EUR GBP 8 Hour Chart
does this qualify as an evening star or not because it is 4 candles and not 3?
If it is a tradeable setup where would you set your entry and SL ?
Thanks
Thannk you bambino for your reply…i did notice the bulish bar but the previous support was held so strongly. Resistance will be strong too and we got confirmation with a pinbar.
[QUOTE=“krugman25;547029”]Video - "How to Identify Market Structure and What a Pinbar Is"
Video Link: http://www.youtube.com/embed/WR2gp1t8hJE?rel=0
I’m new to adding video so if anyone knows how to embed the actual video into the thread please message me about it.
This is the first video tutorial I ever made discussing price action. It is a 2 part video. First I discuss how to analyze the market to figure out what direction you should be trading and where to specifically look for price action. The second part is a detailed explanation of a price action pinbar and the requirements for a valid pinbar. The video had a third part that I clipped off because it was too long, but it essentially covered the psychology of pinbar and why they form. Video is my favorite way to teach so I imagine there will be more to come.
Enjoy![/QUOTE]
Excellent video Aaron, thank you! Looking forward to more.
Newbie island sounds like a plan. We are here really picking up steam way too fast, and it makes me sad that people simply throw whatever they can think of in their chart without much thinking. It’s like people simply ask for your confirmation for a tempting setup and once you say ‘yes’, they’ll take the trade in their live account without hesitation. Maybe it’s just me, but the last few posts make me think that some people kinda miss the ‘educational value’ and instead move into merely ‘signal service’ thread here.
I’ll be really honest here. The only reason I’m here is because I have faith in you, Krugman. Only very few people from the other thread that have really earned my respects. That’s including you, bhops, dudest, and Johnathon. Let’s face it. We both have discussed it in the other thread, most of the time the setups we read are garbage -no offense to anyone who has posted his / her chart, but it’s a fact- anyway, and it’s not worth to seriously consider putting any money in those trade. That’s why in the other thread I only focus on the best of the best of A+ trade setup, and here I want to focus only on the best of the best of 5 star trade setup. I will wait until we have enough examples of your best of the best 5 star trade setups to safely ensure I really get your idea here, and in the mean time I will keep helping you with whatever I can think of to ensure this thread stays faithfully to its value as an educational tool in price action trading.
I agree with what you are saying. Most of the other well know teachers here, came here with websites jam packed with articles and videos, so they just slapped it down in the thread and were ready to rock and roll. It’s going to be pretty raw here for a while. I’m not expecting a lot for the first couple weeks until I get some material here for people to read. What is going to be lacking the most for a while are a clear rule set. Price action has a side that is rule based and methodical, and a side that is very subjective. Most people have a hard time following hard set rules, and completely fail when it comes to the subjective parts of PA. So I am going to be pumping out “hot off the press” articles hitting the core aspect of PA, how I trade and focusing on the rule side of PA. This means we will see most trades as cookie cutter. After a few months I will start moving into the part of PA that can be more subject, and really discussing the uniqueness of each trade.
You were right in your previous post that my method needs to be laid out plain and clear so the thread has a good solid direction. Because of that I am going to focus on producing good articles and learning material first, and not much on trades. I will comment on and post trade setups if they are worth talking about, but for the first while I am going to really be spending time on PA material and a good rule set.
Like I said in the beginning though, I am going to make this thread flexible in a way that it isn’t hindering discussion, but balance it with clear rules from my method. And also give people room to learn how I trade, tweak it to fit their personality, and not have it get confusing here. I will see in time how to strike that balance.
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Article
Step 1: Identifying a Trend
Three steps to finding price action setups
[ol]
[li]Identifying a Trend
[/li][li]Finding Key S/R Areas
[/li][li]Watching for Price Action at these Key Levels.
[/li][/ol]
Intro to Trends/Ranges
I’m going to discuss the first step I use in identifying a price action setup. It’s very important to identify whether a currency is trending or ranging, as this helps you determine what direction you should be trading, how you should be looking for S/R levels, and what the requirements you will have to deem a price action setup “high quality”.
