Forex Price Action

Forex_School_Online · February 21, 2012, 5:07pm

BostonEJ:

Hi all,

I’ve been following this thread and finally have some questions to resolve before I dive in more.

First of all, pertaining to trend. How do you go about identifying a trend and how strong it is? I’ve seen people say you go up a level and see the direction over a period of time/number of candles. For example, if i am looking at 1D timeframe then I go up to 1W and use that level to spot a trend. I also see people say just use 1D and identify the trend by seeing the direction over a certain number of candles (let’s say 25 previous candles).

Also, is it best to use a line I draw myself(subjective) as a trend or some EMA/indicator that is more “objective” so that it can be more in line with what other traders might use?

Lastly, with regard to engulfing candles. Is there a cut and dry definition of an engulfing candle or it depends on who is giving the opinion? I believe I’ve seen people say that the body of the engulfing candle should swallow the previous candle including the highs and lows. I’ve also seen that the candle just needs to swallow the body of the previous candle. Are both true but the one that swallows all is a stronger signal?

These questions are necessarily for Johnathon so any guidance is greatly appreciated.

EJ

Okay so this is a super common question and I understand why.

Okay so I DO NOT use ema’s or any indicators as we can simply look at price to determine what it has been doing.

So when looking for trend we need to first keep it simple and secondly think about how losing we are looking to be in the trade. I see some people looking to trade the daily chart and trade swing for 2 -5 days but yet they zoom the chart out and have a look at what the price is doing trend wise for the last 5 years. Who cares?

If we are looking for short swing we need to be trading with the short/medium term trend, taking our profit and exiting.

So here is an example. Below is a chart of the NZDUSD 1 day. The 1st chart shows the short term to medium term trend. This clearly shows price making higher highs and lower lows or in other words an uptrend. Now it is this amount of time when need to worry about as we will be looking to trade swings “within” the uptrend.

The second chart is the same pair but zoomed out. Now you would say it is choppy to down but ho cares as we are not looking to trade for this length of time!

The last thing I want to say is an uptrend is marked by higher highs and lower lows and vice versa for a downtrend. A very comon reversal pattern to look for when the trend changes is the 1,2,3 reversal. Either do a google search or wait a while and I will do an article for you.

Hope this helps and good to have you on board,

Johnathon

Forex_School_Online · February 21, 2012, 5:11pm

Thalia:

Trend is simply the passage of higher swing highs & higher swing lows in a bullish ascent & the passage of lower swing lows & lower swing highs in a bearish descent on whichever timeframe you’re observing your data from.

Opinions are divided as to how many swings are required to confirm a trend, but in order for a fresh trend to be considered genuine, the previous swing would need to be taken out followed by a further swing high & low (going up) & vice versa (going down) in the new direction.

One method of determining the strength of a trend is by measuring the depth of any overlap between the impulse (or primary) wave & the correction (or secondary) swing.

As an example here’s a 4 hour chart of the nzd/jpy.

The view that the op has given is an accurate description of what an outside bar represents.
Try not to reinvent wheels or add layers of confusion when studying & absorbing information. It is what it is, same as inside bars or tweezer bars etc.

Don’t lose focus of what he’s delivering in the context of the technical geography. These candles are being shown & advised to be traded at very specific technical area’s of the price chart. I would suggest you fovus more on where these candles are setting up rather than attempting to dissect the structure of the candle.

Nice post and welcome,

Johnathon

Spongybob · February 22, 2012, 4:50am

Howdy all

This is where I totally agree with Johnathon about IB that would fail. Its in no mans land

lucariga · February 22, 2012, 4:56am

Which are for you the “standard” entry and stop loss for the engulfing bar according to John’s rules?

bhops · February 22, 2012, 5:02am

Standard entry is at the break. As a rule he doesn’t take retrace entries.

As a rule.

Sometimes he does but that is an advanced technique and sometimes it is discussed on certain trades, however for the purposes of this thread I think we should keep it at the standard break.

And usually the stop is at the high or low of the bar. Again this can be tweaked in some cases we will do this, but again this is more if you are a reasonably experienced PA trader.

I know for this thread Johnathon is more keen to look at relevant S&R zones and what PA signals we look for to trade them.

He tends to discuss stops, entry and trade management more in his own forum which I guess is fair enough.

Spongybob · February 22, 2012, 5:59am

Johnathon, may I have your email addy? Or should I get it from your site?

I will leave my Spongybob and real name so you know its me.

