Pure Price Action

Trading Systems Free Forex Trading Systems
1

Disclaimer
[I]Any opinions, news, research, analyses, prices or other information contained on this forum are provided as general market commentary and do not constitute investment advice. The owner of this sub-forum, any contributions, or any others with a vested interest will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information presented.

The content on this sub-forum is subject to change at any time without notice, and is provided for the sole purpose of sparking discussion and educational advice. The owner of this content, any contributions, or any others with a vested interest have taken reasonable measures to ensure the accuracy of the information on the website; however, it does not guarantee accuracy and will not accept liability for any loss or damage which may arise directly or indirectly from the content or from your inability to access the website, or for any delay in or failure of the transmission or the receipt of any instruction or notifications sent through this website.

Content is provided for educational purposes only and does not constitute direct, or indirect investment advice. Invest at your own risk, as previous results will not guarantee future performance. By interacting and continuing to view the content provided below, you are acknowledging the above-mentioned and operating at your own risk. Consult a financial professional before making any decisions to trade with your own funds.[/I]

Pure Price Action
w/ Jake Abrahams | 2016

Mindset
Mindset comes before everything else- everything. Without the proper mindset you can literally never be successful. Mindset could be developed over time, but only if it comes from a place of respect for the endeavor you’ve embarked upon. The trader’s mind isn’t turned off when the price charts are closed down- trading is a lifestyle choice that impacts all aspects of your existence.

Attention to detail, professionalism, and respect are of utmost importance when it comes to developing this mindset.

We all start somewhere and I’ve chosen to start w/ mindset for a reason; It is the fuel that powers our decision making engine.

What is Pure Price Action?
Pure Price Action is an approach to trading designed to provide a lens in which individual traders can better interpret market sentiment through the logical application of discretionary technical analysis.

Pure Price Action seeks to address the following questions across multiple timeframes (near, medium, long term) to aide in the generation of a market bias:

What’s happening?
What type of environment are we in?
Who is in control?

Answering the above three questions will aide in considering trading methodologies to employ.

How / Why? Because we have a deeper understanding of market participants’ underlying motives and can use this understanding to lean on their behaviors.

What do you mean “lean on their behaviors”?
Human beings are creatures of habit. A market is made up of human beings and their intentions to buy and sell an instrument at certain prices (limit orders). A price chart shows executed intentions (market orders). Price rotates up and down in search of liquidity (order flow). This search for liquidity can be interpreted by other market participants as bullish, neutral, or bearish behavior.

Utilizing discretionary technical analysis on a price chart, a trader can recognize patterns of behavior which more-often-than-not will play out a certain way over time; i.e. an “edge”. When the pieces align, we can proactively enter the market (rather than waiting for a signal) w/ the confidence gained from knowing the answers to our 3 questions posed above.

How do I apply discretionary technical analysis?
Put in the time behind the charts. There are no shortcuts here, and to become a true technician you need to be very active analyzing markets and following-up to “see” if you were right or wrong (plainly put).

Every chart time-frame is utilized. All are used in unison with one another to arrive at our multi-timeframe bias. A 20 period exponential moving average is applied as well. The H4, alongside the M5 chart, are the “primary lens” to aide in interpreting the market.

Pure Price Action approach to trading, visualized.
The below graphic captures the pure price action approach to trading perfectly; An approach that requires a fair amount of discretionary technical analysis.

STRATEGY.png664×669 75.8 KB

At the end of the day, it’s all about gaining an EDGE. Being able to confidently rely on your analysis that certain market environments are “more bearish” or “more bullish” then others, and the notion that you “have to take a shot” are crucial to securing that edge.

Also, as a trader (not an investor) you need to set realistic expectations in terms of how accurate you will be in the markets (accuracy being measured by how often your profit targets are hit vs. your stops). Just because price recently traded 200 points away from your entry does not mean that’s where your profit target is set.

All of the analysis done leading up to trade execution may need to be re-evaluated if market conditions change. That’s @ the crux of being able to read price action- you need to be smart about how you move to eliminate risk as efficiently as possible.

Never Quit.
Burn this image into your head.
Understand that the process of becoming a successful trader is no different than any other worth-while challenges in life. One of the most important equations you need to live by is INPUT = OUTPUT. Garbage in, garbage out.

If trading is something you can’t go a day without thinking about, then you owe it to yourself to do everything humanly possible to exhaust all avenues in an effort to satisfy those thoughts.