I use the textbook definition of a trend which is higher highs and higher lows for an uptrend or lower highs and lower lows for a downtrend. If price ever breaks this pattern I consider the trend broken. In the simplest terms, price is either trending or it’s not. When price isn’t trending it enters a stage of ranging. I consider it in a range until it can once again establish a HH/HL or LH/LL pattern. A common mistake people make is that they zoom way out of their charts and draw a line from left to right based the wherever price started on the left and ended on the right. This is wrong as is not how trends are identified. Doing this only tells you where price has moved, but does not establish that an actual trend is in play.
When looking for trends you use the “swing points” to establish the high and low swings. It takes a minimum of 3 swings to establish a trend. Once price from the 3rd swing breaks past the 2nd swing point, you are officially in a trend. For the majority of traders and the majority of trades you want to be trading with the trend. A trend means there is a consistent bias in buy/sell orders, and by trading with the trend we are trading with the bias, and in return increase the likelihood of our trades to success. When measuring the quality of my trades, I always take into account whether I am trading with or against a trend, or trading in a range. Another important aspect of trends are that the “swings” of a trend should be of similar size and intensity. You may have a large trend swing, and inside of that large swing, there may be minor pullbacks. These minor movements can be confused as actual swings, but in fact they are only noise. Finding legs with similar size and intensity can help us figure out what is noise and what is an actual swing in price. It’s also important to remember to look for trends in the timeframe you are trading! There may be a very clear uptrend on the daily and a very clear downtrend on the hourly. If I am trading a trend on a lower timeframe I always it’s trend to match what is happening on the daily, although it isn’t a requirement. Also, if you are looking for trends on the daily, the lower in time you go, the less impact the direction of the daily trend will have on your trade.
Trend Trading
The first type of trend trading is simply called a trend trading, or trading with the trend. When trading with a trend we can be more lax on how large of price action signal we are looking for, and use different tools to find key S/R levels. In a strong trend I may be looking to find PA candles, such as pin bars, that are around the same size as the candle before it, or slightly smaller. This is more lenient than a counter-trend trade where you are looking for candles that are very large, up to 2x larger than the previous candle. In a strong trend I can expect that price may not pull all the way back to key S/R areas. In that case I can use tools like the Fibonacci retracement and look for 50% retracements in the last swing, or I may want to look for high quality PA candles to for off of a dynamic S/R such as 21EMA. Tools such as the Fibonacci retracement and EMA are only using in trading with a trend. So you can see, my requirements for quality PA signals becomes more lax once I am trading with a trend. I can safely aim for higher RR when trading with a trend. The S/R tools I use, my trade requirements, and my trade management all change depending on whether a currency is trending or not, and if I am trading with that trend. This is why it is important to learn how to identify trends.
Counter-Trend Trading
Then there is the opposite of trend trading which is counter-trend trading. In a counter-trend trade the trade dynamic changes. There is inherently a larger amount of risk because you are trading against the bias of the market. Because of this, the requirements of your price action signal become higher. To achieve the same quality of trade in a counter-trend vs. a trend trade, your price action signal must be much larger, and it must form at very critical key SR levels. The reason is because you are counting on both the major price rejection and major resistance level to shift market bias and in doing so shift the balance of buy/sell orders. If this can be done correctly, the reverse in price can be quite fierce and profitable. Fibonacci and EMA’s are not used as S/R in counter trend trades, only very key horizontal and trend S/R lines. Again you can see how the S/R tools you use and how you view a trade will change depending on the dynamics of the trade.
