become as a standalone tool. This is why they end up becoming part of my entry trigger. Since they are already a signal of their own, having them at the right location (judged by PA, SR, and TL's) makes them very powerful indeed.
I have simplified Candlesticks because there are so many names that people give them and only a few that I care for myself.
A Pinbar for me is simply a Candle that has a lot of wick and not much body, this way the name Pinbar for me covers what others call a Hammer, Hanging Man, Shooting Star, Inverted Hammer, Spinning Top, even Doji's really.
It is the Indecision I am interested in and although certain types of Pinbar are more powerful than others it can be generalized for simplicity at the beginner level.
The other Candle Patterns I look for are InsideBars, TweezerTops and Engulfing Patterns (always at the correct location)
*Engulfing patterns I ended up calling CeC's btw... candle eats candle.
I whipped this picture up to help simplify Candlesticks a little.
Don't forget that when we have the correct Candle Pattern at the correct location I then want that Pattern to be broken in the correct direction to enter the trade. This can be done via Pending Orders and you do not have to stare at the charts.
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