Watchlist
FX MAJORS: EURUSD GBPUSD AUDUSD NZDUSD USDJPY USDCAD USDCHF USDOLLAR
FX JPY: EURJPY GBPJPY AUDJPY NZDJPY CADJPY CHFJPY
OTHER FX: EURGBP EURAUD EURNZD EURCAD AUDNZD GBPCHF
EQUITIES / OTHER: SPX500 JPN225 DYJ0 QQQ EEM XLF SPY SPXS TNX VXX VIX TLT
COMMODITIES: XAUUSD GDX UGLD GEUR GYEN IAU USOIL

Key Posts
Fundamental
Impulse | Correction - Part I
Basics of Order Flow

Opinions
The concept of faster timeframes and “noise”

Essential Reading Material
Why “back-testing” is holding you back.
FXCM Leverage Study
Risk / Reward

Live Trades
EURUSD FEB 3 2016
USDJPY FEB 10 2016
GBPCHF MAR 1 2016
USDJPY MAR 8 2016 USDJPY MAR 8 2016 (PART II)
AUDJPY MAR 8 2016
USDJPY MAR 10 2016
NZDJPY MAR 10 2016
USDJPY MAR 31 2016
USDJPY APR 4 2016
AUDUSD APR 6 2016
GBPJPY APR 7 2016
GBPJPY MAY 6 2016
AUDJPY & USDJPY MAY 12 2016

Forum Interaction
Interaction within this thread is encouraged! Please put your thinking cap on, and come w/ more than “EURUSD will definitely go up this week, I’m long”.

A post should include (@ minimum):
1 or 2 charts
The currency pair in discussion
Your own unique analysis (what’s happening, why is it happening, and what you think is going to happen)
Whether or not you’ve staked your own money on a position

Milestones
Thread is live! JAN 31 2016
10,000 Thread Views! APR 5 2016

**More to come - stay tuned. **

2

Good to have you back bro. Hope you have been well and life good.

Excited and can’t wait to see more.

3

Glad to be back- no complaints on my front, thanks for asking! Hope all is the same on your side.
Really excited to start sharing and interacting again w/ the community.

4

Hi Jake,

Congrats on your new thread! wondered where you’ve been.
Folks this dude is a great follow imo. Made some great calls in the past.

Best
Kas

5

Kas, how are you? You’re too kind! Don’t set the bar too high for me now, I’m not THAT great of a jumper. :). The compliment is reciprocal- I remember a while back when you first dropped your Z-Trading system and thought that had great potential; hope you’re still utilizing and evolving.

I took some time away from FX and got into trading pure order flow in the futures market. Very different going from using a price chart with candlesticks, to no chart and simply reading market depth and visualizing what’s happening over very short periods of time.

I’m not quite sure exactly where this forum will land, but I figured I’d needed to throw the first dart and can ask questions later. More and more individuals I’ve interacted w/ over time really seem to be drawn to price action and I’d like to explore that further.

See you around!
Jake

6

Yeah I’m still doing the old stuff.
So were you trading off the DOM on the futures market? How did it go?

Hope in this thread you’re still going to throw some macro and udx in the mix.

To a good year!

Best
Kas

7

Newer member here. How do you follow people?

8

Good to hear.

Yup- I was using a tool created by Peter Davies called “Jigsaw”. Check it out if you’re interested b/c it’s really unique. Most brokers offer a few levels of market depth, but Peter took it further by creating a price ladder that accounts for order stacking/pulling and visualization of market orders hitting the bid/offer (two MAJOR components not really offered by any other broker in a single tool- at least in my experience).

You simply can not trade off a “standard” DOM on it’s own- you need to see the deeper flow. Honestly, it was very, very challenging. I’m still licking my wounds, if you know what I mean. The e-mini is no place to try and go up against algo’s and HFT scalping; it’s very difficult and you need to be lightning fast. Not only in your analysis, but, in your data feed, CPU, etc etc. The bond market was a bit more forgiving, but overall, my conclusion was that it is just too difficult to compete on such a short timeframe. You need to have deep pockets…as we know: “The market can remain irrational much, much longer than you or I can remain solvent…”

Macro is a major theme right now across the board. Oil and the S&P are on the top of my watchlist; which is really a no brainer. I don’t see volatility dying down, and one of my best plays for 2016 so far has been the ETN “VXX”. As far as the USD is concerned…man, there are a lot of things lining up right now for some serious volatility. The FED is on their heels, and I think 2016 is going to be one bumpy ride for everyone…

9

Hey Nick- thanks for the interest. You can subscribe to a thread @ the top of the thread’s page. The subscription can be set to receive emails whenever posts are made. Personally, I just bookmark a few threads in my IExplorer.

10

That sounds very deep.

I agree 2016 will be a juicy year. January definitely delivered!

What’s your view on the yen mid term? Pros-cons-opportunities and threats?

11

It still “feels” like there is more shaking out to do. To me, it seems no-one really knows what’s going to happen next, but the markets appear wound up and primed to move.

With the BOJ end-of-Jan shocker to negative interest rates, plus further commitment to ease, the JPY got sold-off across the board; not a surprise. However, what stands out to me is the rate @ which those JPY losses have been recovered in the immediate near-term. In other words, how quickly money was shifted back into JPY.

