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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 STATEMENT: 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 STATEMENT: 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 in the marketplace.
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Understanding Candles
Bulls Win Bears Win
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Reversal Bars
Open &Close
Low
High
Close
High
Open
Low
High &Close
Low &Open
High &Open
Low &Close
Open
High
Close
Low
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Narrow Range Bars (NRBs)
Wide Range Bars (WRBs)
Topping Tails (TTs)
Bottoming Tails (BTs)
Multiple Candlestick Patterns
Candlestick interpretations
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Topping Tail Bottoming Tail
Narrow Range Bar Wide Range Bar
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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!
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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. Doyou see something wrong with this analogy?
The indicator is always following price. It never leads price, and its 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 cant. 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?
Lets see what price does and trade off the PRICE ACTION itself.
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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
Engulfing
Bearish
Engulfing
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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
Bullish
Piercing
Bearish
Piercing50%
50%
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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
Bear TrapBull Trap
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BearishReversal
Bottoming Tail
Topping TailBullishReversal
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Up-Down-Up Down-Up-Down
Up
Down
Up
Up
Down
Down
upper third of bullish bar
lower third of bearish bar
Natural pullback
Natural pullback
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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.
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REWARD
REWARD
RISK
RISK
STOP
ENTRY
TARGET
TARGET
ENTRY
STOP
LONG Entry
Up trend
Higher Highs & Higher Lows
Short Entry
Down trend
Lower Highs & Lower Lows
PriceAction
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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?
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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 dont, 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 higherhighs and higher lows, wouldnt 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.
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Scaling
In
Scaling
Out
All-In-At-
Once
All-Out-At-
Once
Scaling
In
Scaling
Out
All-In-At-
Once
All-Out-At-
Once
Multiple entries and One Exit Multiple Entries and Multiple Exits
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MinorPhases
MinorPhases
2
2
2
1
4
4
3
3
1
Minor
Phases
MinorPhases2
24
1 4
43
3
1
Down Trend
Up Trend
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Up Trend
Down Trend
Sideways Price Action
Expansion of movements
Up Trendbreakdown
Down Trendbreakout
Breakout Breakdown
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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.
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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
Consolidation
On lower timeframes; can find relatively equal Lows and Highs
Congestion
NO clear patterns of price action on lower time frames
SIDEWAYS TRADING PATTERNS
RANGE CONSOLIDATION CONGESTION
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1 2 3 4
1 2 3 4
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ENTRY
PriceAction
2
2
2
2
2
2 Bullish moves on lowertime frames
Higher highs and higher lows
provide evidence of bullish price
action/uptrend
Major Up Trend
Higher Highs
Higher Lows
1
2 3
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1
2 3
1
32
Use technical analysis forBUY signals
Use technical analysis forfor SHORT signals
Trading with the trending price action.
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Review the average daily trading range to determine ifprice action is increasing/decreasing.
Conduct volume analysis to determine whether volumeis diverging with price action.
Lack of volume to support potential breakoutshould reduce position size or wait for breakout
confirmation
Review price action on multiple time frames todetermine the macro trend.
Trade on the side of the major trend to avoid low oddstrades.
Review support and resistance to find risk and rewardparameters for setups & entries at support orresistance.
Look for congruency with E-mini futures for tradingopportunities and setups.
Add filters plus additional weight-of-evidence to
time trades better.
Filter example: Break support/resistance by x %
Filter example: Break support/resistance by x
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
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BuyingSignal
ShortSignal
1
2 3
Buy Signals
1
32
Short signals
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B
A
C
Flags
Parallel
12
3
Can also include the category of chart patterns pennants
Very common chart pattern found in existing trending price
action
Represent a pause or consolidation of price action to
determine whether to continue or reverse movement
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
support and resistance; respectively
Relatively short term countertrend movement in price
action
Technical analysis measurements can be applied to project
future price action continuations
More rapid development in downtrends
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200 MA
20 MA
HigherTimeframeDowntrend
SHORT
B
A
C
Flags
Parallel
12
3
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Fibonacci Retracement used to measure the magnitude and strength / weakness
of counter moves to the original trend.
Use retracement levels starting with beginning of move to end of move.
Pivots are helpful in determining each point of reference to construct Fibonacci grid.
Combine Price movements with Fibonacci Retracements
Look for support and resistance areas, at retracement levels, to assess the
ability of moves continuing.
Retracements provide valuable information for how significant the potential
reversal pattern is.
Bigger retracements lend to weakening price action,
Smaller retracements lend to strong price action moves.