Revisiting 'Price Action'

nunrgguy

nunrgguy

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I've thought long and hard before starting this thread but feel that I've learned a lot about trading over the years from the internet and would like to 'give something back'. I still consider myself a beginner and always will but further along the journey than a total beginner. Some things I put forward I know will stir up a hornets nest but I'm not starting this for a flame war – if you believe something and it makes you money then carry on. If I perhaps propose a slighly diffferent look at it, no need for flames. There will be holes in some of my logic, I'm not particularly conceptualising this, editing or proofreading. I'm simply putting some regurgitated ideas forward.

I'm putting this in the first steps forum as I believe I learned a hell of a lot when I first started from this very forum in the 'Basics of trading' thread. I have nothing to sell...wish I did lol. I won't be posting any live trades but will post examples near to. For whatever reason whenever I post a live trade on here it fails....(wtf?)

I'll post this up in installments as I'm writing it in Writer and pasting it in.

I'll put my cards right on the table, nothing that I am going to write about is ground-breaking or new.

What's the point then? The point is that I have yet to see a thread that puts these ideas together in one place and also put something into more solid form in my own head. They're VERY simple ideas, stupidly simple but do tend to 'work' more often than not, there's too much B.S. written about trading, often a smokescreen to fool those looking for the grail into parting with their oney somewhere along the way.
The other point is I'm sat here very bored at the moment as I missed my entry by an hour today :)

Capitals are for emphasis, not shouting.
 
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So much is written and believed about trading that is conceptual or subjective rather than actual cold, hard fact: trend lines, chart patterns, candle patterns with strange names (bullish thrusting upwardly mobile guppy candle which then immediately goes south), support, resistance, the notion of timeframes etc etc
SO much is written about PA: what is it? How does one 'read' it? Is it just something you one day see on a chart and go 'hooray' now I'm a naked chart PA trader?

Right. So what IS fact?
Monthly: Open, High, Low, Close
Daily: Open, High, Low, Close
Hourly: Open, High, Low, Close
Price

What is concept?
Trend (any flames yet?)

What is subjective?
Support (bigger flames?)
Resistance (huge flames?)
Chart patterns
Indicators (not all I know)

Now I'm by NO means saying that concepts and things open to interpretation are not of use, they can be of tremendous use, but they are NOT fact. A forming head and shoulders pattern is not a fact, not truly a fact, it is a bunch of candles on a chart making a pattern that some clever person has given a name to and sold lots of books on the back of. One person may see it, another may not, it's entirely subjective. The same with trend lines. Yes we can all draw them, we won't all draw them in the same place and it's dangerous to assume price will bounce from one because all the other retail traders out there have drawn that same line. Price couldn't care less about your line.Also with trend, we can only TRULY see it after it happened, which trend are we talking about anyway? Monthly, Weekly?, Daily? 5 minute?. How long do we plan on staying in a trade for/ At what risk? Are we scalpers or day/swing traders? While useful they may or may not help us in making a 'correct' trading decision.

All the uncertainty is actually GOOD, it's what makes a market. If we all agreed on price, where to go long etc there's be no market.

Yes, we know all this, but this is for the first steps forum, not everyone visiting T2W for the first time has the benefit of all our knowledge!

So, dealing in absolutes, facts, as stated before we know opens, highs, lows, closes and current price. We also know that whatever timeframe chart you look at, price is price. The higher up the timeframes you go the more condensed the chart is (yes, they lag the same as indicators do but unlike indicators a single candle and (hint) its relationship to the previous candle are NOT subjective), showing you what happened previously i.e. price moves, this shows up on the one minute chart which starts printing candles, then the 3 minute chart, then the 5, 15, 1hour, 4hour, daily etc etc. However, looking at things in reverse as is conventionally taught IS tremendously beneficial as I hope to show later.

What is also fact? Price moves up and down (wow! WHAT a revelation!!!).Ignoring sideways arguments for one moment (sideways is never for ever), if price has printed a new high it will either
continue to print new highs or will move away from the high. This is PRICE I'm talking about here, not a collection of candles. Likewise, if price has printed a new low it will either continue to print new lows or move away from the low. That's the only two options. What about sideways? Yes it can go sideways but eventually price will go higher or lower.
 
