Profiting from noise. Price Action Trading on tick charts

In my humble opinion, price action trading is the best way to trade.

Yes, took me two years and a couple of $1000 to come to that conclusion. Look forward to you criticing some of my views and sharing your experiences

So lets have a bit of a look at technique. The amazing thing about trading tick charts is that we don’t actually do anything different. The same price action that forms a 1 min candle, hourly or daily is the same price action that forms our tick candle whether it is a 70 tick or 4000 tick chart. Where our advantage lies is that we have effectively eliminated market noise by removing the volume variable for a set time frame. By focusing down on 34, 55 or 70 tick chart we can now see the very battle that exist between the bulls and the bears. And remember this is not your or my battle. It’s the worlds institutes, the money makers. And that’s what they do, make money. We are merely betting on the outcome of the battle.

One of our most powerful tools is the box break pattern. For our purposes we will define a box pattern on the 70 tick chart as :

 "a series of at least three candles where the highest high and lowest low of the first two candles form the upper and lower range of the box and the third candle's high and low form within that range. That range should ideally be between two to three pips only."

Here is an example of three box patterns, a 3 candle, 6 candle and 4 candle box


Being able to identify a box pattern is critical in my strategy as this is going to be my entry point into a trade. Like it or not, on an only too regular basis, all day every day, the price negotiations that occur between the bulls and the bears breaks down and stalls. Never party wants to give up ground and tension starts to build. The tighter the range, the more candles within the box, the more tension will build. Until finally when one party has to yield and the price breaks though that range. A Box Break.The greater the tension, the more explosive the break out move should be and easy pips are there to be captured. You can’t see that on an hourly or daily chart. But on a fast tick chart like the 70 it stands out like a sore thumb.

Now just because you have identified a box pattern doesn’t mean you have to trade it. There will be many box patterns form every day. The image above had three form in less than an hour. You only have to trade the right one. What the speculator has to do is assess the here and now of the chart and the context the box has form in. If you have in your mind only to enter long, why trade short if the price breaks though the lower (support) range. For me its best that I post actual trades and try to describe my mindset and what I see to describe that context. As I said previously, I don’t learn by theory, I can’t teach theory. I learn hands on by experimenting.

One final note, as we all know, there are no perfect examples in Forex. The speculator must bring a percentage of poetic license to the plate and understand that not all box patterns will fit the ideal model.

Hmmm… could you explain again whats the entry criteria after identifing the box patterns. Thank you

G’day anishrei. So the box pattern sole purpose is to identify an entry point for a trade. You enter your trade the moment the prices “breaks out” of the box in the direction you wish to trade. So there is two parts to this answer.

First the direction you wish to trade. We know that in advance. Because all we are worried about is the EURUSD, it won’t take long to develop a bias towards what direction you should be trading, long or short. I don’t think too many would argue against that in the here and now, short is the way to go. With that said, the market is always correcting so one must be open to trade in the opposite direction. I hope to post about direction of trade this weekend but it’s my boys 4th birthday on Sunday so my weekend is pretty full.

So in the here and now (which is what trading fast tick charts is all about) we are only looking to trade short. We now patiently wait until a box pattern forms in the right area of our chart. When the price breaks through lower than the low that forms the box (ie the box support level) we entry our trade. But the key is that the price must break though. As the bulls and bears battle it out trying to get a better deal, price will bounce around inside this tight boundary. It is very probable that the price will breech the high and/or low the first two candles by only 1 or 2 points then immediately reverse. They are still in battle so it’s not safe to enter the trade. As long as the range is still within that 3 pip boundary the box pattern is still valid. What you want to see is a swift strong clean movement of price though that level. When you see that, pull the trigger and trade.

It’s a very disciplined way to trade. Because these box patterns pop up all the time, you will be tempted to see something that’s not there. You still must see the chart as a whole and judge the merits of each box on its own. Remember you only have to take 1 trade a day with this methodology. Start to over trade in any degree and you will blow you account up very very quickly. Also things will happen very fast. 3 or 4 candles can form in under a minute. You have to be ready. Miss the opportunity and best wait for the next one rather than try jump on board.