Range Trading
The first type of market is trending, the second is ranging. All markets fall into these two categories. There are many variations of a range, but they should all be treated the same. In a range, sometimes the price moves horizontally, hitting the same S/R areas over and over. In other cases price winds up and makes lower highs and higher lows. And again other times price expands and makes higher highs and lower lows with each successive swing. I try to keep my method simple by treating markets as either trending or ranging. In ranging trades, Fibonacci retracements are not used. EMAs can be used, but sparing, and only when a price swing is moving strongly in one direction. The requirements for high quality PA candlestick are have middle of the road requirements. I.E. you are looking for candle sizes that are 1 – 1.5x the size of the previous candle. Also what you are shooting for as far as risk-reward, is also somewhere in the middle of the road. A ranging trade overall gives you a middle of the road requirement, middle of the road expectations and usually a middle of the road amount of risk. Again you can see how even a range trade vs. a trend trade has its own dynamics.
Trends vs. Swings
The final thing I want to talk about is trends vs. individual swings. Many people confuse price swings with price trends. When price is stuck in a range and is swinging back and forth, many people will say call those swings, trends. While it may be true that on the lower timeframes, those swings are solid trends in play, but if our trade is a higher timeframe, we always want to identify trends in that timeframe, on now lower timeframes.
A Word on PA
Learning how to find trends can seem somewhat like magic and very subjective. As a matter of fact much of price action can be subjective, even something as basic as finding horizontal S/R lines. My goal is to make PA trading as methodical and rule based as possible, while at the same time teaching that each trade is unique. It is a tough balance to find. Many PA teachers have such a strict rule set that it hinders your ability to see all of the dynamics of the market, and ultimately hinders your trading potential. Learning the basics first and the hard rules help you get started with PA. Learning the more subject and advanced areas of PA will help you maximize your trading potential.
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AUDNZD has been ranging for awhile and is real close to a resistance that was rejected several times before. Keep in mind that there are supports between the 2 S/R lines on my chart that I did not mark. Particularly around 1.12700 and 1.13300. Be aware of those. Definitely a trade opportunity if we get a sufficient confirmation.
Also, there are supposedly statistics/reports coming out tomorrow regarding New Zealand and Australia. I got this information from myfxbook.com but they have been wrong before, so do your own research.
Thoughts, comments, opinions ?
IMO, This is a bullish flag sign. Before that is ranging trend and then suddenly went up all the way. It can be a changing sign of trend. Since it must form a first high and a higher low before going up again. Now it should be higher low and if tend to breakout the flag by going up, it may go up further.
Correct me if I am wrong, i am in learning process
Regards,
Shane
Wow Krugman I honestly didn’t know what to expect from this thread as the first pages rolled on but your posts seem to be packed with really useful information. This post really made me think about how the different market conditions (trend vs. range) effect what requirements a trade must fit to be worthy of investing. Thanks again for starting this whole shindig, I can’t wait for more
Edit: Also, I’ve never heard someone discuss the size of a pin bar in relation to it’s previous candle. I know the signal pretty well and that it must close within the previous candle, but can you talk a little more about how the pin’s real body effects the signal.
Haha I remember watching this guy’s video’s back when I was 15 hanging out in Borders Coffee shop XD, if anyone needs help with patterns, candle formations, or anything technical analysis related watch the “informed trades” channel investing GOLD
Hey X, I actually shorted the bearish pin bar that happened about a dozen candle back. I think the reason it failed was that price momentum is fairly bullish right now on the daily. Whilst this is a lower time frame setup, what is going on at the daily level is still going to have some pull down at the lower time frames. I have set my stop loss at your market S/R area at the bottom, and as you can see price never reached and I was stopped out at break even. I think the safe move here is waiting for price to break through the upper S/R, then pull back to it and wait for signals to go long. Although if a very large and well defined pin bar forms, it may be worth considering a short.
3 candle morning/evening stars only. Sometimes going higher T/F turns what you posted into a good 3 candle star. I checked this out very quickly earlier and if I remember correctly, it didn’t pass the requirement for a minimum 1:1 RR. I think the chart zoomed out had a resistance closer than the one you had market. Although I could be wrong. Star candles are good candidates for a retrace entries to achieve a better RR.