Forex_School_Online · February 22, 2012, 6:29am

Sure thing Spongy,

yes, you can reach me direct at <[email protected]>

Look forward to talking to you,

Johnathon

teb5108 · February 22, 2012, 7:57am

Hey Jonathon I’ve been keeping up with this thread pretty well and I must say, you seem to know what you are doing. What are your thoughts on the PA happening on the GBP/USD and EUR/USD WEEKLY time frames at the moment? I’ve never traded the high TF’s like the weekly and monthly (I generally stick with the 4H and daily), but like the thought of it.

Spongybob · February 22, 2012, 8:03am

GBPUSD approaching support area at 1.5660, watch out for PA at that area to long.

Having said that, we had a high of 1.5930 then a lower high of 1.5880, if 1.5660 doesnt hold we could have a large drop to next support area of 1.5400.

Spongybob · February 22, 2012, 8:23am

Thanks Johnathon, I actually quiet like this chart setup with while and black. :35:

dudest · February 22, 2012, 8:26am

Hi guys!

Q. GBPJPY D1: would you consider these as “double-bottoms”?

lucariga · February 22, 2012, 8:28am

I think teb is referring to this semi-engulfing candle on WEEKLY timeframe…

Spongybob · February 22, 2012, 8:36am

I saw tebs post, he posted it a few min before I posted my GBP chart.

I was not replying to his post but just giving my view on GBPUSD

Cheers

Spongybob · February 22, 2012, 8:37am

Yes, that is a double bottom

Forex_School_Online · February 22, 2012, 9:31am

Hello,

I am travelling at the moment and will reply as soon as I can tomorrow when I am back in the office.

Safe trading,

Johnathon

Spongybob · February 22, 2012, 11:01am

Update on GBPUSD

Price is now at support, going to be interesting to see what happens here.

jayjonbeach · February 22, 2012, 12:47pm

I’m just updating the situation here I posted back about 10 pages in the thread. Charts above from that post. Here is how I am playing it, quoted from about 9 pages back

jayjonbeach:

Thanks Johnathon. Indeed it might likely have trouble at 85 due to some resistance and the .00 factor as well (assuming it breaks upwards and heads that way).

Well two ways to play it IMO. Play the immediate break of the res, that is once it closes over, jump in.

Or, the more conservative/prudent approach, see if after the close over, it pulls back and backtests the now support of 84/ neckline area.

Waiting for the pullback can of course mean missing the train if it doesn’t happen, that is a choice and preference of each trader and his/her style they have to make.

Either way, stop just under 84 like 83.75 or so or if more risk tolerant 83.50, TP1 = 85, take 50% off at TP1 and move stop to BE or even 84.50. Let the rest run moving stop up as it goes or stick a trailing stop on it. TP2 = 86 (H&S target), though looking at the chart it would likely start struggling in the 85.50 area and to me that would be a good spot to punt. With that in mind, I would likely take another 25% off at 85.50 and stick a tight trailing stop on the last 25%.

Overall its a nice 1:2 trade (or more with tighter stop), with the chance to go 1:3 or even 1:4.

Of course this is all just an initial trade plan, that might need adjusting on the way. For example with an EMA 8 on the chart, if price moves strong and stays above it I might try to keep as much capital as possible in the trade as long as possible like until a violation of that 8 occurs, then re-access.

Here are the updated charts, notice there was another smaller successful Head and Shoulders on the 2nd chart a ways back:

jayjonbeach · February 22, 2012, 12:55pm

Oh one more thing, there is a HUGE Head and Shoulders on the GOLD chart also, with a ridiculous target, and I am talking the Daily chart. If Gold breaks above 1760 and closes above, I am jumping in both feet.

The pattern started Nov 14 2011. The Neckline spanning all the way across is right at 1760. GLTA out there.

bhops · February 22, 2012, 3:53pm

Hi JJ, yes Gold is definitely getting interesting.

I’ll attach a chart of how i would play it using Price Action. Bear in mind i am a very conservative trader and like to really stack the odds in my favour when taking a trade.

Firstly we can see that Gold appears to have resumed it’s bullish run so taking longs on the Daily would be in line with the overall and current trend.

Price has now moved up and tested what has been a fairly relevant Resistance zone. Rather than merely playing the breakout I will look for price to move a bit higher and then rotate nicely back to test the former Resistance and see if it is now acting as Support.

Hopefully we will then see a large Pin Bar or Bullish Engulfing Bar at this level as a signal for me to get in long. I’ve marked this level off my Daily time frame but when price rotates back to this zone I may even dial down to my intra-day 4 hour charts and see if I get a relevant PA signal.

I know Johnathon sometimes will go down to the hourly but for me personally 4 hours is as low as I like to go.

Attached is the chart, it is pretty self explanatory but if anyone has any questions just fire away.

bhops · February 22, 2012, 3:58pm

That’s a really nice clean chart Spongybob and about all you will need to trade PA.