Below is roughly the retracement %'s from the spike last month when the BOJ moved.

USDJPY- 62%
GBPJPY- 50%
EURJPY- 55%
AUDJPY- 90%
NZDJPY- 50%

We all know markets don’t move straight up and down, and that pullbacks are ‘natural’. Also, the JPY doesn’t trade in a vacuum. To me, the underlying theme is risk appetite…

Couple this with Chinese fundamentals, Oil, the stock market printing a significant lower high, volatility increasing, and heck, even the fact that we’re in an election year- and I just think we need to stay on our toes.

The JPY crosses are a good measure of global risk. When market participants are “risk-on”, you typically will see JPY-based-selling, equities rallying, etc. When risk aversion sets in, traders move to safe-haven assets and bring their money home (i.e. JPY buying). The USD has long since been seen as the safest haven of all; the reserve currency of the world. However, America is in big trouble. Primarily, our stock market and its’ participants have been hung up on cheap money and an almost risk-free bet buying the S&P.

As Peter Schiff says- the market since the GFC is like a heroin junkie, w/ the FED dosing just to keep the high. Remove the fix, and the junkie starts craving- eventually leading to either 1 of 2 things:

  1. A crash that will make '08 look like a pebble in the ocean
  2. The FED to re-introduce another round of QE to further artificially prop the market

I know this is simplistic, but it’s also illustrative.

The first scenario is actually the healthier one. Leverage is @ all time highs, and US-based fundamentals are appearing bleaker and bleaker as we move into the second half of this decade. Look what happened when the FED raised rates. Can this market / economy really survive 3 4 5 more hikes?

For the JPY…it’s pretty straightforward from a tech perspective. If USDJPY @ 116.00 is threatened, we can see some serious unwinding. In the interim, I’d take an approach to the tune of selling rallies, and being very cautious, precise and QUICK TO EXIT on any long side activities. Not crying wolf, but when “things” start the way they have this year, you need to be extra careful when your money is out there. Watch Oil, watch the VIX, watch the DJ Transports and get out of the way if something doesn’t feel right.

12

That’s when the truth hurts. I was speculating that the fx market becomes less and less pressured by the stock market selloff and oil too. Therefore flight to safety over. Especially with negative interest rates u/j should be sitting @ 125.00 not dropping . Usually I would see this is as a bull trap but sentiment is getting fed with fear regardless of consensus.

I am bawsdeep long average from around 117.80 u/j and already closed out e/j longs. If NFP doesn’t sweep the market tomorrow then my only bias is to tp at the best price.

But great analysis Jake.

Best
Kas

13

EURUSD H4 chart

EURUSD H4 (02-03-2016 2112).jpg700×319 15.5 KB

Analyzing the technical environment:
-May 2014 high to Dec 2014 retest of established 5 year trendline; Roughly 1700P leg. Market bounces, then breaks, with sellers aggressively pushing down another 1800P. Short covering ensues @ 1.05, forming the first “bottom”, May 2015.
-Sellers attempt to push 1 month later but get stopped- channel formation.
-Consolidation phase “correction” (bear flag / ascending channel off the lows) until Oct 2015 break of floor.
-Sellers make another (very weak) run @ 1.05, stopped Dec 2015.
-Sellers unable to print a lower low and/or threaten 1.05 with conviction.
-Market winds up (symmetrical triangle)- this is corrective price action; no real “direction”, whipsaw price action, no conviction from either side, etc.
-200P pattern breakout today (2/3/2016)

Contextually speaking, the market moved 1,700P off a high w/ little-to-no counter-trend buyers. Paused @ a 5 year floor, then broke w/ 2x as much strength, carving out a near perfect 100% extension to 1.05. Sellers tried to quickly break back down but were stopped, thus entering “correction phase” (the channel). Price broke down (which is typical in a corrective ascending channel following heavy one-sided price action) but we didn’t see a new low print. Enter our triple bottom.

Buyers need to clear out 1.11 for a shot @ 1.1450. Failure to keep the highs may result in a near-term test of 1.0750, w/ 1.05 back in the sights.

FXCM’s SSI adds a bit more color to the break, in that their data shows retail accounts net-short the EURUSD @ a 2:1 clip. Not fool-proof, but, typically the overwhelming majority of FX retailers are pretty good @ confirming moves, from a contrarian’s stand point that is. :slight_smile:


14

Booking 118P profit on EURUSD. Bias still to upside as previously mentioned. Need to be vigilant when markets are volatile as you can easily get whipped out of a position.

