Understanding Price Action by Chris Capre
One of the main approaches I take to the market is trading Price Action. My approach is a little unique and therefore it would be useful to explain the fundamental principles underlying my theory of price action.
Before I begin discussing various price action strategies, and tools for reading / trading price action, I must begin with a working definition of 'what is price action'. From this broad definition of price action, I will then talk about how it relates to order flow & the relationship between price action and order flow.
A Broad Definition of Price Action
A broad definition of price action would be 'Price's movement over time'. This is vague by itself, so I will expand this with 'on any timeframe'.
This means on a tick chart, if the price of the AUD/$ moves from 1.1000 to 1.1001, this one pip adjustment in price is an example of price action. So in its rawest form, price action = price's movements over time on any time frame.
These various price fluctuations will look different based on what time frame being used when looking at price action on any instrument.
What Is Order Flow?
Order flow is a general term which refers to the transactions (buying or selling) that cause the price of an instrument to fluctuate.
Any transaction, whether it be a market order, a buy limit order, buy stop order, etc., is an order or transaction.
Price Action and Relationship to Order Flow
Order flow is the most proximate driver of price changes and price action in the market.
It does not matter if a participant bought or sold the EUR/USD because of a fundamental event or technical event. Because of this - price action is really the offspring of order flow.
Many things can affect price action and how it manifests, such as;
-The total liquidity available in the market for that instrument
-The total number of buying and selling orders executed in the market
-The volume (size of the position) of each buying and selling order executed in the market
But ultimately, when there is a balance between the buyers & sellers in terms of orders, the market will have no directional bias. This creates a range-bound environment for price action.
When there is an imbalance in the order flow between the buyers & sellers, this will create a directional bias in the price action, & it is this balance or imbalance we should be learning to read in the price action because it will communicate to us the directional bias, along with where the institutional players are likely getting in and out of the market.
Thus, trading price action is not about trading simple patterns, like pin bars, inside bars, & just responding to the pattern. That leaves you totally un-empowered because there will be times when trading pin bars are optimal, and where they will fail miserably. Your success as a trader to use price action patterns successfully will be in your ability to read the price action & understand what it is communicating.
Just some basics of what can be gleaned from learning to read price action are;
-Speed of buying and selling
-When a trend is likely to continue or reverse
-Key locations institutions are entering and exiting the market
-Optimal places to put your entries, stops and limits
-Whether your price action signal is likely to succeed or fail
Thus, it is critical to learn how to read the price action & order flow behind it.
AS TO THE GENERAL RULES OF THIS THREAD;
1) Do not post links to other threads on babypips in here
2) Remember Rule #1 - this thread is focused on my unique approach to price action and I do not want to confuse or muddle the methods in here with methods espoused by others. This thread is to focus solely on my methods and approach to trade and understand price action.
3) Do not link to other sites with articles on price action (as an addendum to rule #2)
4) Have an open mind about this, ideas and trading, especially when discussing different points of view
5) If you are going to talk about a trade you took, please post the actual chart from your broker platform showing the entry and exit at a minimum.
6) This thread has a purpose which is to focus on sharing my methods/perspectives on how I trade price action.
If you want to post anything that is negative, argue, berate, or post anything which isn't neutral/positive, and in the nature of what this thread focuses on, then please do not spam or post on the thread. I understand you may disagree with what I am saying which is fine and I support you to have your differing opinions.
But if you feel the need to offer negative feedback, then you are welcome to message me privately and share what you like. This is so you do not to spam the thread or take away from it when it's intention is to help people understand my method of price action, hence not distracting them with arguments.
