Understanding Price Action by Chris Capre

[2ndSkiesForex]

Hi Chris,
Thanks for sharing your knowledge with us in the thread. I am very new to price action and still am reading the first few pages.
I would like to know whether it is possible to give a small explanation on why you are taking a trade when you post the picture. Presently, I see pictures with an arrow mentioning the entry point, but not sure why (candle formation) you took the trade. If you can give a brief explanation (Ex: pin , outside, inside bar …etc.), it will be very helpful.
Apologies, if this is a stupid request.

Hello Mr Frxbee,

Some good questions. I do not know which specific chart you are referring to, so cannot comment on that per se.

But, it should be noted any ‘[B]why[/B]’ behind taking an entry never has to do with an individual candle/price action pattern by itself. My style of price action is different than most others who teach PA.

Most promote price action patterns as the primary reason they enter a trade. Examples could like the ones you mentioned ‘pin bar, inside bar, outside bar, etc’.

I take a different approach, by understanding the price action context first, before anything else.

We do this by gleaning the underlying ‘order flow’ behind the market using our [B]core models[/B]. I mention some of these ‘models’ in the very beginning, such as ‘[B]impulsive[/B]’ or ‘[B]corrective[/B]’ moves. By gleaning these, we understand the following key points;

[B]1) strength and weakness of buyers and sellers
2) buying and selling pressure
3) momentum in the market
4) who’s in control of the market and who is not
5) what is the most likely next direction[/B]

This is a very different approach then those who spend most of their time talking about price action patterns first (pin bar, inside bar, outside bar, etc).

[B]In Summary[/B]
To answer your question of ‘[I]why/what candle formation I used to take the trade[/I]’, then answer is, it most likely had nothing to do with a candle/price action pattern by itself.

Do we use patterns - yes? But one has to understand using those patterns as your primary reason for entry, is that they are most often ‘s[B]ub-optimal entries[/B]’. The key is to know when they are sub-optimal, and when they are not.

Just blindly trading the patterns by themselves is not really understanding price action, and what it means to trade price action.

Using our models, once I have identified the 5 things listed above, then I look for opportunities to trade with strength as much as possible.

I do trade counter-trend, but only if I spot weakness in the trend, or a ‘[B]transition[/B]’ in the dominant price action.

Hopefully this answers your questions.

My apologies if it seemed like a bigger meal than anticipated. I want to give you a different perspective than the vanilla-freshman way of looking at price action - which after a short period of time, you’ll likely find highly inefficient by itself to give you profitable results. If it was, every bank would save them hundreds of thousands of dollars, and just train their traders to use those simple patterns.

Looking forward to your response.

Kind Regards,
Chris Capre

[perryfx]

Very Good reply Chris. Market looks very volatile at the moment. Missed a good chance to short EU. However EU trading near good support area. Expecting a breakout or a reversal at this level.

[ApexPredator]

Hello Mr Frxbee,

Some good questions. I do not know which specific chart you are referring to, so cannot comment on that per se.

But, it should be noted any ‘[B]why[/B]’ behind taking an entry never has to do with an individual candle/price action pattern by itself. My style of price action is different than most others who teach PA.

Most promote price action patterns as the primary reason they enter a trade. Examples could like the ones you mentioned ‘pin bar, inside bar, outside bar, etc’.

I take a different approach, by understanding the price action context first, before anything else.

We do this by gleaning the underlying ‘order flow’ behind the market using our [B]core models[/B]. I mention some of these ‘models’ in the very beginning, such as ‘[B]impulsive[/B]’ or ‘[B]corrective[/B]’ moves. By gleaning these, we understand the following key points;

[B]1) strength and weakness of buyers and sellers
2) buying and selling pressure
3) momentum in the market
4) who’s in control of the market and who is not
5) what is the most likely next direction[/B]

This is a very different approach then those who spend most of their time talking about price action patterns first (pin bar, inside bar, outside bar, etc).

[B]In Summary[/B]
To answer your question of ‘[I]why/what candle formation I used to take the trade[/I]’, then answer is, it most likely had nothing to do with a candle/price action pattern by itself.

Do we use patterns - yes? But one has to understand using those patterns as your primary reason for entry, is that they are most often ‘s[B]ub-optimal entries[/B]’. The key is to know when they are sub-optimal, and when they are not.

Just blindly trading the patterns by themselves is not really understanding price action, and what it means to trade price action.