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I'm going to use candles for this rather than bars as they're prettier and maybe make things easier to read.

Right, some candles:

bullbear.jpg


:) Stunning!
Yes folks, that's pretty much all we know. For a time period n we know that price opened somewhere, had a low and a high in that period and a close in that period. That's it. That's all we know. Green it went up, red it went down.

Now consider this:
twodaysup.jpg

What does it tell us?
 
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Thanks for the posts, very nicely explained so far.

Re. your question, the following thoughts come to mind (apologies in advance if the question was rhetorical, or else you were to provide the answer rather than invite our thoughts or, even worse, the question was rhetorical and my answer is nevertheless hopelessly incorrect!!):

1. The open of the second bar was lower then the close of the first bar, so price "gapped" down.

2. The "gap" indicates that, for some reason (perhaps 'news'), the closing price of the first bar entirely ceased to be attractive - i.e. nobody was buying at the closing price of the first bar or any any price incrementally below that until the open price of the second bar

3. Nevertheless, price did not proceed to make a lower low but instead proceeded to make a higher high.

However, as to how the bar following this will play out, I cannot draw any conclusions.
 
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mcclaine said:
Thanks for the posts, very nicely explained so far.

Re. your question, the following thoughts come to mind (apologies in advance if the question was rhetorical, or else you were to provide the answer rather than invite our thoughts or, even worse, the question was rhetorical and my answer is nevertheless hopelessly incorrect!!):

1. The open of the second bar was lower then the close of the first bar, so price "gapped" down.

2. The "gap" indicates that, for some reason (perhaps 'news'), the closing price of the first bar entirely ceased to be attractive - i.e. nobody was buying at the closing price of the first bar or any any price incrementally below that until the open price of the second bar

3. Nevertheless, price did not proceed to make a lower low but instead proceeded to make a higher high.

However, as to how the bar following this will play out, I cannot draw any conclusions.
Click to expand...

Absolutely spot on in your description. I can see you can now finish what I've begun...OMG what have I begun:lol . Thanks. The gap wasn't intentional initially , just how I stuck two bars in the graphic but turned into a nice illustration anyway, maybe it was news, maybe it was Friday going into Sunday on an FX pair.

So at the moment price is making higher highs within the n period we are looking at. The period made a new high (higher than the previous period) and closed up.

As we can see the right hand candle has reversed from the high so at that level there were enough short orders there to push price down a bit, for how long for we don't know.

As far as we are concerned, at the moment, for the n period we are looking at from the information we see there was enough buying pressure to move price up to that level and all we can assume for the next period (possibly), from the information we have is that at some point price will continue upwards. Why would be assume that?

OK, I've made this little graphic, idealised and seen many times before:

dowtheory.jpg


By joining lines, we see where the concept of trend comes from. Here we could see three uptrends and two downtrends or we could see one big uptrend with two pullbacks - classical oscillating market movement, up and down in 'waves' which are often also talked about a lot. All great and helps us to explain what we see, after the fact.

What we can also observe I hope is this:
dowth2.jpg


So all we can assume, and yes it is a BIG assumption is that when price is going up it will continue making higher highs until it ceases making higher highs and vice versa when it is going down.

more later...
 
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And that is perhaps, ALMOST all we need to trade. Ridiculous?

Here's a recent daily chart of cable:

gbpusddaily.jpg


Hey, so with this DOW stuff we're trading pullbacks in a trend right? Well kind of, only we don't know that the trend exists as such until it has moved quite a way already, now there's a b*mmer! All we really know is that price has been falling for a while, stops falling and then starts going up and we use an arbitrary time period to determine this - weekly, daily etc again looking at the factual open, hi, lo, close. Where price is, where price has been, where price no longer WANTS to be.

We might also consider average monthly, weekly, daily ranges too...and maybe multiple time period points of view - here we've been looking just at the daily and with some discretion you can trade just with that (yes I'm afraid at some point we have to move away from facts but just a little)...

