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Price ActionTrading - Steb by Step To Make 90% of Your Trades Right
Price ActionTrading - Steb by Step To Make 90% of Your Trades Right
You do not need to buy any indicators or softwares, its totally free.
Clean view of the chart, no messy indicators.
You can use price action strategies on all financial markets (Forex, Stocks,
Commodities, Futures).
No confused data, you need just to use the price history.
Its fast, no need to wait hours to find trading opportunities.
Easy to understand, no mathematical formulas to use.
Momentum indicator.
Relative Strength Index (RSI).
Moving Average Convergence Divergence (MACD).
Parabolic Sar.
Volume indicator.
If you use these indicators you will notice that they will give you
inconsistent signals
The momentum, RSI and the MACD may display a buying signal
On the other hand, the rest of the indicators will display a selling signal
The decision you will take in this case will be like gambling, you have a
probability of 50% or less to win the position
Also the chart will show five indicators which makes the chart messy.
The image below shows that by using five indicators we have lost the most
important part of our trading that we must use to trade the market, its the
price action
The indicators force you to reduce the image size of the price action
As a consequence you will focus on indicators instead of focusing on the
price movements.
Instead of using five indicators that give you confused trading signals
You can use the price action trading strategies by using trends only
This will help you to trade the markets using clean and pure bar charts like
this one:
Long term trend line: this trend is characterized by its strength, this is
about the most profitable trend type you should follow to trade currencies
or shares, a forceful trend pattern is a trend where the price fail to breach it
for at least three times.
Intermediate term trend line: this trend is not strong enough, it could be
broken by the price movements almost easily, its important to avoid
trading during this kind of trends, it is known as it touches the price fortwo
times.
Short term trend line: these types of trends are trends that are easily broken
by the price movements, its necessary to not trade short term trends.
You should trade just the long term trend lines, avoid trading short and
intermediate trends.
As I said above, you need to connect at least two points to get a true trend
line.
In the Forex trading there are two types of markets the bull & bear market.
A bull market is a period of time where the price is rising and buyers control
the market (Uptrend).
A bear market is a duration where sellers control the market and the price
decrease (Downtrend).
Drawing a trend line when you are in a bull market is different than drawing
the trend line when you are in a bear market.
An uptrend is a strong directional movement in the up, followed by
corrections (downward moves) that usually formed by traders that take
profit from the market.
An uptrend is constructed by connecting at least two rising bottoms (I
recommend to connect the first and the last higher lows like you see in the
image below).
The new trend can signify either a reversal or a resumption in the previous
trend line
But
How we could know that this new trend line is a reversal trend or a
consolidating one?
There is a general rule that you should know about:
The penetration of a trend line with a sharp angle is more likely to result in
a consolidation than a reversal
An angle is known as sharp if it is between 0 to 90 degrees
As you see in the image below the upward trend is breached, but the price
continues its direction in the same direction of the first trend because of the
sharp angle.
The trend reverses its direction often if the sharp angle is not constructed
As a consequence a +90 degree angle emerges
1. Hammer
The hammer pattern is the most powerful, when it happens, there is a huge
probability that the price will reverse its direction for a while.
2. Engulfing pattern
The engulfing pattern is a reversal signal that the price will change its
direction
Simply, it is a bullish candlestick followed by a bearish one, provided that
the body of the bearish candle is bigger than the bullish candles body.
3. Morning/Evening Star
This is a very strong pattern, it could reverse the market trend aggressively
Its a strong candle followed by small candles, followed by a new strong
candle in the opposite direction of the first one, the new candle should close
at least at the half of the first candle.
S & R lines are zones where the price reversed its direction in the past
There are two types of them:
Major S & R lines: they are lines that are tested in multiple times.
Minor S & R lines: The lines that have not been tested yet, specifically they
are: the higher higher (HH), higher lower (HL), lower lower (LL), Lower
higher (LH) [ I will explain that better later]
The more a support or a resistance line is tested the more this line is strong.
Also, you should know that a broken support becomes a new resistance line,
and a broken resistance becomes a support line.
Support & resistance lines are important for price action traders
Its easy to find them..
But I will show you something that the majority of traders doesnt pay
attention to it:
Its crucial to search major S & R lines not all of them
The S & R lines that will have a significant impact on the price action and
will probably reverse the major direction of the trend line.
