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Mastering Price Action

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Hello, and welcome to this latest edition of our course on demand which has been brought to you by Forex dot Academy. So, in this course, we will be discussing mastering price action trading. So, just before we get in, and explain what’s involved, please do take a quick moment to read through our disclaimer, and the information is there currently up on the screen. Do feel free to pause this recording, if you need additional time okay.

So, let’s start with a webinar outline, and we look at the principles behind price action we’ll have a look at, what you would need to consider. If you look to master these principles of price action, we look at the importance, and the role that Japanese candlesticks will actually play in that decision-making process we look at their price action patterns which are then created we’ll have a look at the role of technical analysis, and we’ll finish with just an approach in which you can look to master price action trading strategy itself okay. So, let’s start with price action principles. So, price action training is – a discipline of basing all of your trading related decision-making processes on historical price movements that are displayed on a particular price chart. So, price charts reflect the beliefs, and actions of all participants trading the markets during a specified period of time, and it’s these beliefs that are portrayed on a market price chart in the form of price action. So, whilst economic data, and of course other global news events are absolutely the catalysts for price movements in a market technical training assumes that we don’t need to analyze them in order to trade the market successfully. Now, the reason for this is a very simple one all economic data, and world news that causes price movements within a market can ultimately be reflected solely in the price action or the price on a particular market price chart. So, if we talk about the value of the US dollar or the gold market or the oil market for example then all of that information is taken into account, and that price will either move higher it’ll move lower or it will continue to stay roughly at the same level, and it’s this information that those that trade price action can use in a very useful manner it’s also important to take on board that due to the fact of recent technological advancements, and the development of Japanese candlestick charting you know a lot of that has been responsible for the popularity of price action trading today. So, it does allow traders to recognize when certain structures occur in the market, and it also gives them the information to understand, what they mean in terms of price change, and how likely price is to move in any particular direction which does to the upside to the downside or potentially continue to move sideways some, what you’ll often find is many good trading opportunities occur even when price action traders realize that price structures break down, and reject areas of interest, and we call these types of scenarios structural failures. So, when even when you see structural failures, and price does not behave, and act like you anticipate it to do it still presents some fantastic opportunities for those that trade price action. So, in order to master price action training traders must gain experience in seeing price action set up on numerous occasions. So, you can build up the confidence to trade these setups, and navigate through the financial markets. So, a good analogy to use when we talk about price action is to think of trading price action like reading a book.

So, the entire book, of course, tells us a story just like the market does on a daily basis. So, what you’ll find is overall themes develop with many into thing plots, and subplots throughout, and it’s the same for the financial market. So, so then when you go down into a bit more detail think of each individual page as perhaps resenting a trading day which can then be subdivided in the paragraphs are little subplots, and these can be seen as effectively different candlesticks or price patterns which could effectively be the words on the particular page, and all of this is really useful information. Now, the market will trade each, and every day just like reading a long story and. So, as the theme or the story begins to develop in a book. So, does the theme or price section in a market. So, it’s quite a useful analogy just to do just to explain that it is like reading a story when you’re looking at a price chart it gives you some very valuable information and, if you can read that price chart, it can give you some a significant edge when trading okay. So, just looking at the foundation of price action it’s important to note that, if we look along the x-axis, what you’ll see when you look at a price chart is the timeframe of the chart that you’re looking at, and along the y-axis you’ll experience the price and, what you’ll experience over this timeframe is how price moves during this particular period, and what’s important to note from just looking at the price section that we’re seeing on on-screen currently is that this market moves from bottom left okay does move sideways a little bit for a period of time but then starts to push higher, and it’s currently trading top right. So, in general, overall, this market is moving to the upside, and it just happens to be a eurodollar daily candlestick chart. So, we’re constantly experiencing a battleground, and a battleground is just it’s where buyers and sellers come to do battle buyers are looking to push prices higher, and of course, sellers are looking to push prices lower whoever wins out will see a chart move in that general direction. So, we can experience a consolidated market for a period of time followed by a little bit of bullish price action, and you could argue as well a little bit more consolidation which is often, what you get after some you know a big bit of price action pushing prices higher okay. So, that’s just touching upon the concept and the idea behind the battleground, and it’s important to note that all price action trading decisions are made here on this chart or on a chart should I say. So, deciding when to buy or sell is made purely on, what is happening to price of price action.