W.r.t ranges, generally speaking, monthly ranges are much larger than weekly >daily etc etc and the moves from price extremes tend to be so too. Again absolutely nothing new whatsover. As I've already mentioned we will see 5 day bars printed on a daily chart before we see a weekly bar on a weekly chart, days lead weeks. However we're essentially after chunks of larger moves and we can get them by looking at the open high, lows and closes of a time period of a larger factor.

Here's the weekly cable chart for the same period.
cableweekly1.jpg


Now looking at the daily
gbpusddailyinsite.jpg


I hope you can read these, having a resolution problem.

So this is what we look for if trading daily open, hi, lo, close. Firstly if we are at a weekly or even monthly price extreme we're looking at potentially a few pips. Now realistically we're not going to get all of them but it is possible to capture larger runs than just trading off the one chart. Consider the daily entry after the weekly move from the low, which just happens to be at the first pullback (what a coincidence?!?). Now there's a thing about pullbacks, in most instances they need to be large enough. Yes you often see price pull back for two days then then shoot off in the original direction BUT these small pullbacks fail a lot. Remember the DOW graph - price tends to, when it's behaving and being predictable make reasonably sized pull backs - often to around 50% of the previous move, unfortunately, this is NOT fact and is purely subjective, somewhere between 30% and 50% is good (wow! Fibbonacci...hmmm maybe, but you can just eyeball it) a long may or may not pull back to the previous high swing but don't bank on it, sometimes there's a nice round number there. You do miss some moves by waiting for a larger pull back but you also cut out a LOT of losing trades.

Why do we trade these pullbacks? Isn't it illogical, if we are looking for price to go up to buy when it's already going up? Some people do this of course as we all know, they trade breakouts (forget range breakouts for a moment) i.e. breakouts of a swing high on the logic of buy high sell higher. In fact many 'pullback' entries will in fact be when you look at them on a smaller timescale breakout entries? WHAT???? Yes, many times, you'll see this over and over, an entry say based on hourly information will when looking at 5 or 15 minute information will be a breakout trade in that timescale...it's all a matter of perspective.

I digress. Anyway, why buy pullbacks if going long? When we're buying something, even though it's going up, we think it might continue going up BUT we still want to buy it as cheap as we possibly can to be able to maximise our return when we sell.

After entry we have several choices.

We can leave our stop where it is until we see reason to exit on the daily timeframe- i.e. a 'downleg' short entry (which we don't take in this instance as it's against weekly),
often it's good again to consider where the weekly is and has been before exiting in this instance - has it broken last weeks high? In which case this might just be a small pull back before continuation, often I will not close at this point, especially if the trade is going to end with few pips or in the negative. This also leads on to this idea:

If the previously weekly high has broken by that point, we can wait, effectively now trading the weekly timeframe for big pips and now managing the trade with that timeframe in mind. Of course by doing this we have to be prepared to give more pips back either if the trade goes against us and at the end of the trade.

As far as stop placement goes, nothing original there either usually I place mine below the low I've based the trade on. If the low is broken it means I've got it wrong - a distance more than a couple of pipsbelow though because quite often you will see spikes trying to take out the stops down there.

A multi time frame approach can also work for further refining an entry, I've experimented with this but have yet to decide if it garners any more pips, or avoids losing any more on losing trades - if looking at a daily entry using weekly bias you can also go down to 4hr and wait for all three to move 'in sync'.

For intraday this approach also 'works' using daily open hi low close for bias and hourly open hi low close for entry.


Right that's it for today. Sorry if this last bit is muddled, I'm very tired. As I said, NOTHING new at all but hopefully it will show someone who's hunting around a bit more how some of it fits together. Not th ebe all and end all but a good start. If you want to add concepts etc afterwards, great, but start working from some of the facts first..........any idea what a head and shoulders pattern on the daily might look like on the weekly?



BED
 
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Right. Not quite sure whether to continue with this. Doesn't seem to much interest...Interesting.