Here is how to do it:
As a price action trader you are forced to trade higher time frames
We suppose that you have chosen today to trade the 4H time frame
To define support & resistance lines, do not use the 4H time frame chart
The key point is to use the next time frame Daily TF to determine S & R
lines
First Step: Set the daily time frame on your trading platform, then define
the major support and resistance lines like you see in the image below.
Here is an example of two lines:
Second step: Switch to the 4H time frame, you will notice two major support
& resistance lines:
Those two lines are the most powerful support and resistance lines that you
should pay attention if the price closed to them, it could be a significant
reverse of the major trend line.
A down trend is formed when you observe the formation of lower lows and
lower highs
There are multiple tools that you should master if you want to be a
successful trend price action trader
1. Corrections
The correction is the first thing you must know
The correction happens when traders begin the collection of the profit from
the market
It occurs also because of some traders believe that the price may reverse its
direction
So as a result, the price goes in the opposite direction for a while after that it
resumes its direction
If the correction creates new small highs and lows, this is a signal that the
current trend is very strong, the trend will continue its major direction as
well.
You can predict the trend changing using the high and lows
But you should pay attention to your analysis
If you are in an uptrend, you must wait until the last higher lower (HL) is
breached by the price
Then enter the market with a short position
However, if you trade in a down trend, you should wait until the price
breached the last lower higher (LH)
As you look at the image above, when the price breached the last (HL) the
price change its direction targeting the first (HL).
Look, the general rule about corrections is:
To consider a move as a correction it mustnt reach the last HL for an
uptrend and the last LH for a down trend
You could observe that the impulsive moves (Blue lines) are bigger than the
corrections
Also:
The last (HL) is breached by the price (trend changing signal)
The price line (A) is a new impulsive move not a correction
Because the price does not create a new (HH-HL) we cant consider the line
(A) as a correction
The same thing for a downward trend, corrections are considered if the
price creates new (LL-LH).
Here are the rules to define HH, HL, LH, and LL:
Look at this image:
The first LH is confirmed because the first impulsive move breached the
beginning of the correction (LL1).
The second LL-LH is confirmed after another impulsive move is formed
that breach the beginning of the second correction (LL2).
The potential LL you see in the image is not confirmed by an impulsive
move, the price reverses quickly until it forms a new LL that is confirmed by
the second impulsive move.
Also the potential LH is not confirmed because the price goes up and
reverses quickly, if the potential LH pass the LH2 we can label it as the new
LH instead of the LH2 that we have defined.
So the rules are clear:
1. Define the first LL and LH.
2. Wait for an impulsive move to reach the beginning of the last correction to
confirm them.
3. Repeat the process.
For an uptrend:
1. Define the first HH and HL.
2. Wait for an impulsive move to reach the beginning of the last correction to
confirm them.
3. Repeat the process.
As you see the principle of finding highs and lows is simple, you just need to
wait for impulsive moves and corrections to confirm the validity of your
highs and lows.
You should neglect any unconfirmed highs and lows
You need to focus when it comes to the determination of them
Any mistake can cause you to form wrong price action analysis.
Now, I will explain to you another example:
Look at this image:
K = Move / Correction
With: 1,5<K2
Here is an example:
Note:
You do not have to do that each time you want to define swing highs and
lows
Just focus on the chart, I do it every time just by observing
I will give you another simple example:
Looking for waves that have the same size, amplitude and degree is hard to
find
Do not give much importance to this step
Just look for waves with slightly the same size
Make sure that if you could find waves with these conditions
Your swing highs and lows will be powerful, and you will make profitable
trades.
3. Trend rebound
The trend changes its direction when a wave in the opposite direction
emerges
It means that:
In an uptrend, the last HL is breached by the price
And, in a downward trend, the last LH is breached by the price
But pay attention to the major direction of the trend
The first step to do is to define the major trend you have:
I use one only indicator that helps me to define the major trend
Its the 200 Moving average (Do not use it to enter the market, we dont
use indicators!)
We suppose you trade at the 4H time frame (it gets awesome results with
the price action strategies)
Switch to the daily time frame, then activate the 200 Moving average
indicator
We are in an uptrend
The last HL is broken by the price
We enter for a short position (The major trend line must be in a
downward trend situation).
Conclusion
The price action trading or the naked trading is the most powerful trading
strategy that gets results
You just need to master the principles of this technique
Just follow the instructions above, you will make like those results:
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Source: http://investoune.com/priceaction-trading/