Using our models, once I have identified the 5 things listed above, then I look for opportunities to trade with strength as much as possible.

I do trade counter-trend, but only if I spot weakness in the trend, or a ‘[B]transition[/B]’ in the dominant price action.

Hopefully this answers your questions.

My apologies if it seemed like a bigger meal than anticipated. I want to give you a different perspective than the vanilla-freshman way of looking at price action - which after a short period of time, you’ll likely find highly inefficient by itself to give you profitable results. If it was, every bank would save them hundreds of thousands of dollars, and just train their traders to use those simple patterns.

Looking forward to your response.

Kind Regards,
Chris Capre

Love this answer, its so true in soo many ways… As time passes, you get better at identifying impulsive vs corrective moves, and I have to say, I’m a better trader because of it. If you use it in your trading, you may see your accuracy increase big time.

Have a blessed week, la familia.

[GRIX_FX]

Love this answer, its so true in soo many ways… As time passes, you get better at identifying impulsive vs corrective moves, and I have to say, I’m a better trader because of it. If you use it in your trading, you may see your accuracy increase big time.

Have a blessed week, la familia.

Have a good one too Apex. Lets get the trades rolling

[perryfx]

Have a good one too Apex. Lets get the trades rolling

Hey Grix,

Any trading opportunities ?

Looks like EU pairs pointing up once again.

[2ndSkiesForex]

@2ndSkiesForex

Hello Mr Frxbee,

Some good questions. I do not know which specific chart you are referring to, so cannot comment on that per se.

But, it should be noted any ‘why’ behind taking an entry never has to do with an individual candle/price action pattern by itself. My style of price action is different than most others who teach PA.

Most promote price action patterns as the primary reason they enter a trade. Examples could like the ones you mentioned ‘pin bar, inside bar, outside bar, etc’.

I take a different approach, by understanding the price action context first, before anything else.

We do this by gleaning the underlying ‘order flow’ behind the market using our core models. I mention some of these ‘models’ in the very beginning, such as ‘impulsive’ or ‘corrective’ moves. By gleaning these, we understand the following key points;

1) strength and weakness of buyers and sellers
2) buying and selling pressure
3) momentum in the market
4) who’s in control of the market and who is not
5) what is the most likely next direction

This is a very different approach then those who spend most of their time talking about price action patterns first (pin bar, inside bar, outside bar, etc).

In Summary
To answer your question of ‘why/what candle formation I used to take the trade’, then answer is, it most likely had nothing to do with a candle/price action pattern by itself.

Do we use patterns - yes? But one has to understand using those patterns as your primary reason for entry, is that they are most often ‘sub-optimal entries’. The key is to know when they are sub-optimal, and when they are not.

Just blindly trading the patterns by themselves is not really understanding price action, and what it means to trade price action.

Using our models, once I have identified the 5 things listed above, then I look for opportunities to trade with strength as much as possible.

I do trade counter-trend, but only if I spot weakness in the trend, or a ‘transition’ in the dominant price action.

Hopefully this answers your questions.

My apologies if it seemed like a bigger meal than anticipated. I want to give you a different perspective than the vanilla-freshman way of looking at price action - which after a short period of time, you’ll likely find highly inefficient by itself to give you profitable results. If it was, every bank would save them hundreds of thousands of dollars, and just train their traders to use those simple patterns.

Looking forward to your response.

Kind Regards,
Chris Capre

So to give an example regarding this point, about reading the price action context first, here is a live trade I took, whereby I gave a thorough analysis to my course members.

Looking at the chart below, you will see two green arrows, with the first one being the entry, and the second one being the exit. The trade netted +180 points for +3R.

To give a brief analysis of how I took the trade, without using any price action pattern (such as pin bars, inside bars, engulfing bars), lets start with A.

Here there was a price action squeeze and breakout, taking out the resistance level A-C with a large breakout bar.

After forming a super small corrective move (suggesting little presence of the bears here), I felt like a continuation of the breakout was most likely.

The pullback to C and holding there confirmed the bulls were still in control. If the bears were really in control, then they would have close below C and proceeded lower. But this never happened.

Honestly, C was a better entry, but I wasn’t there when it happened as I was asleep. Such is trading.

The move from C to breakout above the resistance at B-F further confirmed bulls were in control, and bought more on the pullback to C.

I exited on D, because on the 1m TF, I noticed a weakening of the PA. If I was really aggressive, I would have bought again at E and made a little money on that. But the failure to make a new high, and pullback to F would have hit my trailing stop below E. So exiting at D was the right move.

