Good to see you back. Seems like up trend will continue in the coming days…
Crude Oil
On Wednesday this week, I opined in my forex commentary that Crude Oil was prime for a breakout around the $93.75 level which had acted as resistance during this recent uptrend.
In my commentary, my suggestion was to look for a breakout pullback setup just after price breaches the key resistance area. This is exactly what played out and offered a really good price action setup shortly after the break (see chart below).
Starting with the bottom left of the chart above, we can see the pin bar bottom which was followed by the accumulation buying. After price climbed strongly with the bulls taking control, price action rejected off the key resistance area.
Just prior to the breakout, you will notice how the bulls keep attacking the level.
The breakout bar is also quite large which is a healthy sign for a good breakout.
Shortly after, price uses the resistance level as now support, and then launches up over +80 pts in an hour.
Many of my students were savvy and picked up this textbook setup so hopefully you did as well.
I hope you enjoyed today’s forex commentary and analysis.
Kind Regards,
Chris Capre
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Hello Traders,
I wanted to take some time talking about some topics/ideas in regards to trading which have been spread around babypips as gospel. For the record, there is some really good information here & highly useful for your trading.
However it should be noted for any given quarter, ~30% of all trading accounts are profitable, & from that group, less than half are able to string together back-back winning quarters. Which means only 15% of all traders out there are able to string together two winning quarters back to back. Of this group (the 15%) that have achieved back to back profitable Q’s, less than half of them (< 7.5%) are able to do so multiple times.
So what does this translate into?
That less than 15% of all traders can achieve some sort of consistency. Since there are vanilla ideas out there which are commonly perpetrated as being gospel (all you need to trade price action is pin bars, engulfing bars, key S/R levels, etc.), it stands to reason these are the most followed. Yet, if many people are following them & they are gospel, then why are less than 15% of all traders achieving some sort of consistency?
This should tell you the vanilla ideas, the norm, the stuff highly repeated across many forumsis not accurate.
It should communicate to you to look for something unique, something deeper, something more subtle & nuanced, while remaining simple & effective. Because in the end, less than 15% of the people in here are achieving any consistency over time.
With that being said, I want to review a couple of ideas spread across babypips & break them down to give a few ideas on how to approach them;
1) If the pair was a buy yesterday, then it is a buy today
This to me seems like it carries a major assumption regarding the markets - that there is consistency from day to day, which is false. To me, although there is ‘some’ wisdom in this idea, meaning you want to trade with the larger order flow in the market, which I agree with as a whole.
But, just because something was a buy yesterday, does not mean it is a buy today. Institutions and bank traders want you to think this! This allows them to trap most retail traders into trading with the trend, when the trend ended yesterday - even though it ended as a buy signal.
Maybe yesterday’s buy signal was an exhaustion or climax bar. Although this may look like a strong signal to continue going long, it is actually a reversal signal to start shorting, or reversing the trend.
If you go by the mantra ‘if yesterday was a buy, then today is a buy’, you can and will often be one of the traders who is trapped trading with the trend, when the trend is over.
Trading price action means we are always sensitive to the current price action forming in real time, along with the most recent price action. It means we do not assume what happened yesterday will repeat itself, because the market is an ever-changing river which is constantly in flux.
The market is changing all the time:
12 years ago, a 5min reaction to an NFP announcement could move the market 150 pips. Today, this would be highly extreme.
Years ago, the spread on the GBPUSD was 5pips standard. Today, less than 2 for retail, and < 1 for institutional.
[B]In 2010 & 2011, we had over a 160pip avg. daily range on the EU$, today it is less than 112 (see chart below)
Several years ago, we had no twitter, or twitter based hedge funds.[/B][B]Today, we have both, & these large funds can move a market 50-75 pips in minutes.
5 years ago, HFTs only controlled less than 8% of avg. FX daily volume. Today, that figure is over 28%. [/B]
Do you think all these changes have an effect on how the price action has evolved over time? I’d hope so.
The market has changed & will continue to change & evolve over time. To assume virtually anything about the market today will be the same as it was yesterday is a complete confusion & a sophomore mistake. It is actually a survival technique of your brain to make things solid and assume they will be that way tomorrow. Remember, our brains from an evolutionary perspective were not meant to help us be successful traders.
Thus, a buy yesterday, does not always imply a buy today.
2) Accuracy and Consistency Can Only Be Achieved on Higher Time Frames
This is a commonly spread gospel which many have taken to. This idea assumes that trading accuracy has a linear relationship to time frames, meaning that if you just increase the time frame, then your accuracy will automatically increase. It assumes the relationship is not only linear, but perfect!
