Tradeknowledge webinars: Price action part 2

Price Action 2

Table of Contents

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Cups, Triangles and Flags

Price ActionWhat is Price Action - recap?

Patern recognision

Head and Shoulders

Professional Strategies

Price ActionWhat is Price Action?

In simple terms, price action is a trading technique that allows a

trader to read the market and make subjective trading decisions

based on the recent and actual price movements, rather than relying

solely on technical indicators.

DEFINITION

Since it ignores the fundamental factors of an instrument and looks primarily at the instruments

price history it is a form of technical analysis.

HOW IS IT CATEGORIZED?

Price ActionThe theory behind PA

• Price Action Trading is the discipline of making all of your trading decisions from a stripped down or

“naked” price chart.

• This means no lagging indicators outside of maybe a couple moving averages to help identify

dynamic support and resistance areas and trend.

• All financial markets generate data about the movement of the price of a market over varying periods of

time; this data is displayed on price charts.

• Price charts reflect the beliefs and actions of all participants (human or computer) trading a market

during a specified period of time and these beliefs are portrayed on a market’s price chart in the form of

“price action”.

Briefly


• Supply and Demand determines prices

• We can think of trading as a battle between two warring lines of combatants

• Our first port of call is always to determine if market is Trading or Trending

• Establish the Support and Resistance either by trend lines or hugging moving average

• Be aware of the Round Numbers and trade according on the premise that they attract

higher volumes

Re Cap


• Pattern recognition is an integral part of understanding price action

• Patterns are series of prices that traders can read and identify possible future

movements

• Chart patterns put all buying and selling into perspective by consolidating the forces of

supply and demand into a concise picture.

• Patterns highlight major support and resistance but also the changes in established S &

R and trend

• A more complex version of the basic trend lines

• Used for short term and longer term forecasts

Pattern Recognition


• H & S are one of the most common and easily identified patterns

Head and Shoulder pattern

“In the midst of chaos, there is also opportunity”


• INTERPRETATION

• After a consolidation period, prices breach the Support or Resistance line and move

quickly to a peak

• The price returning to the consolidation phase confirms the establishment of H & S

• The second breach of consolidation in the opposite direction confirms the trade

• CALCULATION

• Calculate the length of the first breakout to Peak. Then project that length from the 2 nd

breach to Target

• HOW TO TRADE

• Wait for the 2nd breach and place stop order below/above breach and wait for

‘remorse’ to return to breach or close to breach level

Head and Shoulder Interpretation


•Rounding occur from a expectation shift from bullish to bearing (Tops) bearish to bullish (bottoms)•The move is gradual and often mirrors a bowl–like shape •Volumes decrease as expectations shift

Variation – CUP AND HANDLE a very powerful formation

Rounding Tops and Bottoms


•Ro

Cup and Handle


• Occur as the range between peak and troughs narrow

• SYMETRICAL TRIANGLES - occur when prices are making lower highs and higher lows

• ASENDING TRIANGLES – higher highs and lower lows. Break to upside

• DESENDING TRIANGLES – lower highs and higher lows. Break to the downside

• beyond

Triangles


Triangles


Flags


• INTERPRETATION• A flag is formed after an aggressive Trending period in either direction followed by a period of

consolidation

• The consolidation period can form a triangle or a box

• CALCULATION

• The pattern is confirmed only after the consolidation phase

• Calculate the length of the flag POLE and extend in the direction of breach for target

Flags Interpretation


Flag types


Flags today


Swing Trade Patterns

THE T-30

•The name T-30 refers to a "tail" that slices down through the "30" period exponential moving average

•Looks like a hammer candlestick pattern

•I refer to it as a the FLUSH OUT

•Its aggressive and its quick

•Volumes are higher than normal

•How to trade

•Trade on period of hammer if volumes have increased. Consolidation for a couple of periods will confirm move


Swing Trade Patterns T30


Swing Trade Patterns The Swing Trap

• THE SWING TRAP

• Most reliable of patterns• Traps most momentum traders right in the middle of a move• Elliot Wave A-B-C pattern on a smallest scale• Rally hard then returns to consolidation range• It rallies up a little bit, but then it fails and goes right back down. This traps the

swing traders who are long this share• They put their stop loss orders under the first rally attempt. But, when the share

falls it takes out their stop loss orders• Look for FLUSH OUT• The final swing MUST go below the low of the first swing. Many times, this final

swing will end in a hammer. This hammer will take out all of the stop loss orders and you are ready to go!


Swing Trade Patterns The Swing Trap


Swing Trade Patterns The Ghost Town

• THE GHOST TOWN PATTERN

• What happens when traders ignore a pair?• You get narrow range candles and low volume. When you see this developing on

a stock chart, it will remind you of a ghost town - deserted. Get ready, the stock is about to explode.

• Low Volatility is always followed by HIGH VOLATILITY• Pull back to traders action zone = many narrow range candles = stars or doji’s• Low volumes• How to trade

• Trade buy stop orders above the highest consolidation level or sell stop below the lowest candle


Swing Trade Patterns The Ghost Town


Swing Trade Patterns Side Trap

• THE SIDE TRAP

• We start with a consolidation phase • Most will be either long or waiting for the break upward



• THE SIDE TRAP

• The next move is unexpected by most• This will normally be in the opposite direction of the INCOMING direction• Traders stop out below consolidation range and go short• Looks bearish at this point



• THE SIDE TRAP

• The KEY candle• Shorts are flushed out and the pair will move higher



• THE SIDE TRAP• How to trade• Identify consolidation/Trading - Identify flush out and reversal – trade in the

direction



• THE SIDE TRAP• EURUSD

Price Action

• Price Action can be described as the shifting tide between supply and demand

• The determination of Trend or Trade is key to establishing a strategy

• Traders fault and losses occur when pre-empting the change in Trend or Trade Phase

• Professional traders understand swing trade faults and capitalize on them

Summarized

• Patterns are closely related to trader psychology

• Supply and demand swings can be felt (seen)

• Be vigilant for professional strategies and traps

Concluding thoughts

Vunani Private [email protected]

011 384 2924

Tradeknowledge webinars: Price action part 2

Economy & Finance

Transcript of Tradeknowledge webinars: Price action part 2