F would have also been a good level to enter, but again - happened during early London while I was asleep.

This is a very brief and rudimentary analysis. More thorough ones are done for members on my winning trades.

NOTE: there was no pin bar, inside bar, or engulfing bar that I used to make my trade. And even if there was, in almost all probability, would have produced a weaker/sub-optimal entry. Food 4 thought.

But this was all done with pure price action analysis, using the same price action/order flow models I teach and use each day.

Hopefully this gives you an idea of how you can trade without just trading basic patterns, which give you a very limited view and skill-set to read the market and price action.

Kind Regards,
Chris Capre

[GRIX_FX]

@2ndSkiesForex

So to give an example regarding this point, about reading the price action context first, here is a live trade I took, whereby I gave a thorough analysis to my course members.

Looking at the chart below, you will see two green arrows, with the first one being the entry, and the second one being the exit. The trade netted +180 points for +3R.

To give a brief analysis of how I took the trade, without using any price action pattern (such as pin bars, inside bars, engulfing bars), lets start with A.

Here there was a price action squeeze and breakout, taking out the resistance level A-C with a large breakout bar.

After forming a super small corrective move (suggesting little presence of the bears here), I felt like a continuation of the breakout was most likely.

The pullback to C and holding there confirmed the bulls were still in control. If the bears were really in control, then they would have close below C and proceeded lower. But this never happened.

Honestly, C was a better entry, but I wasn’t there when it happened as I was asleep. Such is trading.

The move from C to breakout above the resistance at B-F further confirmed bulls were in control, and bought more on the pullback to C.

I exited on D, because on the 1m TF, I noticed a weakening of the PA. If I was really aggressive, I would have bought again at E and made a little money on that. But the failure to make a new high, and pullback to F would have hit my trailing stop below E. So exiting at D was the right move.

F would have also been a good level to enter, but again - happened during early London while I was asleep.

This is a very brief and rudimentary analysis. More thorough ones are done for members on my winning trades.

NOTE: there was no pin bar, inside bar, or engulfing bar that I used to make my trade. And even if there was, in almost all probability, would have produced a weaker/sub-optimal entry. Food 4 thought.

But this was all done with pure price action analysis, using the same price action/order flow models I teach and use each day.

Hopefully this gives you an idea of how you can trade without just trading basic patterns, which give you a very limited view and skill-set to read the market and price action.

Kind Regards,
Chris Capre

Wow!

Nice trade and analysis Chris

Getting a grove with the markets.

[darthfrancis]

@2ndSkiesForex

So to give an example regarding this point, about reading the price action context first, here is a live trade I took, whereby I gave a thorough analysis to my course members.

Looking at the chart below, you will see two green arrows, with the first one being the entry, and the second one being the exit. The trade netted +180 points for +3R.

To give a brief analysis of how I took the trade, without using any price action pattern (such as pin bars, inside bars, engulfing bars), lets start with A.

Here there was a price action squeeze and breakout, taking out the resistance level A-C with a large breakout bar.

After forming a super small corrective move (suggesting little presence of the bears here), I felt like a continuation of the breakout was most likely.

The pullback to C and holding there confirmed the bulls were still in control. If the bears were really in control, then they would have close below C and proceeded lower. But this never happened.

Honestly, C was a better entry, but I wasn’t there when it happened as I was asleep. Such is trading.

The move from C to breakout above the resistance at B-F further confirmed bulls were in control, and bought more on the pullback to C.

I exited on D, because on the 1m TF, I noticed a weakening of the PA. If I was really aggressive, I would have bought again at E and made a little money on that. But the failure to make a new high, and pullback to F would have hit my trailing stop below E. So exiting at D was the right move.

F would have also been a good level to enter, but again - happened during early London while I was asleep.

This is a very brief and rudimentary analysis. More thorough ones are done for members on my winning trades.

NOTE: there was no pin bar, inside bar, or engulfing bar that I used to make my trade. And even if there was, in almost all probability, would have produced a weaker/sub-optimal entry. Food 4 thought.

But this was all done with pure price action analysis, using the same price action/order flow models I teach and use each day.

Hopefully this gives you an idea of how you can trade without just trading basic patterns, which give you a very limited view and skill-set to read the market and price action.

Kind Regards,
Chris Capre

Hey 2nd, you said at D that you exited, was this after seeing the bearish eb?