So, we can glean some very useful information from what we’re currently seeing that can give us an edge when we look to navigate these markets okay. So, moving on to mastering price action, there’s a number of things we need to understand, and the first one is to understand the principles behind Japanese candlesticks. We then need to recognise price patterns which is a collection of candlesticks, and technical structures which exist in the markets, and price moves from those structures but can also break down those structures as well. So, that’s important to acknowledge to master price action you need to develop a price action methodology, and that’s just a way in which you can look to enter and exit these markets, and of course you need to be in the market long enough to be able to gain the confidence necessary which will allow you to also eliminate hesitation because, hesitation can prevent you from actually getting into those trades, and try to gain that all-important experience by learning from each technical setup, and acknowledging how priced behaves in those situations on a number of occasions, and that that’s, what will give you the to be able to master price action okay. So, focusing upon Japanese candlesticks in more detail, to begin with, in order for price action traders to consistently profitable profit from trading they must find a way to effectively assess how prices are trading in the markets. Now, observing Japanese candlesticks is the best way to do this. So, these candlesticks describe the interaction between buyers and sellers, and they tell us who has more control over price directions. So, if we talk about that battleground are the buyers in control of that market are the sellers and, if you understand that, and Japanese can help us with that Japanese candlesticks can help us with that then you will give yourself a really good basis in which to navigate these markets, and also the sizes shape of each candlestick provides us with unique information such as the trading range of the market within each particular time period whatever that may be, and how much pressure there was on either pushing prices hot to the upside or like I said to the downside. So, this is, what this is how Japanese candlesticks and our understanding of these candlestick patterns can really assist us when we trade, and to just give you a good example of this, you know why are they are so important in deciding price direction, because, when you can blend them with easy to identify levels of support resistance, and you see price action interacting, and behaving with these markets and, if you can see these three candlesticks are very bearish, ie pushing prices to the downside but, what you can clearly see is price then have become supported at this particular level because it’s understood by the market as a level of support.

So, what you see is a little bit more indecision, and price action just becoming a little bit erratic but, what is also created beneath this low is actually an opportunity for certain types of price action traders and, what we will see at the point of this particular breakout which is prices breaking through the level of support, and pushing lower is that breakout traders will look to enter to the downside, and looking for a breakout to the downside, and looking for these prices to push lower. So, those would be your breakout traders that I dared to find its level of support, and said if we get a break of this level of support pushing lower. We would like to go with this market, but in reality that’s not effectively that’s not, what we see, what we see is actually a little bit of a rejection to the downside. So, this is. Now, a rejection candlestick. So, prices were pushed lower, and we got to a low price, and then we’ve started to push higher, and as you can see there’s a little bit of a rejection of prices pushing lower, and it actually creates a hammer candlestick pattern and. Now, that’s quite interesting because, it hammers out at the bottom of the market and, what that can do is present, if we talk about this battleground it can present opportunities to the Bulls to actually look to drive prices higher. So, as we roll on the next couple of days, and you can see a little bit of indecision kick in the day after, and then on the third day which is why you don’t want to necessarily make decisions based on one candlestick alone, and that you need a succession of candlesticks in order to make consistent decisions when you trade as the breakout traders are stopped out to the downside prices push higher and, what they do then is they take out stop-losses as prices push higher, and this results in giving Bulls the opportunity to actually look to take control of this market and, what we mean by that is the sellers are no longer in control this particular point so. Now, the Bulls are seeing this candlestick they’re identifying the rejection to the downside, and they’re. Now, looking for opportunities to buy this market, and as you can see we get that explosive move in this particular example, and you just got to be patient to wait for this type of setup to occur, and use your understanding of Japanese candlesticks to help us decide price direction, and that’s how price action traders use their understanding of Japanese candlesticks in that way, and look at the stack the odds in their favour. So, moving on to price action patterns a primary advantage to basing trading decisions purely on price action is that you can adopt the timeframe of the trade to the current price action patterns in the markets.