As a general rule, trading higher time frames (such as the 4hr and daily charts) ‘can’ = more accuracy in particular price action setups. But, do you actually know (i.e. have quantitative data over 10 years) to understand which ones are?
Case in point, here is a snapshot from quantitative data, using an inside bar strategy (rule based) on the AUDCAD. This is across 4 time frames (30m, 1hr, 4hr and Daily).
Inside Bar Quantitative Data AUDCAD
Looking at the image above, we are just using a 1:1 reward to risk ratio. If I compile the stats targeting a 2:1 reward to risk ratio, the accuracy drops, but this illustrates my point. (NOTE: the stop and entry method has been blacked out)
The first one on the left is the AUDCAD on the 30m time frame. The .72 means the strategy is 72% accurate. Now, according to the theory (higher time frames = greater accuracy), the 1hr should be more accurate than the 30m.
But its not! It is 2% less accurate than the 30m which means an inverse relationship in this case. Now, from the 1hr to the 4hr, we have a direct relationship of a higher time frame being more accurate than a lower time frame, as this strategy on the 4hr chart is 82% accurate, over 12% more accurate.
But, if higher time frames are always more accurate the higher we go, especially for the daily charts, then the daily chart should be more accurate than 82%…but its not!!!
It is only 73.1% accurate, meaning it only 1% more accurate than the 30m version of this same strategy, along with being 9% less accurate than the 4hr chart.
How could this be if daily charts are the pinnacle of accuracy, and that higher time frames are always more accurate than the lower time frame ‘noise’ charts below 1hr?
Now remember, accuracy is not the only determining factor to profitability. Frequency is as well, meaning how many times you execute your edge is critical to your profitability.
How many times did this strategy execute on a daily chart?
Do you think it did this more times than the 30min chart? I didn’t think so, not by a long shot.
So in essence, by only trading daily charts for this pair and strategy, you would be sacrificing massive amounts of profits by trading several times less, all for 1% more accuracy, and the myth that trading higher time frames always = greater profits and accuracy.
This is a myth that statistically, and simply is not true.
Keep in mind, this is just one pair and one strategy. How many times has this relationship (of higher time frames not = greater accuracy) happened? Dozens of times. Food for thought.
3) Lower Time Frames (Below 1hr) are Just Noise
As a whole, although I agree there is a greater ‘possibility’ of lower time frames having noise, this is not always the case, and is less often the case than you would think.
Many traders unequipped to trade the lower time frames, i’m guessing lost a decent chunk of money, and then assumed their reality is the reality around trading.
This is one of the greatest self-deceptions we tell ourselves (not just in trading - but in life)…That the thoughts, beliefs and ideas we have about the market (and life) are reality.
I have trained hundreds of traders from over 75 countries, and they are trading across all time frames. You would think the general majority trading below the 1hr charts and all that ‘noise’ would be unprofitable, but they make money at about the same consistency as my higher time frame traders.
Why?
Because when trading the lower time frames, you are essentially using the same skills you would be on a higher time frame with just a few small tweaks.
To give an example, take a look at the two charts below where I have taken out the dates, prices, and any information about the pair or chart, just the pure price action.
Exhibit A:
Now Look at Exhibit B:
Comparing the two charts, which looks ‘cleaner’ to you and has less ‘noise’?
I’m guessing Exhibit A seems more noisy. Would it surprise you that the first chart is a daily chart? Seems like lots of noise going on there now doesn’t it?
Yet Exhibit B is a 5m chart.
In fact, let me break this one down a little further to point out some clean and obvious setups;
5m Chart Setups
There are several ‘clean’ price action setups and patterns here, that would scream out to me whether they are on the daily, the 4hr, 1hr or 5m chart, and I’d pretty much trade them all the same.
Starting with the bottom left of the chart, we have a bull run that hits resistance and forms two inside bars at the resistance level.
Once the bull run resumes, it breaks out with a strong breakout bar, then pulls back correctively to the prior resistance level - offering a great breakout pullback setup.
Then after showing some exhaustion towards the end, it forms two pin bars at the resistance level drawn at the top. The first one fails, but the second one goes to the exact same level and only 1 pip higher! How is that for accuracy and being clean (or without noise)?
The pin bar at the key resistance area sparks the nail in the coffin and reversal. This stops at the base of the former flag pattern prior to the exhaustion, forming two inside bars back to back, or an ii pattern.
Price action then breaks this and resumes selling off further.