One thing I would mention, which I don't think I have looking through what I've written is that my perspective comes from the Forex. Will this stuff work in other markets? I guess that's for you to try out/test.

Anyway so far we've looked at a few basics. So we now understand what the candles in and of themselves signify but we've yet to really understand what is happening.

With simple trade management you can trade what has already been presented and make money BUT you WILL be with the dumb money a fair bit of the time. If going long you really can just look for a stop and reverse, place a buy at the north of the green candle, stop at the south and wait. As long as you are prepared to get stopped out regularly, and either close the trade at the first sign of reversal (i.e. say a candle closing against your trade direction), or moving your stop below a candle moving against your trade direction, thus rarely taking a full loss you can come out ahead.

BUT

We've already looked at price zig-zagging, making pullbacks. What makes it do that? I already mentioned that as far as we know at this point the size of the pullbacks are subjective and maybe not factual...but is that true?

When placing an order do you consider, where is the dumb money? Where is the smart money?? If I place my buy order here, who is selling to me? If I'm the smart money who's profit will I be taking? If I'm not taking someone's profit maybe I'm the dumb money providing liquidity?????

Something to ponder.
 
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Me too! keep it going. Perhaps the lack of comment so far, indicates that you know what you're talking about. I always find it good to go over the basics which can so easily be forgotten once you become "successful".
 
:LOL:
Well I wouldn't go as far as saying saying I know what I'm talking about but it does good to go over the basics. I think most sports people would say that it's constantly practicing the basics that makes them great.
 
nunrgguy said:
And that is perhaps, ALMOST all we need to trade. Ridiculous?

Here's a recent daily chart of cable:

gbpusddaily.jpg


Hey, so with this DOW stuff we're trading pullbacks in a trend right? Well kind of, only we don't know that the trend exists as such until it has moved quite a way already, now there's a b*mmer! All we really know is that price has been falling for a while, stops falling and then starts going up and we use an arbitrary time period to determine this - weekly, daily etc again looking at the factual open, hi, lo, close. Where price is, where price has been, where price no longer WANTS to be.

We might also consider average monthly, weekly, daily ranges too...and maybe multiple time period points of view - here we've been looking just at the daily and with some discretion you can trade just with that (yes I'm afraid at some point we have to move away from facts but just a little)...

W.r.t ranges, generally speaking, monthly ranges are much larger than weekly >daily etc etc and the moves from price extremes tend to be so too. Again absolutely nothing new whatsover. As I've already mentioned we will see 5 day bars printed on a daily chart before we see a weekly bar on a weekly chart, days lead weeks. However we're essentially after chunks of larger moves and we can get them by looking at the open high, lows and closes of a time period of a larger factor.

Here's the weekly cable chart for the same period.
cableweekly1.jpg


Now looking at the daily
gbpusddailyinsite.jpg


I hope you can read these, having a resolution problem.

So this is what we look for if trading daily open, hi, lo, close. Firstly if we are at a weekly or even monthly price extreme we're looking at potentially a few pips. Now realistically we're not going to get all of them but it is possible to capture larger runs than just trading off the one chart. Consider the daily entry after the weekly move from the low, which just happens to be at the first pullback (what a coincidence?!?). Now there's a thing about pullbacks, in most instances they need to be large enough. Yes you often see price pull back for two days then then shoot off in the original direction BUT these small pullbacks fail a lot. Remember the DOW graph - price tends to, when it's behaving and being predictable make reasonably sized pull backs - often to around 50% of the previous move, unfortunately, this is NOT fact and is purely subjective, somewhere between 30% and 50% is good (wow! Fibbonacci...hmmm maybe, but you can just eyeball it) a long may or may not pull back to the previous high swing but don't bank on it, sometimes there's a nice round number there. You do miss some moves by waiting for a larger pull back but you also cut out a LOT of losing trades.

Why do we trade these pullbacks? Isn't it illogical, if we are looking for price to go up to buy when it's already going up? Some people do this of course as we all know, they trade breakouts (forget range breakouts for a moment) i.e. breakouts of a swing high on the logic of buy high sell higher. In fact many 'pullback' entries will in fact be when you look at them on a smaller timescale breakout entries? WHAT???? Yes, many times, you'll see this over and over, an entry say based on hourly information will when looking at 5 or 15 minute information will be a breakout trade in that timescale...it's all a matter of perspective.