So, being able to navigate and negotiate different timeframes can really prove quite useful. Now, the analysis may point to a high probability trade where the trader may want to trade the market to a certain price. So, in mastering price action, it is important not to judge each technical price action setup by simply observing any one particular candlestick. So, it’s not about looking at the hammer candlestick in isolation it’s about looking at the information that gives us, and then looking at the reaction of the markets, and see, if those buyers actually do come into that particular market at which point you would then be looking to stack the odds in your favour, and have significant reasons to get into that particular market. So, this, of course, depends on the time of trade more frequently; however it is the arrangement of the Japanese candlesticks over a longer period of time, and that can indicate longer-term trends, and hence greater trading opportunities for price action traders. So, to give you a good practical example I want to draw your attention to three significant candlesticks on this chart as represent they’re within those circles, and in observing individual almost standalone candlesticks. We are able to find enough evidence of price direction. So, here we see three strong bullish candlesticks which indicate strong trend continuation to the upside. So, that is effectively all, what these candlesticks do but there’s a lot that happens just prior to this candlestick, and this is on each occasion, what we see in experience is a closed above previous resistance levels on each of these occasions, and we can see that the previous price action is quite bullish the price action that comes before these candlesticks in on each occasion is bullish and does push prices higher, and the decision-making process for a trader that uses price action is quite a straightforward one it’s looking to go with that particular market, and this price action, and volume pushing prices higher means that a part of your decision-making process is determined by whether you’re looking to buy or sell a market, and in this particular example you clearly see that you’d only be looking to buy this particular market, if you want your more high probability trade outcomes. So, of course, those traders that sell the highs, and they keep looking to do. So, but that’s a very risky low probability in terms of looking to see a successful outcome. So, so hopefully that helps just a little bit in terms of getting an understanding for price action patterns and, if you can identify significant levels, and you have a solid understanding of price action patterns, and then that can really look to stack the odds in your favour when you trade these markets okay. So, again looking at this other example you can clearly identify a significant level of support resistance, and it’s its support, and distance because, what we do is this level can provide resistance preventing prices pushing higher until we get that breakthrough where you would then be looking to buy this market, and then it provides support around these prices looking on multiple occasions to push these prices higher. So, that’s why they’re genuine levels of support resistance, and to just roll this on just a little bit, what we can see here just on the right-hand corner of the screen is a fairly well-developed a bit of price action pattern which can help you define your directional bias meaning are you looking to buy are you looking to sell this particular market.

Now, in this case, we’re going to propose the case for a short gold trade, and I want to do a little bit more understanding of technical analysis, and our understanding a prior section as well too to highlight these areas, and to suggest that in actual fact, what we’re experiencing here is a series of lower highs meaning that there is. Now, at this point, there is a downward pressure looking to push prices lower, but as you can see, this is also a level of support. So, prices are supported at this level which is important to see, and important to identify and, what I’ll do is I’ll actually move this along. So, you can see these pre-identified levels just working at these lows. So, considering this particular pattern, this particular structure, and traders can. Now, look at how price action reacts at very important price points in the market. So, how a price action trader can utilise this information we can create, what is called a descending triangle which again is more technical analysis where we have a downward price pressure looking to push prices lower in this particular example. So, a fairly straightforward approach would be, if we get a confirmed break beneath this level of support then that would mean a lot of these traders which are looking to buy these markets they’d have stop losses sitting in these areas they would turn the sell orders and, what you’re likely to do is to get an explosive break out of this descending triangle, and you’re very likely to get an explosive move around this kind of price action pushing prices lower. So, this is a sort of an isolated example in terms of how a trader can use their understanding of price action, and the patterns which exist in these markets to formulate a bit of a trade plan for a market such as the gold this gold trader okay. So, price action patterns. So, sticking with these just a little bit longer let’s. Now, look at a different pattern, and as you can see we’ve got a very easy to identify level of resistance in this market preventing prices from pushing higher consistently, and also clearly an easy to identify level of support preventing prices from pushing lower in this instance as well. Now, it’s always important to acknowledge that you need a methodology for looking to make trading decisions around these areas it’s not as straightforward as necessarily buying above this level, and selling below the level you need certain confirmations to be able to enter an exit which we’ll discuss very shortly but, what we mean by this is traders often observe a trade price pattern when they are trading even within a range. So, we have range-bound traders that look to buy the lows push prices higher, and then when price reaches a level of resistance they’re looking for sell, and drive market slower, and this sort of just occurs time after time off the time but these are very much your you’ll range-bound traders these are the trades that these traders look to look to trade. Now, all of these trades don’t necessarily need to be winning trades, and again even a range-bound sideways moving market like this can present fantastic opportunities for again you’ll breakout traders you know those that break below certain level could constitute a very interesting opportunity to either push this market lower or, if we trade with confirmation above these kinds of levels to look to push these prices higher accordingly.