Here are some quick links to help you jump to the meat;
Price Action Context and Models (To understand the price action & order flow behind it):
Impulsive and Corrective Price Action Primer
Few Pointers on Breakouts (A discussion with a student)
3 Keys For Identifying Breakouts
Impulsive and Corrective Price Action Series
Price Action Angles
Forex Price Action - The Myths of Higher Time Frames, Noise & Consistency
Trading Is Not A Fashion Contest
More Impulsive and Corrective Price Action Examples
50% Pin Bar Entry & Why It's Inefficient
2 Tips For Beginning Traders (Article & Discussion)
How To Trade Price Action Trends - What You've Been Missing (Article)
Support & Resistance Key Levels:
2 Key Clues to Understanding Support and Resistance Levels
Types of Price Action Setups We Trade:
Price Action Breakout w/Squeeze
EURUSD Pin Bar Reversal
NZDUSD Inverted Pin Bar (Remember, an inverted pin bar is a failed attempt to rally, but an attempt nonetheless)
AUDUSD Role Reversal Level + Channel
AUDUSD Engulfing Bar Off Role Reversal Level
IBEX 35 Breakout + Strong Breakout Bar
Spot Silver Breakout + Strong Breakout Bar
Gold Breakout + Strong Breakout Bar Offering Role Reversal Setup
GBPUSD Role Reversal Setup
GBPUSD Role Reversal Setup Follow Through
Pullbacks To Dynamic Support / 20EMA. 3 With Trend Setups
AUDUSD Pin Bar Off Yearly Highs
NZDUSD Pin Bar Off Support
Dow Jones Consolidation/Corrective Price Action With Trend Setup
NZDUSD Engulfing Bar
USDINX Rejection Off Dynamic Resistance (20EMA)
Gold Pin Bar Off Dynamic Support
Gold Price Action Squeeze
GBPJPY Pin Bar Off Channel Top
Gold Breakout Pullback Setup + Inside Bars
ii Pattern (Double Inside Bars)
Breakout Pullback Setup + Video
GBPJPY Pin Bar Channel Setup
EURUSD Inside Bar + Video
Bearish Price Action Squeeze + 20ema Carry Silver
ioi pattern (inside-outside-inside bar) GBPJPY
Held Trade Over the Weekend EURUSD +5R
Student Trade on Gold Pin Bar Setup
Intra-Day Price Action Trading:
Live Intra-day Reversal Setup
Intra-day breakout pullback setup off key level
Live Intra-day forex price action setup AUDUSD
WTI Crude Oil Live Price Action Trade
Intra-day Live Trade AUDUSD Using Price Action Angles
Live Intra-day Price Action Trade Silver & AUDUSD
+1415 Pips Live Trading Gold Price Action
+1207 Pips Live Price Action Trade Gold
Students Live Trade for +6.5R Return
Textbook Breakout Pullback Setup 5m Chart Crude Oil
EURUSD & EURJPY Intra-day price action trades
+1200 Pips Live Trade Gold Price Action
Student Live Price Action Trades +4R NZDUSD
5M USDJPY Trade + 94 Pips
Live Bearish Breakout Play CAC 40 for ~+5R
AUDUSD Live Trade Bull Run
Trading Mindset, Trader Psychology & Money/Risk Management:
Student Dealing With Frustration
Archery & Trading
Risk of Ruin, Accuracy & Forex Trading
Last edited by 2ndSkiesForex; 01-13-2015 at 08:34 AM.
Great to see you on here Chris...although l am a member of your PA course and attend your FX Street webinars l will follow your posts here too, as l think learning isn't a linear path but more of a spiral. By this l mean because l have read/heard something once l can't always say l now know it.Personally l need to keep coming back to stuff to fully grasp it and like in a spiral when l loop back round in some ways l am back in the same place but then again, at the same time, further on in my whole understanding - if that makes sense!
Anyway, looking forward to your posts and l'm sure we will all benefit from them whatever type of trading we do.
ps Have now joined this site as opposed to being a casual visitor...its a great resource too.
Well said on the learning path, not being quite linear, but more of a spiral in relating to how we can always approach the same things from a new perspective. I often do this not just with trading, but with great books and movies as well. Sometimes seeing it a 2nd or 3rd time helps you see new things you didn't before because now you are seeing it with new eyes. This is why constant study and practice is essential - overall well said.
