Understanding Price Action by Chris Capre
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Thread: Understanding Price Action by Chris Capre

  1. #1
    2ndSkiesForex is offline FX-Men Honorary Member
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    Default Understanding Price Action by Chris Capre

    Introduction:
    Perhaps some of you have seen my work before, but 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, methods, and tools for reading / trading price action, I must begin with a working definition of 'what is price action'. From this broad working definition of price action, I will then talk about how it relates to order flow and the relationship between price action and order flow.

    A Broad Definition of Price Action

    The broadest working definition of price action would be 'Price's movement over time'. This is vague by itself, so I will expand this definition by saying 'on any timeframe'.

    Technically, this means on a tick chart, if the price of the AUD/USD moves from 1.1000 to 1.1001, this one pip adjustment in price is a working 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 compression (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.

    All of these transactions on a daily basis refer to the order flow in the market, or the flow of orders, so this is what I am referring to when I talk about order flow on a basic level.

    Price Action and Relationship to Order Flow

    The bottom line is the most proximate driver of price changes and price action in the market, are the transactions/orders in the market to buy/sell the instrument (order flow).

    Thus, the most dominant and proximate driver of price movements are the result of order flow. It does not matter if a participant bought or sold the EUR/USD because of a fundamental event, such as Ben Bernanke telling the market he is keeping interest rates on hold till 2014. None of that is why price moves. Price moves simply because of the transactions that are executed in the market. 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.

    However, 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
    & more...

    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.

    Thanks in advance for complying with these rules.

    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

    Will continue to update the links later.

    Kind Regards,
    Chris Capre
    2ndSkiesForex
    Last edited by 2ndSkiesForex; 05-13-2014 at 06:26 PM.

  2. #2
    michael ji is offline Junior Member
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    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.

    Cheers,
    Michael.

    ps Have now joined this site as opposed to being a casual visitor...its a great resource too.
    2ndSkiesForex likes this.

  3. #3
    2ndSkiesForex is offline FX-Men Honorary Member
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    Hello Michael,

    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.

    Kind Regards,
    Chris
    rookie39 likes this.

  4. #4
    purplepatchforex's Avatar
    purplepatchforex is offline FX-Men Honorary Member
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    Doesn't it make you want to lose the will to live, oh well, back to listening to paint dry
    Keep It Simple Stupid

  5. #5
    2ndSkiesForex is offline FX-Men Honorary Member
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    Quote Originally Posted by purplepatchforex View Post
    Doesn't it make you want to lose the will to live, oh well, back to listening to paint dry
    Hello PurplePatchForex,

    Sorry - don't quite follow you. But I do like your color :-)

    Kind Regards,
    Chris

  6. #6
    Jen
    Jen is offline Newbie
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    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.
    Theexeman and 2ndSkiesForex like this.

  7. #7
    MeiHua's Avatar
    MeiHua is offline FX-Men Honorary Member
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    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
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  8. #8
    Master Tang is offline FX-Men Honorary Member
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    Quote Originally Posted by 2ndSkiesForex View Post
    Hello PurplePatchForex,

    Sorry - don't quite follow you. But I do like your color :-)

    Kind Regards,
    Chris
    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.

    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.

  9. #9
    2ndSkiesForex is offline FX-Men Honorary Member
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    Quote Originally Posted by MeiHua View Post
    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
    Hello 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.

    Kind Regards,
    Chris

  10. #10
    2ndSkiesForex is offline FX-Men Honorary Member
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    Quote Originally Posted by Master Tang View Post
    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.

    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.
    Hello 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.

    Kind Regards,
    Chris
    Last edited by 2ndSkiesForex; 09-11-2014 at 08:29 AM.
    MoneyNVRSleeps likes this.

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