All the best, Bob.

Sorry dude, I dont have lols.

I just saw his fluffy moustache. hahahhaha!

Just popping in to apologize for not posting. My weekend has been full celebrating my boys birthday and that’s what its all about. Make up for it during the week.

Bob

Hey Bob!

Crazy weekend here too!
Thanks for the explanations. I get a better picture now. Hope to follow u thru in the coming weeks. :slight_smile:
Have a great pip-ing week ahead!

How old is your son? I have a lad of just under 3 who I look after.

The boy’s was 4 on Sunday. Its great just to kick back for the weekend and enjoy life.

Gday all. Just time to post a quick trade today. Here is a a long trade.


This was a pretty good trade. Market was trending up with higher highs and high lows. A box pattern form just after a swing low. Set our SL at the second last swing low, 8 pips from our entry. Set our TP at 8 pips to keep our 1:1 RR ratio. Calculated the lot size and the rest is history. TP hit.

I have over-laid the chart with a zig zag indicator just to highlight the importance of identifying swing highs and lows to determine trend which we will talk about soon. Where these box patterns form in relationship to the current swing highs or lows validates their use as an entry signal.

Time to talk trade direction. By now you will have realized that the “Box pattern” tends to pop up all the time on your chart. How do we know the right one to trade? Well, you have to eliminate the bad ones. And that doesn’t talk long. I break it down to market bias and conditions.

Market Bias
This is a bigger look at the markets. Nothing wrong with going out to the daily chart and see what’s happening. Indeed you have to. You need to have an opinion on who is in control of the markets. The bulls or the bear? The best thing is the answer SIMPLY DOES NOT MATTER! All you have to have is an opinion, your market bias, and trade to it. After trading this style you will quickly form a bias to which players are in control and that doesn’t change day in day out. My bias is bearish. This is my daily chart.


Market Conditions.
We are only interested in the here and now. What’s been happening in the last 2 to 4 hours. Although data a day or two old can provide important clues to support and resistance levels that subject is for another day. A key concept to understanding PA on the tick chart is the same PA that forms our candles, forms every other candle on every time frame. So we can apply the same techniques and hold true the same meanings. Market conditions is no difference. We want to know if current market conditions is trending or ranging? We’ll use the following definitions;

A TRENDING MARKET is characterized by the formation of higher highs and higher lows in an uptrend. The formations of lower highs and lower lows in a downtrend.

An Uptrend


A Downtrend


A RANGING MARKET is characterized by the first swing high and low forming an upper resistance level and lower support level with subsequent swing highs and lows forming within that range.


How we trade each one depends on our market bias. We will be either trading with bias(our bias and current trend match, trend trading), against bias (our bias and current trend conflict, counter-trend trading) or range trading. We’ll explore these in future posts.

Our favorite and preferred method as indeed the trend is our friend. So if our bias is bullish, we are looking to trade long box pattern break outs in an uptrend. If our bias is bearish, we look for short box pattern break outs in a downtrend. If we are in a true trend each box pattern break out should be valid and tradable. But we are in no hurry and can afford to wait. We want to trade the right one or at least I do. Why, because my money management is built around the right one.

Like any other trend on every other time frame the price will swing from highs to lows. The price trends, then corrects, trends then corrects. And on it goes forming our higher highs/lows or lower highs/lows. Any strategist will tell you that entering a trade quickly after a correction is a good idea and for us it’s no different. Ideally we want to do the same. So the ideal box pattern forms within 5 to 8 bars from the most recent swing low. The high (upper resistance) of the box is ideally no further than 5 pips higher than that swing low and no further than 10 pips higher than the previous swing low. The previous swing low is where we will set our Stop Loss and difference in pips will be used to calculate lot size and Take Profit.


Of course nothing ever happens in the ideal in the market so be happy to apply poetic license when searching for this box pattern. You at the end of the day are responsible for your trading plan, your decisions. Trading Price action is a purely subjective method and only your opinion matters. You are only accountable to yourself. As I said earlier, any box pattern break out in the direction of the trend is profitable until the trend ends and that’s the only thing you need worry about.

Ah Bob,
Just took a week off, cashing in my pips for a short vacation so could not reply earlier. I have bookmarked this thread, and hope the others join in as well…will check out your updates tomorrow since I just flew back…

Well, was going to do a post on trading against bias but I think I’ll brag instead! This is why I like this style of trading so much. Just made 6% in 3 trades over 3 hours and nothing happened yet. ECB interest rates are still and hour away. But who needs to trade now. Probably will anyway.

The techniques I’m posting are there as guides only. Designed to get a new trader going in the right direction. The one thing I can’t stress enough is that;

Price action trading on the tick chart is a purely subjective style

The only opinion that matters is your own and you have to justify every decision to yourself. This is truly the domain of the discretionary trader. The human brain is a wonderful thing and if you are prepared to persist, practice and have the patience it learns very quickly. To quote Bob Volman:

"As much as technical skills will contribute to a trader’s survival in the markets, it is the way he handles his open positions that will ultimately determine the degree of his consistency. "

So today trades. Today I have no market bias because firstly I know what data is coming up and secondly the tight ranging market we are in according. So I am basically going to use range trading techniques. Sell at the know resistance levels, buy at the support levels. Trade what I see. This is what I saw


The first trade occurred just after a double bottom. The 1.3150 level was offering a strong resistance and when the price broke below a box pattern near this level I exited. Then seeing a double top at the 1.3150 level decided to go short. Got spooked on this trade and exited early on a false long box pattern break. Realizing this quickly another opportunity presented and took it. Bit of a wild ride but put faith in the system and waited this one out.

So interest rates are out, press conference held and what a movement that was. Picked up another 50 pips before losing 30. My fault for getting greedy. Learnt a lesson. Hope you made some.

I have my tick chart up and running from downloads from another site. I have taken 6 trades with 3 being winners and 3 losers. However with a profit ratio of 1:1.5 I am up. I have not read Bob Volmans books but I have copied a brief summary of his entry criteria and I am using that for my entries. I am going to take as many trades as possible. It doesnt matter if I lose it is getting to grips with the chart that is important.

Have a good weekend guys.

All the best Daxter1962. I’m sure you’ll like this style. Nothing wrong with taking trades and going for it. You quickly learn that you don’t like losing money and you quickly adjust your strategy to avoid those situations. I started with just a $200 micro account trading 0.01 lots and couldn’t blow that (although I gave it a good try). Bets the couple of thou I lost doing other things.

Make sure you post a few trades. Nothing like documenting things to bring it all back in perspective. Sure others will be interested in your progress.

A good weekend to you to .

Bob

OK. Just entered short at 1.29595 an hour out from NFP data. Stop loss set at 10 pips (1.29695) with 5% risk. Using some of last nights profit. Lets see how things pan out in a couple of hours.


Ok had a good pick up here. This trade started working almost immediately after I placed it giving me the confidence to let it run. As a good rule of thumb if a trade doesn’t work immediately I look to get out as quick as possible preferably with some sort of profit. Another better opportunity will come along.

This was an interesting trade to manage. As it was a hour out from NFP you can see the larger players starting to position themselves by the strength in the bars towards the later half of the trade. Where I got spook was when a tight box pattern formed 10 min out from NFP. As well as being an excellent entry pattern, the box pattern is also a pretty damn good tool to exit a trade. This point I’m up 11 pips and with such a high risk attached to the trade it’s time to exit.


I’m remembering the lesson from last night where greed to over and I loss half my gains. You take what the market gives you and don’t ask for more. Get greedy get punished.

I bought the RWtickchart v1.14 software last week but I confess to finding the analysis of the tick bars rather difficult. I was, therefore, very pleased to find your thread and very useful it has been too - many thanks. By way of gratitude for your efforts I thought you, and your other readers, might like to refer to this for some very useful extra instruction:please see “prorealtime” with content referring to x-tick-charts.
Trade canny,
Hamish.