'best

Darth

[2ndSkiesForex]

Hey 2nd, you said at D that you exited, was this after seeing the bearish eb?

'best

Darth

Hola Darth,

Good question. No, I did not exit on D because it was an EB. Why? Because I exited in the middle of D, not on the close.

As mentioned during the commentary, on the 1m TF, I noticed a weakening in the PA. That was while the 5m candle was still forming.

Rarely do I exit based on a single price action candle pattern. These by itself do not convey the price action context. I talked about this in the prior post here.

In most cases, I am watching the price action in real time, across several TFs, and looking for strength, weakness, and particularly [B]transitions[/B] in the PA. Transitions only happen when the [B]order flow[/B] is changing.

When the order flow is changing, that can generally mean a good or bad thing for my position.

One candle/price action pattern by itself generally does not indicate a ‘transition’. Usually these transitions manifest themselves in the PA well before.

If one becomes totally dependent upon 1-2 bar price action patterns for their exits/transitions, then they will often be late, or produce sub-optimal exits.

Hopefully this clarifies things a bit.

Kind Regards,
Chris Capre

[darthfrancis]

Hola Darth,

Good question. No, I did not exit on D because it was an EB. Why? Because I exited in the middle of D, not on the close.

As mentioned during the commentary, on the 1m TF, I noticed a weakening in the PA. That was while the 5m candle was still forming.

Rarely do I exit based on a single price action candle pattern. These by itself do not convey the price action context. I talked about this in the prior post here.

In most cases, I am watching the price action in real time, across several TFs, and looking for strength, weakness, and particularly [B]transitions[/B] in the PA. Transitions only happen when the [B]order flow[/B] is changing.

When the order flow is changing, that can generally mean a good or bad thing for my position.

One candle/price action pattern by itself generally does not indicate a ‘transition’. Usually these transitions manifest themselves in the PA well before.

If one becomes totally dependent upon 1-2 bar price action patterns for their exits/transitions, then they will often be late, or produce sub-optimal exits.

Hopefully this clarifies things a bit.

Kind Regards,
Chris Capre

Very exact answer Chris. Appricated. You have a interesting concept and must have nerves of steel trading the 1m tf. Kudos

'best

Darth

[2ndSkiesForex]

Very exact answer Chris. Appricated. You have a interesting concept and must have nerves of steel trading the 1m tf. Kudos

'best

Darth

Hello Darth,

To be frank, I don’t think it requires ‘nerves of steel’ to trade the 1m TF. And I really wasn’t ‘trading’ the 1m TF. I was just using it to analyze potential changes in the PA.

The same methods I use to read the PA on the 1m TF, are the same ones I use on the 5m, the 1hr, the 4hr and the daily. They are no different.

When you really learn to read price action, beyond the basic PA patterns, you understand there is much more being communicated ‘away’ from the patterns.

You can learn to read the momentum, strength/weakness of the pair, who’s in control, who is not, when the order flow is changing hands, when transitions are happening, etc.

What one may call ‘nerves of steel’, I would just call practice and training. I’ve put in 40,000+ hours behind the charts, but I certainly didn’t need that many to be able to read the PA on the 5m or 1m TFs.

With proper training and practice, anyone can read the PA on these time frames. This ability will not be found in pin bars, inside bars and engulfing bars, but they will be found through using the proper models, and taking the time to practice/train properly.

Hope this helps amplify things a bit.

Kind Regards,
Chris Capre

[MerryTrader]

http://forums.babypips.com/newbie-island/45414-understanding-price-action-chris-capre-5.html#post368782

I knew it, that answers the question to the thread I started yesterday, great I’m all years.

[MerryTrader]

Ok, I’m thinking 15m chart will work, on the chart below like my earlier posting in the thread, I will wait for it to come back to 50% an wait for support on there, if it doesn’t come back, I’ve missed the boat or whatever, it doesn’t matter it wasn’t an opportunity lost, more of an opportunity that didn’t arise.

Right?

[2ndSkiesForex]

Ok, I’m thinking 15m chart will work, on the chart below like my earlier posting in the thread, I will wait for it to come back to 50% an wait for support on there, if it doesn’t come back, I’ve missed the boat or whatever, it doesn’t matter it wasn’t an opportunity lost, more of an opportunity that didn’t arise.

Right?