Thanks for the kind words. You've been a great member of the Price Action Course and I enjoy working with you, but you'll definitely see more of me here.
Doesn't it make you want to lose the will to live, oh well, back to listening to paint dry
Keep It Simple Stupid
Originally Posted by purplepatchforex
Sorry - don't quite follow you. But I do like your color :-)
I have read this Understanding Price Action post and find it quite fascinating, easy to read and informative. I also find the price action terminologies used in this article easily comprehensible. I’m great follower of your posts and other trader educating programs on your sites. Comparing this to your other posts, I find it elaborating the same Price Action concepts in a slightly simpler approach which enhances more understanding. This concurs with my understanding that to comprehend any concept requires relevant, effective and informative resources such as this one. I am very interested and eagerly waiting for more of your posts to come. Just to suggest; if possible include relevant figures/charts to induce clear information and boost price action learning.
quit cut and pasting forum entries trying to build a thread. this is more annoying then a form letter. We all know its a pitch job so just delete post and move on. if you really have something to share share it for free, show us how much you really know. Because it seems if you really run a fund and manage a team why waste time teaching online, when you should be grooming new traders in person for your fund or team. Not trying to get some income from selling online lessons
We get an awful lot of savior trading "guru" types floating through here. They usually having something for sale, but of course that doesn't come out until later. Usually they wind up not being able to deliver.
Originally Posted by 2ndSkiesForex
You happen to be a person I've heard of.
For that reason, I'll reserve my opinion.
Keep it free, and keep it informative, and you'll have no trouble.
However, mention where someone can go to learn more, but there's a price for the privilege, and there's likely to be some rumblings from those here that do give freely. Not to mention BP itself, who frown on their forums being infiltrated by shills. And rightfully so.
Originally Posted by MeiHua
I am sharing it for free, and will be happy to continue to sharing for free as I build up my basic theory of price action, which is necessary to understand the next part I will be discussing soon.
If people want to go beyond and check out my site - that is up to them. If not, no worries at all. If this thread is informative, then it has achieved its goal.
In regards to my fund, I have a 9+yr audited track record for my fund so I'm pretty sure that qualifies it and me.
But the idea that someone who trades professionally - never teaches is silly. How many professional sports players teach - sometimes for free, sometimes they do camps (and get paid for it). LeBron James, Michael Jordan, I could name plenty. Would you say the same to them that they are wasting their time?
Taking time out to teach makes me a better trader so there are definitely some personal reasons behind. But personally, I don't want to push buttons 10hrs a day just to make money. I don't want to reduce my life to just being a human ATM machine. That is why I manage a team, along with being involved in philanthropy, along with teaching, along with many things. I personally feel my creative energy does better when I'm doing multiple things, not just one thing. But that is just me.
My team isn't (currently) taking on any new traders as we have enough for now. We trade algorithmically and have enough operators and traders. We only add new when we need to scale up. Until then, i'm only working with new algo programmers.
So hopefully that explains where I am coming from and am happy to elucidate further.
Hello Master Tang,
Originally Posted by Master Tang
I don't think I'm some sort of savior. I believe I have a perspective on trading, along with over a decade of experience (institutional, broker, retail, educational). If people like my perspective - great. If not - no worries at all.
I wasn't planning on charging for my time here and was only planning on writing free content. Again, if people like it great - if not, I hope they find something useful to them somewhere.
But I'm no shill, and I'm pretty sure I can deliver. I've posted live track records of my students on my site (over a year's worth of trading making over 110% return). I also post trade setups my students have taken here, on my site and on my fb page so people can see what kinds of trades and style I teach.
Hopefully that will separate me from others.
But I appreciate you sharing how not to offend people here at BP as I have no intention of doing so and want to participate harmoniously.
Last edited by 2ndSkiesForex; 09-11-2014 at 08:29 AM.
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