The figure below shows that the trending phases are clearly described by long price waves into the underlying trend direction. Left: Long trend waves confirm the high trend strength. The trend comes to a standstill as soon as the waves shorten. Right: The downward trend is characterized by long falling trend waves. However, the length decreases downwards and the trend reverses shortly thereafter. The rate with which the price rises during a trend is also of great importance. In general terms, moderate trends have a longer life span and a sudden increase in price usually indicates a less sustainable trend.
We can often observe this phenomenon during so-called price bubbles, wherein the price falls again just as quickly after an explosive rise. The development of the steepness of trends and price waves, compared to the overall chart context, is also important: Accelerating or weakening price waves might show that a trend is picking up speed or is slowly coming to a standstill. Interesting correlations can be made together with the concept of length: A trend is intact if we find long trend waves or trend waves that become longer with a moderate or increasing angle.
On the other hand, a trend with trend waves that become increasingly shorter, and which is simultaneously losing its steepness, indicates a possible imminent end. The screenshot below shows such a situation where the length and the steepness changed during the uptrend.
The complete reversal soon followed. More : Trend strength with indicators. Even if you see the best price action signal, you can still greatly increase your odds by only taking trades at important and meaningful price levels. Most amateur traders make the mistake of taking price action signals regardless of where they occur and then wonder why their winrate is so low.
In my own trading, I pay a lot of attention to the location. On the other hand, even a great price action signal at a bad location is nothing that I would trade. To increase the chances of a successful trading opportunity, do not blindly enter trades in such support and resistance areas. It is advisable to wait for more confluence factors. For example, if a head-and-shoulders formation or a double top appear at a support and resistance level, then this can increase the chances of a positive result.
The screenshot below shows how the left head-and-shoulders pattern occurred right at a long-term resistance level on the right. Point 4 on the right chart marks where the head-and-shoulders forms. Zooming in and out on your chart can often help to see the bigger picture better and enable you pick up important clues. When we zoom out, we can see that the Head-and-shoulders formation forms directly at the lower end of the strong resistance level, creating additional confluence for our trade.
One big problem I often see is that traders keep looking for textbook patterns and they then apply their textbook knowledge to the charts. Just ask yourself: why do so many traders lose money? Does it maybe have to do with the fact that they all read the same books, trade the same patterns in the same way and look at charts identically? I think so! As a trader, you need to think differently. Price and patterns change all the time and if everyone is trying to trade the same way on the same patterns, the big players will use that to their advantage.
This is maybe one of the most misunderstood price action secrets. Stop looking for shortcuts and do not wait for textbook patterns — learn to think and trade like a pro. To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers.
Sellers bet on falling prices and push the price down with their selling interest. If one side is stronger than the other, the financial markets will see the following trends emerging:. It is always important to keep this in mind because any price analysis aims at comparing the strength ratio of the two sides to evaluate which market players are stronger and in which direction the price is, therefore, more likely to move. Wicks that stick out to the downside typically signal rejection and failed bearish attempts.
Bodies that close near the top often signal bullish pressure. Read more: How to read candlesticks like a professional. We get the question of how broker time and candle closing time influence price action a lot. It does not make any difference to your overall trading although time frames such as the 4H or daily will look different on different brokers. The graphic below illustrates what we mean. The charts show the same market and the same period and both are 4H time frames.
They used different closing times for their candles and, thus, the charts look slightly different. Some of the important clues that the left market shows are not visible on the right chart and vice versa. Conventional price action patterns are very obvious and many traders believe that their broker hunts their stops because they always seem to get stopped out — even though the setup was so clear. It is very easy for the professional trader to estimate where the amateur traders enter trades and place stops when a price action pattern forms.
This is one of those price action secrets that can make a huge difference and we have seen that many of our students have turned their trading completely around with it. Traders can get into trouble quickly because it is not always obvious how a trend line can be drawn. If there are uncertainties in the correct application of the trend lines, it is advisable to combine them with horizontal breakouts.
This makes trading more objective. Thus, do not trade at the first signal when the price breaks the trend line, but only when the price subsequently forms a new low or high as well. The next screenshot shows various confirmed trend lines with more than three contact points in each case.
A break of a trend line always initiates a new trend. Interestingly, every break of a trend line is preceded by a change in the highs and lows first and a break of a more objective horizontal breakout. When the price breaks a trend line during an upward trend, we can often notice how the trend has already formed lower highs. Most of those tips are probably not considered price action secrets by advanced traders, but amateurs can usually improve the quality of their trading and how they view the markets by just picking a few of them.
If you have any other tips or know about some mistakes traders do in price action trading , leave a comment below. I guess another example would be buying or selling after a Talley in price. And back tearing not tearing. Predictive text sucks lol…. I was once like you. Just keep practicing. Read less books and do more practice. Only trade PA signals occurring at significant levels. You just need to trade with the trend and nothing else.
Best of success. Thanks for Sharing this informative blog. I learn best 8 price action secrets from this blog. Kepp posting! Although forex trading is a difficult one you made it easy to understand, I like the way you told us your secrets. Thank you! Excellent posting, very rich content, something hard to find with so many valuable tips and didactic material so full of details..
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Trading setups rarely fit your exact requirement, so there is no point in obsessing a few cents. To illustrate this point, please have a look at the below example of a spring setup. No more panic, no more doubts. Learn About TradingSim Notice how the previous low was never breached, but you could tell from the price action the stock reversed nicely off the low and a long trade was in play. Inside bars are when you have many candlesticks clumped together as the price action starts to coil at resistance or support.
The candlesticks will fit inside of the high and low of a recent swing point as the dominant traders suppress the stock to accumulate more shares. To illustrate a series of inside bars after a breakout, please take a look at the following chart. This chart of Neonode is truly unique because the stock had a breakout after the fourth attempt at busting the high.