Now how ‘noisy’ does the chart really look to you? Pretty clean to me, and i’m guessing likewise to you. Food for thought, but remember - technique is universal.
To put this in another perspective and drive the point home - does a highly skilled archer use basically the same technique shooting at a target of say 12m away in comparison to say 30m? Yes.
Does a professional pool player (billiards) use virtually the same techniques when playing on a 9ft table as opposed to a 7ft table? Yes.
Does a professional golfer use virtually the same techniques when playing on a par 3 course as opposed to a Pro Tour Course? Yes.
Why?
Because technique is for the most part (in trading and in sports) universal. Sure, you have to make adjustments in all the above cases, but for the most part, by in large, the technique is still the same.
This is exactly how it is for trading price action on a daily, 1hr or 5min chart. No matter what the chart or time frame is, I am still;
1) trading with impulsive moves instead of with corrective moves
2) trading more with trend instead of counter-trend
3) placing trades at or close to key support and resistance levels
4) looking for a confluence of signals
Now ask yourself (for those who only trade higher time frames)…aren’t you really doing these exact same things on the daily charts?
Is it really that different? No! And it shouldn’t be - because technique is universal inside any given field. Other than a few small adjustments, these are the same methods I’m applying when trading any time frame using price action.
Noise from a daily chart only trader is often labeled as below the 1hr. Ironically, those trading the 1hr charts profitably tend to label anything below the 5m as noise. And even more ironically, those trading the 15m and 5m profitably tend to state the tick chart is noise.
Who is right here?
Doesn’t this really point out to you - that ‘noise’ is really a matter of perspective and training?
FYI - noise is not some bugaboo or monster lurking in the dark, hiding behind certain time frames and staying away from others (as I pointed out in my examples above).
And besides, your brain filters out ‘noise’ every day. What is ‘noise’ but information that is not really useful. We do this all the time everyday. Walk down 5th avenue, or a major street in any city, and you are filtering out ‘noise’ or not useful information.
As to the lower charts (1hr and below) being noise, although it may appear like it, when you spend some time training to see those charts, you will (like in the daily or 4hr chart) filter out the ‘noise’ from the important candles. And this can be learned or taught in a matter of weeks, not years.
But this whole idea that lower time frame charts are noise is really just a matter (or lack thereof) of training. A really good price action trader, can trade any time frame and understand what information is useful on any time frame.
Just like a professional pool player can still make good shots on a 7ft table as opposed to a 9ft table, or a professional archer can make a good shot on a 30m target as opposed to a 12m target, or a good golfer can make a good shot on a pro tour course as opposed to a par 3 course. Technique is universal, and skill level allows you to trade from any time frame.
Ok, that is a lot of information to digest at the moment, so will pause here as I will follow up with part 2 of this article in the coming days.
In the next article, I’ll be talking about various myths around breakouts, accuracy in relationship to profitability, and the NY Daily Close.
Until then, I hope this gives you some food for thought, and I look forward to hearing your comments.
Kind Regards,
Chris Capre
Hi chris
First of all thanks for your quality information.
So basically with regards to time frames.
Daily should have larger targets, larger stops and the noise maybe say … the hourly data but…
The 4hour charts targets will PROBABLY be smaller targets and stops with say 30min as noise.
As the hour and then 30min then the 15min etc. will probably have smaller and smaller targets with lower time frames as the noise?
In summation, the charts and candles all form the same patterns and therefore all equitable when taking a trade?
Finally is there a good thread on here that you have seen with regards to inside bars and breakouts?
I want to add these to my weapons as well as swing trading.
KR RMc
Hello Rossymc,
Or KR RMc,
In regards to a good thread on breakouts and inside bars, it is here as I focus on breakouts & inside bars, along with a few other price action patterns I’ll be going over in the coming days.
All charts/candles for the same patterns, but on all time frames, its best to apply the tools I mentioned;
- trading with impulsive moves and not corrective moves
- trading with trend more often than counter-trend
- applying these setups at key support and resistance levels
- looking for a confluence of signals
Now as to trading off the daily charts, generally you will need stops and targets proportional to moves on that time frame, which tend to be larger. And vice versa for smaller time frames.
But, don’t confuse larger targets for larger profits. If you are risking 1% (for example) per trade, and you have two trades;
Trade A with a 150 pip target and 75 pip stop (for a 2:1 reward to risk ratio)
and
Trade B with a 100 pip target and 50 pip stop (also a 2:1 R:R ratio)
They offer the exact same profit to your account. More pips on a trade does not always = more profits. If the ratios are the same, and the risk is the same, then the profit is the same. So do not measure your profit in just pips as this is a misleading piece of info in isolation.