I digress. Anyway, why buy pullbacks if going long? When we're buying something, even though it's going up, we think it might continue going up BUT we still want to buy it as cheap as we possibly can to be able to maximise our return when we sell.

After entry we have several choices.

We can leave our stop where it is until we see reason to exit on the daily timeframe- i.e. a 'downleg' short entry (which we don't take in this instance as it's against weekly),
often it's good again to consider where the weekly is and has been before exiting in this instance - has it broken last weeks high? In which case this might just be a small pull back before continuation, often I will not close at this point, especially if the trade is going to end with few pips or in the negative. This also leads on to this idea:

If the previously weekly high has broken by that point, we can wait, effectively now trading the weekly timeframe for big pips and now managing the trade with that timeframe in mind. Of course by doing this we have to be prepared to give more pips back either if the trade goes against us and at the end of the trade.

As far as stop placement goes, nothing original there either usually I place mine below the low I've based the trade on. If the low is broken it means I've got it wrong - a distance more than a couple of pipsbelow though because quite often you will see spikes trying to take out the stops down there.

A multi time frame approach can also work for further refining an entry, I've experimented with this but have yet to decide if it garners any more pips, or avoids losing any more on losing trades - if looking at a daily entry using weekly bias you can also go down to 4hr and wait for all three to move 'in sync'.

For intraday this approach also 'works' using daily open hi low close for bias and hourly open hi low close for entry.


Right that's it for today. Sorry if this last bit is muddled, I'm very tired. As I said, NOTHING new at all but hopefully it will show someone who's hunting around a bit more how some of it fits together. Not th ebe all and end all but a good start. If you want to add concepts etc afterwards, great, but start working from some of the facts first..........any idea what a head and shoulders pattern on the daily might look like on the weekly?



BED
Click to expand...

Hello,,,,,,,,,,,, sneha here,,,,,,,,Its amazing !!!!!!! information.....Thanks lot for posting.............
 
Right 'smart money' and 'dumb' money and big money and small money.

It takes a lot of money, a lot of orders to significantly move a market. If a market has been moving one way for a while, then stops and turns is big money or small money doing that?

Now we can try and pre-empt that turn but is it intelligent to do so? How many times will we get stopped out before we are right? Maybe it's better to see that the market has turned and then see what happens next. Imagine a market that was going down, stops, reverses and starts to go up. Now, for it to continue to go up what needs to happen? What sort of orders does there need to be?....There has to be BOTH buyers AND sellers right?? So at that point who is buying and who is selling?

What do traders large and small tend to do when they have an amount of profit? Remember pullbacks? What EXACTLY is happening when the market pulls back and then continues? Why does it pull back to THERE? Someone said trading is war. Once you see this phenomenon on a chart and understand it you will realise that perhaps they are were right. Maybe if you are not taking someone elses profit they are taking yours?
 
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nunrgguy said:
:LOL:
Well I wouldn't go as far as saying saying I know what I'm talking about but it does good to go over the basics. I think most sports people would say that it's constantly practicing the basics that makes them great.
Click to expand...

A good thread, mate, and its good to come back to the basics.
 
Splitlink said:
A good thread, mate, and its good to come back to the basics.
Click to expand...

Ah, the good old pin bar off of resistance, what a lot of people call price action trading but not what I'm getting at here - the first examples on those threads show pin bars which merely show the stop and reversal from a smaller time perspective, and if you go looking for those you are going to get into trouble without first considering what is happening. A straight pin bar off support for example can be pure than bottom fishing, it works a lot of course but consider the following well known phrase "I got in at the right point but then the market came back and took my stop out before shooting off in my original direction".

What I'm hopefully going to show is that by using at least two different time perspectives we can let the big money change the market direction, observe the fact, see that momentum has increased in the opposite direction, look to see where the big boys will place their break even stops and then place our entry there for less risk.
 
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