Hello MT,

First off, I didn’t see any earlier posting on this thread. The link you posted to earlier was to one of my posts, but not to any chart I’ve seen in this thread. Perhaps I’m missing something here.

But why do you have such an ‘either-or’ mentality regarding this trade? Meaning - why do you think that one level is the only level which is do-or-die for this trade? Couldn’t there be other levels it respects?

Also, it seems like you drew your fibs in the opposite direction, meaning they should start at the top, and work their way down to the swing low you marked. This way, the first pullback is the 23.6, then 38.2, then so on.

Looking forward to your response.

Kind Regards,
Chris Capre

[MerryTrader]

Hi, no not in this thread, the other thread I started.

Because I want to be trading very clear setups, shallow retracements after an initial impulse move, I want to keep my variables to a minimum otherwise I’m off on tangent. There could be other level it respects, but I tend to think the market breaks down more often after it retraces more than 50%.

The Fib, just because it’s default and I’m used to it that way, and I dont have to change it when I have to change MT4 demo for one reason or another.

[ApexPredator]

Sup guys,
NZDUSD has been interesting today, hammering up against the .8678 level, but not finding a way through. If we do find a way through, .8698 is the target to watch for.

The fight has been beaten out of the bullish move, so I dont think there will be a break, but if it does happen, 20 pips of upside is what’s available.

Been a great day, with a lot of plays, hope people got a slice of the action.
Take care,
Apex.

[AnDDe]

Hi, no not in this thread, the other thread I started.

Because I want to be trading very clear setups, shallow retracements after an initial impulse move, I want to keep my variables to a minimum otherwise I’m off on tangent. There could be other level it respects, but I tend to think the market breaks down more often after it retraces more than 50%.

The Fib, just because it’s default and I’m used to it that way, and I dont have to change it when I have to change MT4 demo for one reason or another.

Hi Merry Trader,

I believe what Chris meant is that you should have drawn the fib from bottom to top rather than top to bottom. This in return will flip the fib levels to have 0 at the top and 100 at the bottom. Hope this makes sense.

[MerryTrader]

yes, thanks, I just look at it differently, it a retrace to rather than a retrace of, and the default extension is after all in the direction of the trend, it dont think it really matter as long as I’m looking at it right

[darthfrancis]

Hello Darth,

To be frank, I don’t think it requires ‘nerves of steel’ to trade the 1m TF. And I really wasn’t ‘trading’ the 1m TF. I was just using it to analyze potential changes in the PA.

The same methods I use to read the PA on the 1m TF, are the same ones I use on the 5m, the 1hr, the 4hr and the daily. They are no different.

When you really learn to read price action, beyond the basic PA patterns, you understand there is much more being communicated ‘away’ from the patterns.

You can learn to read the momentum, strength/weakness of the pair, who’s in control, who is not, when the order flow is changing hands, when transitions are happening, etc.

What one may call ‘nerves of steel’, I would just call practice and training. I’ve put in 40,000+ hours behind the charts, but I certainly didn’t need that many to be able to read the PA on the 5m or 1m TFs.

With proper training and practice, anyone can read the PA on these time frames. This ability will not be found in pin bars, inside bars and engulfing bars, but they will be found through using the proper models, and taking the time to practice/train properly.

Hope this helps amplify things a bit.

Kind Regards,
Chris Capre

Fair enough, so how many years have you spent doing this as 40,000+ hours is a looong time. Seem like your transitioned into the matrix… you are the one they call Neo? 10010101010100101100100110101

And a early congrats on the FX honorary status you’ll get in 19 posts time.

All the best

Darth

[2ndSkiesForex]

Fair enough, so how many years have you spent doing this as 40,000+ hours is a looong time. Seem like your transitioned into the matrix… you are the one they call Neo? 10010101010100101100100110101

And a early congrats on the FX honorary status you’ll get in 19 posts time.

All the best

Darth

Hola Darth,

14+ years now. Although many of the models I use to trade price action, I learned in my early time/first years.

Now its just a matter of refining the little details. Sometimes a small adjustment leads to a big result in edge, especially over time.

A key turning point was realizing a long time ago, how price action patterns, like pin bars, inside bars, and engulfing bars, are more often than not, giving a sub-optimal entry.

But I still train in the core models every week/day. It’s amazing how getting down those key models helps one to see more, and go way beyond patterns (which leaves you reactive, not responsive).

As for the Neo 101010101101010, ‘There is no spoon’

Kind Regards,
Chris Capre