Hopefully that clarifies it, but stay tuned as I’ll be talking more, and giving more examples to inside bars, breakouts, and other price action setups.
Kind Regards,
Chris Capre
Hello Rossymc,
I should also note besides inside bars and breakouts, I’ll be discussing pin bars, engulfing bars, and more price action setups here as there are some inefficient entries and ideas regarding the latter and how to trade them, so stay tuned.
Kind Regards,
Chris Capre
ideas which have been spread around babypips as gospel -
‘‘If the pair was a buy yesterday, then it is a buy today’’
‘‘Accuracy and Consistency Can Only Be Achieved on Higher Time Frames’’
" Lower Time Frames (Below 1hr) are Just Noise"
Not sure which threads these ‘gospels’ have been spread on but even I as a newbie know a false gospel.
Most pro traders on Newbie Island would exhort us to use HTF for anaylsis - helps us see the bigger picture, where is price coming from, where is it trying to go, what’s up ahead.
They often urge us to use the LTF for accurate entry rather than view it as ‘noise’ they point out that these time frames aid in entry and exit.
As for buy one day and do the same the next - I would take such a piece of good news, if it were offered to me, with a pinch of salt - again as a complete newbie I would quickly realize that such a simplistic view is not compatible with the real market.
Given the statistics as quoted there is one thing I do know - I do not wish to be included in the high number of inconsistent ‘‘accounts’’ - I would rather follow the consistent and profitable players, some of whom freely give their advice on babypips, I think I would like to know, learn and follow their TA approach.
Hello Rossymc,
Or KR RMc,
In regards to a good thread on breakouts and inside bars, it is here as I focus on breakouts & inside bars, along with a few other price action patterns I’ll be going over in the coming days.
All charts/candles for the same patterns, but on all time frames, its best to apply the tools I mentioned;
- trading with impulsive moves and not corrective moves
- trading with trend more often than counter-trend
- applying these setups at key support and resistance levels
- looking for a confluence of signals
Now as to trading off the daily charts, generally you will need stops and targets proportional to moves on that time frame, which tend to be larger. And vice versa for smaller time frames.
But, don’t confuse larger targets for larger profits. If you are risking 1% (for example) per trade, and you have two trades;
Trade A with a 150 pip target and 75 pip stop (for a 2:1 reward to risk ratio)
and
Trade B with a 100 pip target and 50 pip stop (also a 2:1 R:R ratio)
They offer the exact same profit to your account. More pips on a trade does not always = more profits. If the ratios are the same, and the risk is the same, then the profit is the same. So do not measure your profit in just pips as this is a misleading piece of info in isolation.
Hopefully that clarifies it, but stay tuned as I’ll be talking more, and giving more examples to inside bars, breakouts, and other price action setups.
Kind Regards,
Chris Capre[/QUOTE]
KR is kind regards
Yes and thanks for your time Chris
RMc
Do you see the irony in the behaviour you have recently exhibited in at least one other thread on the forum given the stated rules to govern your own thread?
Even rule four seems to be silently suffixed with “as long as it fits with what I think otherwise I will suffocate you with 15 pages of monster posts”.
If I choose to take some forex training you have certainly excluded yourself from the field which is a shame as you were probably right up there in terms of suitablility.
Hello Slip,
I appreciate you sharing your perspective and I feel you have some valid points.
In some sense, I agree with you, and apologized for posting a link on salim’s thread and removed the link shortly after. I have no plans on going back to his thread to honor his wishes. I sincerely wish Salim the best of luck with his thread and trading, and hope both take flight.
As in terms of some of the rules, I was actually thinking of one person in particular whom has not been discussed prior.
In regards to rule 4 which you mentioned - I can see why you think what you do regarding this rule, but that is one interpretation of it, and is not what was meant by this.
From my experience over the last 13 years in this, I find people seem to take their knowledge as personal territory - meaning when one challenges it, they get their shorts up in a twist and then attack those who challenge it with all kinds of vitriol.
My request in rule 4 is for people to have an open mind about this, to approach it with curiosity, and a willingness to being possibly wrong about some things regarding trading. In my life, I actually pay people to tell me i’m wrong, or could be doing things differently as I find it valuable to my growth as a trader and person.
But there is no hidden intention, and it is not ‘silently suffixed’ with anything you mentioned - simply a general wish that people who come with very ‘solid ideas’ about ‘how trading should be done’ are willing to consider these ideas, work with them, and then see for themselves.