Then there were two inside bars that refused to give back any of the breakout gains. Please note inside bars can also occur prior to a breakout, which strengthens the odds the stock will eventually breakthrough resistance. This is honestly my favorite setup for trading. I love it when a stock hovers at resistance and refuses to back off.
This is a sign to you that things are likely going to heat up. The other benefit of inside bars is it gives you a clean set of bars to place your stops under. This way you are not basing your stop on one indicator or the low of one candlestick. Are you able to see the consistent price action in these charts? If not, were you able to read the title of the setup or the caption in both images?
The long wick candlestick is one of my favorite day trading setups. The setup consists of a major gap up or down in the morning, followed by a significant push, which then retreats. This price action produces a long wick and for us seasoned traders, we know that this price action is likely to be tested again. Reason being, a ton of traders, entered these positions late, which leaves them all holding the bag. This leads to a push back to the high on a retest.
Notice after the long wick, CDEP had many inside bars before breaking the low of the wick. After this break, the stock proceeded lower throughout the day. Have you ever heard the phrase history has a habit of repeating itself? Well, trading is no different. As a trader, you can let your emotions and more specifically hope take over your sense of logic. You will look at a price chart and see riches right before your eyes. Well, that my friend is not a reality. Did you know in stocks there are often dominant players that consistently trade specific securities?
These traders live and breathe their favorite stock. Given the right level of capitalization, these select traders can also control the price movement of these securities. As you perform your analysis, you will notice common percentage moves will appear right on the chart.
Over the long haul, slow and steady always wins the race. Notice how FTR over a month period experienced many swings. However, each swing was on average 60 to 80 cents. While this is a daily view of FTR, you will see the same relationship of price on any time frame. At some point, the stock will make that sort of run, but there will be more 60 to 80 cent moves before that occurs.
Just on this one chart, I can count 6 or 7 swings of 60 to 80 cents. If you can trade each of these swings successfully, you, in essence, get the same effect of landing that home run trade without all the risk and headache. Not to get too caught up on Fibonacci , because I know for some traders this may cross into the hokey pokey analysis zone. However, at its simplest form, less retracement is proof positive the primary trend is strong and likely to continue.
The key takeaway is you want the retracement to be less than If so, when the stock attempts to test the previous swing high or low, there is a greater chance the breakout will hold and continue in the direction of the primary trend. This is especially true once you go beyond the 11 am time frame. This is because breakouts after the morning tend to fail.
So, in order to filter out these results, you will want to focus on the stocks that have consistently trended in the right direction. Trading comes down to who can realize profits from their edge in the market. While it is easy to scroll through charts and see all the winners, the market is one big cat and mouse game. As a price action trader, you cannot rely on other off-chart indicators to provide you clues that a formation is false.
Just to be clear, the chart formation is always your first signal, but if the charts are unclear, time is always the deciding factor. If you have been trading for a while, go back and take a look at how long it takes for your average winner to play out. In each example, the break of support likely felt like a sure move, only to have your trade validation ripped out from under you in a matter of minutes. For starters, do not go hog wild with your capital in one position.
Make sure you leave yourself enough cushion, so you do not get antsy with every bar that prints. Also, let time play to your favor. I know there is an urge in this business to act quickly. However, there is some merit in seeing how a stock will trade after hitting a key support or resistance level for a few minutes. If you think back to the examples we just reviewed, the security bounced back the other way within minutes of trapping traders.
One thing to consider is placing your stop above or below key levels. Since you are using price as your means to measure the market, these levels are easy to identify. Now one easy way to do this as mentioned previously in this article is to use swing points. A more advanced method is to use daily pivot points. Now I know what you are thinking, this is an indicator. Well yes and no. Unlike other indicators, pivot points do not move regardless of what happens with the price action.
Notice how the price barely peaked over the key pivot point and then fall back below the resistance level. In order to protect yourself, you can place your stop below the break out level to avoid a blow-up trade.
Another option is to place your stop below the low of the breakout candle. Some traders such as Peters Andrew even recommends placing your stop two pivot points below. This is honestly the most important thing for you to take away from this article — protect your money by using stops. Do not let ego or arrogance get in your way. Please do not mistake their Zen state for not having a system. The price action trader can interpret the charts and price action to make their next move. Secondly, you have no one else to blame for getting caught in a trap.
The biggest benefit is that price action traders are processing data as it happens. There is no lag in their process for interpreting trade data. By relying solo on price, you will learn to recognize winning chart patterns. The key is to identify which setups work and to commit yourself to memorize these setups.
The next key thing for you to do is to track how much the stock moves for and against you. This will allow you to set realistic price objectives for each trade. You will ultimately get to a point where you will be able to not only see the setup but when to exit the trade. Price action traders will need to resist the urge to add additional indicators to your system. You will have to stay away from the latest holy grail indicator that will solve all your problems when you are going through a downturn.
You need to think about the patterns listed in this article and additional setups you will uncover on your own as stages in your trading career. First, learn to master one or two setups at a time. Learn how they move and when the setup is likely to fail. This, my friend, takes time; however, get past this hurdle and you have achieved trading mastery.
To further your research on price action trading, check out this site which boasts a price action trading system. Trading with price action can be as simple or as complicated as you make it. While we have covered 6 common patterns in the market, take a look at your previous trades to see if you can identify tradeable patterns.
The key thing for you is getting to a point where you can pinpoint one or two strategies. To start, focus on the morning setups. The morning is where you are likely to have the most success. Avoid the lunchtime and end of day setups until you are able to turn a profit trading before 11 or am.
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