EURUSD m15 (02-04-2016 0856).jpg700×319 11.4 KB

Here’s the trade contextuallized from a price action stand point. Notice how there was no need to wait for a candlestick signal on this:

GBPCHF m15 (02-04-2016 0859).jpg700×639 14.4 KB

One of the main drivers why this position seemed lucrative was the price action on the USDCHF. How many people on this forum got trapped buying into that pinbar after a main channel break? This is why context trumps candlesticks.

USDCHF H4 (02-04-2016 0902).jpg700×319 18.5 KB

USDCHF H4 (02-04-2016 0902) 2.jpg700×319 16.6 KB

15

To those of you new to trading, be sure to aire on the side of caution in terms of entering into any newfound [B][U]substantial position[/U][/B] via NY overnight. NFP hits tomorrow, and this release typically has if not the biggest, one the most effectual impacts on the markets.

Don’t know how many times I’ve seen newer folks on this very forum post a chart on the first FRI of a month asking: [B][U]WHY???[/U][/B] :33: :44: :34:

Google [I]’‘US NFP’’[/I] and brush up if necessary.

Here’s how I traded in APR 2014. It’s an old post and a [I]slightly [/I]different strategy than what I’m doing here, but the meat is there and is worth digesting, in my opinion, if you’re interested.

:slight_smile:

16

Going to keep this one short & sweet, although it appears that we may be on the verge of an absolutely explosive move. 116 is a big deal for USDJPY. Here’s why.

First let’s look @ the M1.

USDJPY M1

USDJPY M1 (02-05-2016 1643).jpg700×319 16.8 KB


Of significance:
-Horizontal is 116.
-Exhaustive price action @ the top of this leg up; followed by volatility (correction) @ 7+ year highs.
-M1 20EMA is 116.63

USDJPY H4

USDJPY H4 (02-05-2016 1640).jpg700×319 15 KB


-Horizontal is 116.
-116 broken NOV '14 (Yellow circle)
-Since that topside break, we’ve carved out 3 major pullbacks to 116. With the subsequent attempt @ higher prices, sellers have been able to contain higher highs. In other words: Each time the pair pulled back to 116, the subsequent trading off that level led to 3 consecutive lower highs.
-Of further importance, is the fact that buyers are becoming more and more frustrated as shown by the distance between swing points (1 - 1, 2 - 2, 3 - 3). Each swing is decreasing in size, showing an increased presence of volatility. Volatility that can typically lead to a reversal.

It can be argued that major price support sub-116 doesn’t come in for at least another 500 - 1100P.

This tech snapshot aligns w/ everything I’ve been touting for quite some time now. These markets are starting to signal the potential for a major shift in sentiment.

More to come, as many pairs are lining up heading into next week…

Jake

17

Hi Jake,

so did you trade it?

best
kas

18

In terms of strategies I’d [I]normally[/I] employ, I didn’t get what I wanted to trade the break of 116. I’m going to be a bit more aggressive toward the mid/end of this week, seeing that we’ve now traded below it, but am looking for a rally to sell into. If we can’t get a higher price, then I’d like to see some more conviction on the sell side to get short.

Unfortunately, I’m travelling this week so I don’t have “home field advantage”- but look, even as I’m typing this I’m having a very tough time trying to communicate what I’ve seen happening on a global scale. There are major issues right now and I feel that Oil needs to be watched like an absolute hawk, as it apparently is the leading indicator for any subsequent move anywhere.

I’m still long VXX, and can easily see an S&P rally tomorrow getting sold into very heavily as traders seemingly run for the exits. What can the FED possibly do next? QE4? Go negative? The FED cannot raise rates during a recession.

Tomorrow will be key, but I’m projecting:
Long XAU
Long volatility
Long JPY
Short USD
Short financials
Stay away from oil

19

Yen is playing hard to get.

I heard rumours that china is offloading EM currency reserves into the majors causing yen and eur to appreciate same goes for gold . Whatcha think?

Why do you think eur is gaining so hard?

20

Here’s essentially what’s happening w/ the S&P

download.jpg700×391 31.1 KB

-We’ve sold off hard to start the year; very one sided momentum with volatility (counter trend buyers) increasing toward the middle of JAN.
-A key near-term-bottoming pattern forms on the H4 chart- low, lower low, higher low.
-Market breaks the neckline, trades in a tight range, and sellers absorb.
-Buyers try to prevent the third low (“higher low” - 3rd blue curve) from being taken out, and fail (long stops triggered).
-1820 is now under pressure.

From a purely tech standpoint, the bias is neutral-downside, with more emphasis on the latter. The fact that buyers couldn’t A) rally above the neckline for higher prices and b) prevent the neckline break to the downside, followed by further selling, is very revealing to order flow. The failed bottoming pattern is bearish- anyone buying that neckline break, which is a very common bullish setup, is now trapped with stops likely sub-1820. 1820 is on deck for sellers, but who is trying to catch the knife there?

Jake
:38: