Now that you are in the trade and you have an intelligent SL and TP, plus before you entered you made sure the RR was also intelligent.
How do you manage this trade also using just Price Action to make your decisions?
In this picture you will see I have looked down and to the left of price at the time of entry and found any “Obstacles” that may get in the way of the trade.
Point A is the first obstacle but it is too close to the entry point for my style of trading so it is ignored, if however you are a very safe player then this would be a good point to move your SL to Break Even (BE).
Point B is the next obstacle and this is where I moved my SL to BE, if you had already moved your SL to BE at Point A then Point B would be used to move you SL to actually lock in some profit.
Point C is of course the conservative TP initially mapped out. If you are a more aggressive trader then you would not actually place your TP at Point C but an Alert instead. This way if price was moving nice and fast you have a chance to grab some extra pips.
Advanced Note: As you will learn later Point C is also right before a HL Breakout trade that I keep my eye on as a place to add to my already entered swing position, this can only be achieved if you used an alert at your initially mapped out TP instead of a hard TP
When it comes to candlesticks, the higher the timeframe the more powerful they become as a standalone tool. This is why they end up becoming part of my entry trigger. Since they are already a signal of their own, having them at the right location (judged by PA, SR, and TL’s) makes them very powerful indeed.
I have simplified Candlesticks because there are so many names that people give them and only a few that I care for myself.
A Pinbar for me is simply a Candle that has a lot of wick and not much body, this way the name Pinbar for me covers what others call a Hammer, Hanging Man, Shooting Star, Inverted Hammer, Spinning Top, even Doji’s really.
It is the Indecision I am interested in and although certain types of Pinbar are more powerful than others it can be generalized for simplicity at the beginner level.
The other Candle Patterns I look for are InsideBars, TweezerTops and Engulfing Patterns (always at the correct location)
*Engulfing patterns I ended up calling CeC’s btw… candle eats candle.
I whipped this picture up to help simplify Candlesticks a little.
Don’t forget that when we have the correct Candle Pattern at the correct location I then want that Pattern to be broken in the correct direction to enter the trade. This can be done via Pending Orders and you do not have to stare at the charts.
Thankyou for starting this thread and sharing this info. I am new to fx, and am just beginning to study price action. I am very interested in what you have to share. I hope you continue with this thread.
I think I have been thorough enough in explaining that first trade and since there seem to be no questions yet I will answer them later if/as they come in.
REMEMBER: the core trade explained I have traded right down to the M2 chart with decent success…
it will work on any timeframe but my crazy 8 hours staring at the screen days are long over with my new trade management EA’s and VPS,
so I now take this trade on M30 and above depending if I am travelling the world or at home.
I will now go prepare a similar step by step process to explain the dynamics behind the next price action trade I will explain… the TL bounce
Drawing Trend Lines is actually something I should have covered before the 1st trade example but I will cover some basic TL drawing concepts I have before I move on.
The next trade is the TL bounce so it is very important that you draw them correctly.
Firstly there is no point drawing a TL unless there is a Trend, hence the name of the Line I suppose. So how do we determine if a TL is warranted?
There are essentially 2 main conditions I look for to draw a TL. TL’s are used to gauge the Momentum of a move.
Confirmed Trend Line Zone:
Quite simply 3 points to connect that, in the example of a sell, created the Lower High, Lower Low, Lower High, Lower Low scenario.
*When you look at my charts you will see the gray boxes, these are Support/Resistance boxes, they are not a single price but a small area. Trend Lines are essentially angled Support/Resistance and therefore I also look at them as zones rather than a single line.
2nd wave has greater gains and is much more powerful than the first indicating a possible Impulse wave from the Elliott wave theory. I don’t apply the EW theory too much in my trading except in this kind of scenario where it tends to apply more often than it does not. I won’t go in to Elliott Wave theory here but instead explain in a logical manor. Basically the increase in power and momentum indicates that there is a very high chance of the next wave continuing a Lower High Low pattern so I place a single TL (as it is not a confirmed TL zone by having a 3rd point) to remind me that it is not as solid as a zone, but a predictive momentum line. I do not find these as reliable if the TL is way too steep.
The one exception to the rule is when price is swinging in large smooth swings yet still making gains in a particular direction.
These TL’s should also not be very steep and remain a single TL to remind you it is a predictive TL and not a confirmed TL
Do not clutter your charts with TL’s, they are momentum guides and help with 3 of the types of trade I take, The first was of course the Core Trade and the 2nd is the TL bounce which comes next
The market moved in nice smooth proportionate looking swings whilst making it’s 1st Lower High, Lower Low scenario, the 2nd wave of movement down does not indicate that the momentum is slowing.
A single TL was drawn (please ignore the TL zone as that applies to the next trade using this same image)
The 3rd hit on that TL was also confirming a Resistance area that was created during the previous wave of selling. It lines up perfectly with the TL, and SR box and gives a place to enter, a place for your SL, and the ability to judge RR before you enter the trade. I will go over that in the next post
In this example since we have our confirmed Resistance area at the predictive TL and we have our SL.
Using Candlestick patterns the 1st entry opportunity is the IB after the PB.
The black area is an intelligent area to move your SL to BE based on recent historical price action
The Conservative TP is an equal low minus any spikes that stick out by themselves.
Now we can judge RR which as you can see in the picture is greater than 1:1
Notice how I say conservative TP, what I mean is that clearly we are expecting a Lower Low, The waves of movement down have not lost momentum yet, so the RR will be much better in fact.
But if we assume the worst we have locked in Break Even at the next logical place for price to possibly create a Higher Low and we base our RR on the safe outcome of at least an equal low to be conservative. This way if we always look for 1:1 as a minimum TP based on conservative logic but we more often than not will always exceed that 1:1 RR
As I mentioned before the gray boxes on my chart are Support Resistance areas, but I only have a limited number above and below price at any one time so for that previous trade there were none there.
For this next TL bounce trade using that same picture the gray boxes are there as they were in real time.
In this next trade the confirmed TL zone was not quite reached but a nice Resistance box was created as price headed down on that previous wave, the previous wave of selling was much greater in power than the first 2 waves of selling indicating increased momentum.
The chances of another wave of selling were high so once a Resistance box close to the TL zone was confirmed by that 2nd visit there…
Candlestick patterns were all that was left to wait for.
2 Pinbars side by side was a nice touch and the trade now had an entry point, a SL point, a conservative TP point to judge RR, and an intelligent place to move your SL to BE based on historical price action.
It was just about 1:1 RR at the conservative TP so all systems go.
In this pic though I also marked out a more likely TP that you would have shot for when you saw those nice red candles gaining strength on each one
-Follow these lessons since today and I’m interested in this new concept because for me that I am in the early phase of learning the trade of currencies it is important to follow advice from those who have experience. Thank you for sharing your knowledge.
OK, so lets move on and rewind back to the first trade I showed in this thread and take a look at a not so perfect set-up that required patience in order to take the safe entry. As you may remember I call this the core trade.
In the image below I have tried to mark as much as I will need to explain this trade rather than having several pictures.
Points A - E show how the market is swinging about.
You can see that the TL was broken but point A did not make a Higher High than the previous swing High so this is only a half core trade. The PA is not yet correct. If you wanted to try and trade Point B you will notice that the RR was no good anyway and so this becomes a trade where you need to risk more than you can intelligently expect to aim for. So there is too much against this trade even though as you can see it was worth pips. The point is that the % of chance that this trade would have worked out is significantly less than the % of chance a full core will work out and so if you are trading big money you may aswell stick to the higher % trades.
Points C and D then show you the market opening up, a Higher High followed by a Lower Low. At this point you can however see that the Gray Support box is still holding and as an experienced trader you will see this is a contained Low whereas the previous High was pushing into some more open ground. An experienced trader will trade Point D because there is great RR on the trade and a small SL with not much against the trade. However I want to really emphasize the basics with this thread at this point so let this serve as an intro to some more concepts that I will get back to later.
Points E and F then set up some proper PA after the TL break and finally we have a Higher High followed by a Higher Low back at that Support box. Now everything I outlined at the start of this thread is in check and the trade is looking much cleaner. SL goes in its obvious place and entry is the break of that IB. Point E is a conservative TP and place to make sure RR is 1:1 or above. You are however anticipating a HH due to the PA but don’t worry if you take profit at point E. It was still an intelligent trade if handled that way.
TP options 1 and 2 are an intelligent way to judge the Higher High that you are anticipating. TP option 1 would have been my original choice when plotting things out as a set and forget trade and it wouldn’t have bothered me that I could have reached TP option 2. Point E is a clear cut place to move your SL to BE if you do decide to shoot for the Higher High and not use it as a TP
Please feel free to ask questions so I can make sure my explanation here makes sense to everyone
I’m new to trading but have read lots of info. Am trading slowly and swing trading would suit my present situation.
I’m keen to learn your methods also. Have downloaded your e-books, will contribute when I have absorbed info.
I have been studying all manner of analysis, oscillators etc. and have been trying to work out what to use with what and in what time frame. In the end I found Ichimoku clouds which is based on support/resistance areas in a similar fashion, which I have been testing.
Last night I placed a trade in GB/USD based on Ichimoku and my effort of wave counting to short @ 1.6053 with a view of taking profits @ 1.6002, SL @ 1.6024 and went to bed.
Anyway, I checked on it’s progress this morning @ 6:00 am GMT to find current price rising towards my stop loss!
I re-figured my position using the instructions from your thread here and managed to place a further short @ 1.6085, by now I was £32 in the red, expecting to move my SL further up as I was convinced was in downturn by wave count.
Finally saw double top on M30 chart and confirmed downtrend as you describe here with bearish candle. To cut to the chase, I re-set my TP to 1.6008 to be on the safe side of resistance @ 1.6005. Both sells came in with a 122 combined pips!
Many thanks for your thread - I’m now an avid follower :53:
Can someone help me figure out this trade, I am wondering what went wrong, or rather, how I could have done this differently?
After a sharp fall in the EUR, I saw the opportunity to go long with about 30 pip T/P. I got stopped out, and then the market soared 80 pips on the EUR/JPY. Did I place the stop loss too tight? Entry was at 115.889 Initial stop loss was 115.602 and T/P was 116.224.
I currently work and stay in Norway and so I missed the bullish rally with the EUR/JPY. Any help is appreciated, thanks.
Certainly for me that Stop was too tight. I did not take that trade, but the overall trade idea looks fine. However, that low test on the Hourly (1500-1600 GMT, the first low test into 115.50 in the right-hand cluster on your chart) would, for me, have established the Support area I was trading out of. It low-tested beautifully right off the 115.50 level, so my Stop would have been at least five pips below that level, so at the most 115.45.
There are often repeated low tests before a level of Support causes a move up - this is what happened on this occasion, and one of these stopped you out. For me, the Stop on a Long trade has to be a few pips below the most recent Low, or there is too high a chance of being stopped out.
The chances of a retest were increased by the Monthly Pivot running through at 116.05 - Price came back to retest Support as it struggled, initially, to breach the MP.
So I think that you are right, your Stop was just a little close. There are many traders who knowingly place their Stops tight, in order to increase their R:R and accepting that they will have more losing trades as the price of this. But for me, a Stop somewhere around 115.45 or below would have been the way to set this trade.
Hope that helps, and does not sound too preachy. Take a lot of comfort from the fact that Price did what you expected it to, your trade only failed on a detail!! So you were very close.
Nope, didn’t sound preachy at all. However, it seems to me that the support already was tested twice (well TESTED only once actually) before I entered the trade, and it still tested it once (or twice?) more before going up. I guess I just should have been there at the rally to catch it. So how many times do you let it test the support? Especially after such a fast move down?
Oh also just realized that my stop loss was weirdly placed and if I actually placed it 5 pips below the FIRST long red whick I actually would have managed the trade. Guess I wanted a better R/R. Thanks for your help!