Textbook flags are super rare at higher time frames. I use them both to get into a trade, keep a trade running or increasing my position. I find patters more subjective and harder to trade. I am going to refrain from getting too deep into talking patterns until I get some good material out for price action candles. But feel free to discuss them in the meantime, I believe there are a few here who have some of these patters in their own trading plans.
I’m glad you are finding the information useful. I put more emphasis in some of these topics I discuss than most PA traders I have met.
Regarding the real body of a pinbar, to me it is another one of those little details that I take mental note of when taking a trade. While a pinbar is valid when it passes the check-off list; total candle size, real body size, real body position, protruding past previous candle, touching or protruding past key S/R level. But the candle itself can hint to it’s quality.
For that picture perfect candle I want to see the body of the candle close within the body of the previous candle, not just the wick. I want to see either a razor thing real body, or a real body that closed well in the direction I will be trading. I want to see very little or no which on the side where the real body is. I want to see the which peirce WAY into the S/R level. I want to pin bar to be positions in a way that the real body forms right up next to the S/R line(for maximum space for profit). I want high volume on a pinbar, compared to the previous candles. If I zoom in on the pinbar at a lower timeframe, I want to see certain volume levels as the pinbar is forming(more advanced volume analysis). These are just the things that quickly come to mind when I and figuring out what quality of pin bar I have going here. A pinbar that just follows the core requirements are very successful, but they are certainly not all equal.
I want to emphasis again when a trader is just starting to trade pinbars and such, to look at them all the same, and trade them with a very methodical cookie-cutter approach. This helps the person learn how to identify and trade a pinpar without trying to figure out all of the dirty details.
I wanted to cover real quick the flag mentioned earlier, after zooming into the chart to get a more detailed look, it actually is a pennant that is forming. Right now the upper trendline is slanting more than the bottom. Price could still shoot up and bounce back to create the right angled upper trendline. My other complaint is that the potential flag is not slanting very sharply. The more a flag slants against the trend, generally the most explosive the move once it breaks out. The flagpole is darn near perfect. In the flagpole you want price to move upward fairly quickly and consistently, or you want to the move to become parabolic as the flagpole reaches its top.
Waow ! This thread is on speed. It won’t be long until new joiners get told to read the first 50 pages before posting even though you plan to organise it differently which is definitely a good idea ! 
I was also short on that pin with the same stop as you had. Luckily I was on my computer at the time of the reversal and caught some of the profit manually. The level where it reversed was a relatively major support back in August and I guess the bulls got the best of it although price didn’t have much of an issue with that level before. Looks like a 2 bar reversal just formed on that pair but I don’t think the situation justifies taking it short at this point. Like you said, on the daily it is appears to be mostly bullish. I also don’t like how there is a support right below the 2 bar at around 1.33, didn’t bother me before but it does on this setup. Although price had little problems with that level previously in this range, you could kinda see it become prevalent in the past few days. Either way, I’ll be keeping an eye on this one.
How do you think of this EURGBP D1 Inside bar, since inside bar was listed in this thread for discussion, so I will post it up here.
EURGBP D1
Inside bar formed at previous Resistance , with the recent downtrend, since august it started to form the highest point follow by lower low. But there is an dangerous area at 84058 .
Regards,
Shane.
Hi Krugman,
Could you please explain about inside bars? is it a valid candle to trade if it is at relevant support / resistance and with the trend? Usually I trade Engulfing & Pin bars only.
I don’t like how there’s some traffic. There’s a psychological level (84000) close by that could act as a major support. Also, the way I see it, the price is currently at a support level. If you take a look at the daily or even lower time frames, you’ll see that around Sept 9-10, that level of resistance was rejected and price later broke through it. Now it’s acting as a support (you could see on the lower time frames that it’s giving price a little trouble). Either way, the price doesn’t have much space to move. Even if you took this trade disregarding that potential support, the psychological level (84000) isn’t far away, so you would either have a lower R:R or you would set a risky, small stop loss. Both are unfavorable IMO.