Hi hbres,
What I had found to be one of the most confusing things to understand, on the beginning, (and hopefully it will make things clearer to some other starters) was a thought “it’s easy for them to say now: you should have taken this bearish pinbar from the swing high” when they have all the future price action (after the PB) in front of them, it’s easy to identify swing high. Like on Jonathon’s 1st chart.
I knew it as well and it was dead simple when analysing past price behaviour from few months earlier (backtesting on any pair) it was pretty obvious when seeing all that action which has happened after any PB had occurred that it was that swing point or retracement I should be acting at.
But it looks different (from a newbie point of view) if there is nothing after the PB:
Ho do they know where price will go?
The point is - they don’t. What they do is they try to identify price levels where the price hit some resistance / support in the past (image below) and they wait for the same thing to happen now - to give you a signal of struggle at this particular level AND if it happens that the price shows you a PA signal (PB, EB, 2BR) at this level, the odds of correctly estimating price behaviour greatly increases; and they are simply using this to their advantage.
The moment it clicked for me was when I started drawing S/R lines on my daily charts from month/two months ago (backtest) AND scrolling the chart by one day (one candle) to see how price behaves around my S/R zones giving me from time to time a PA signal to enter the market.
I was simply assuming that the level the price had struggled once, will act in the same way now and might become a swing point (to buy from low or sell from high) with hopefully a PA signal that I understand and know how to act on. I hope I don’t have to stress how important is having those levels pre-marked and waiting for price to get to them, not the other way round, or playing with the trend (at least for newbies like me).
I’m still new to PA trading, learning all the time, currently on BE after trading for last 4 weeks on demo…
Now, it might not be your issue, but the situation reminded me my own beginnings and I thought somebody else could find it helpful. Don’t treat it personal.
Hi Toyo, this could help: http://forums.babypips.com/free-forex-trading-systems/42378-forex-price-action-105.html#post343285
Fil.