Hopefully that clarifies my requests and approach a bit, but I appreciate you sharing and think you bring up some good points.
Kind Regards,
Chris Capre
Hello Traders,
Here are a couple of charts I’m looking at for the week as offering some good price action setups in the near term.
EURJPY
Recently breaking into the stratosphere as of late, the EURJPY the pair is approaching a big figure at 120.00, and some crucial resistance levels at 121.84 & 123.33 (April 2011 swing highs and 2011 yearly highs respectively).
From a quantitative price action perspective, we are in extreme territory as we have never had more than 38 consecutive candle closes above the 20ema without having a touch on the 20ema and dynamic support (just hit 39 on Friday).
The pair has not shown any exhaustion price action yet, however it certainly could be coming up soon, so I’ll keep my eyes out for potential shorts. However in the near term - buying on breaks is not my favorite as I do not want to chase this trend, so will wait for corrective pullbacks before considering getting long.
EURUSD
Busting through the key resistance level at 1.3300, I feel there is a moment of truth coming up for the Euro bulls. The prior resistance level was a pin bar rejection, so there is still strength in the bulls, but two key resistance levels are just north of the current price.
First on deck is 1.3387 (swing high from March of last year), and then the 1.3489 (yearly high for 2012). I’m guessing there will be a fair amount of bears parked at those levels which offers a few plays.
Bears looking to short can watch the aforementioned 2012 highs for intraday price action reversal signals, while bulls can wait for a breakout pullback setup. However for now, the series of HL’s (higher lows) and HH’s (higher highs) are communicating the bulls have short term control of the pair.
Good hunting for the week and I’ll see you tomorrow for my regular postings of price action setups.
Kind Regards,
Chris Capre
Hello Traders,
Just wanted to share some potential price action setups on the AUDUSD.
The pair failed at the key 1.0600 resistance area, then pulled back to the role reversal level at 1.0522 where it found support before bouncing higher (chart below).
So far, the second leg up has formed a LH (lower high), suggesting possible weakness and failure in the short term up trend. 1.0522 becomes the critical level for bulls to hold, so a break below here could offer a breakout pullback setup. Bulls will need to clear the resistance above 1.0600, or pullback further before bringing in new longs at these levels.
For a video explaining the basic methods of how I like to approach breakout pullback setups, make sure to check out the video below;
Enjoy and I look forward to your comments.
Kind Regards,
Chris Capre
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Hello Traders,
I’m also watching the GBPJPY as its exhibiting similar behavior to the AUDUSD chart I posted above. Bull trends tend to pullback towards the dynamic support and 20ema, along with to a prior swing high, which often becomes a breakout pullback level in that uptrend. We have already formed a corrective pullback to the dynamic support and 20ema, so I’ll watch the key role reversal level below for a possible signal, or failure of a signal.
(chart below)
Good Hunting!
Kind Regards,
Chris Capre
I’ve been keeping an eye on this also, I noticed that the bulls seem to be running out of steam, for example if we look at the chart you posted, it is taking the bears a few candles (more than 8 hours) to undo what sellers acheived in 1 candle or 4 hours (looking at the last red candle on that chart).
Hello Stinsfire,
Good eye - yes, the last few candles are dragging their feet in comparison to the prior two bear candles, suggesting possible weakness. If it continues, sellers may want to pounce on this, but as I’ve said since Sunday, its looking a little over-extended.
Anyways, I think we’ll have an answer soon.
But good hunting and nice spot mate!
Kind Regards,
Chris Capre
Gbpjpy
And there was the retest…
Thanks for the lesson chris
Good luck all short
RMc
Yep, pretty clean role reversal setup to go short - also in, although I think you got a slightly better price than me 
This and the other JPY pairs are starting to break down as suspected so lets see if we get some serious unwinding.
Good hunting mate!
Kind Regards,
Chris Capre
Hi Chris
Might be slightly better entry but let’s see the exit haha.
Hunting?.. it was like pulling them out of a gold fish bowl when you set it up like that. I want to hunt my own
RMc
Very nice lesson Chris. Thank you very much for your time & free information. Really appreciate your effort to help newbies like us trade with the confidence and knowledge.
Hello Chris and others,
I am really happy that this thread is getting improve day by day. I saw there are so many threads in babypips related to Price action trading, but without proper content and guidance. But imo this thread is the best one to get clear idea about price action trading along with proper guidance from expert like Chirs.
So I am expecting more contribution from Chris & other members to improve this thread to be the number 01 thread in the babypips and also direct newbies in the right direction.
Good Luck