So, again, you know different types of price action patterns can present different opportunities to a different style of traders as well okay. So, hopefully, that makes a little bit of sense. So, in a range-bound market meaning price are moving from lower range to higher range the best opportunities may actually lie in trading the price action at the range extremes by seeing how the price action reacts at these levels. So, we’re not suggesting for a second that, if you decide to buy above this high here, if you get a confirmed break above that level of resistance that of course that might constitute an opportunity to buy this market however as you can see subsequent price action would confirm that particular trade idea would be a losing trade in this particular example but there’s many other examples which would protect your capital by showing, and proving to you, if you wait for confirmation, and you wait for the close of these markets to reveal, what opportunity may or may not exist it can protect your capital more often than not, and that’s worth taking on board as well okay. So, moving on to the role. Now, of a technical list or the role of technical analysts, although pure price action traders will rely only on their skills in reading the structure but also the movement of Japanese candlesticks, most technical traders profit by devising a strategy which actually combines both price action, and their basic understanding of technical analysis. So, they actually work hand-in-hand with each other. So, this is because, technical analysis can help traders decide when it is most important to observe price action, and how significant the price action is at the market’s current level. So, when we talk about technical analysis, and this is the umbrella term for being able to trade markets technically, and then within that, you have the observation of focusing on price action, and the information that Japanese candlesticks can give us in order to make consistent decisions. So, as more and more traders have embraced this trading approach, price action volatility is often seen to increase when the market reaches these technical levels of interest. So, technical traders can. Now, look for more evidence to support trading decisions in, and around these technical levels. So, to present to you a good example to explain, what we mean in a little bit more detail the role of our technical analysts is quite it’s a very interesting one. So, important to acknowledge that gold is said to be a very technical market and. Now, the reasons for that is what you can see currently up on the screen. So, those that are your technical analysts will use a series of different potentially technical indicators whether they’re support resistance whether it is Fibonacci levels that you’re working with whatever kind of technical indicator is used, and people have different they prefer different indicators for different reasons it all forms part of the same picture, and the same ability to actually make trading decisions.

So, with this fib level, you can see that there are actually levels of support resistance as well, and they do stack up quite well. So, if we look at the thirty-eight percent retracement in this particular example it can provide you with some very interesting sell opportunities on numerous occasions, and also there the 50 percent retracement, and there 61.8% retracement there’s only a couple of examples in here just to show you that, if you apply technical analysis in a certain way, and then it can give you an opportunity to again look to stack the odds in your favour when you trade these markets. So, what we can identify as well is these genuine levels of support resistance, and price action trades uniquely around these technical levels. So, this is the important point to take, and again it’s really focusing on the confirmation that you need to actually make a trading decision with is, what will be all-important in terms of your ability to trade these levels consistently, and of course profitably okay. So, looking to master price action trading strategy itself. Now, a couple of pointers is that a good combination of technical analysis skills and price action strategy is the preferred methodology. So, looking to combine technical analysis using perhaps one or two indicators perhaps with your understanding of price action is, if you’re looking to master price action strategy it all works together very nicely you’ll need to have exit, and entry points which can be based both on the technical levels, and the structure of candlestick patterns and, if you do that you start to allow yourself to master price action, and build that all-important training strategy. So, it is important to note that confirmation is always required before entering these markets, and conformation, unfortunately, means different things to different people. So, it may just be the case that you’re looking to get a close above or below a significant level of importance before you actually make that trading decision and, what that will do it will reduce the potential for false breakouts even to the upside or to the downside. So, if you can protect yourself against those, and have a way to seek confirmation before you actually pull the trigger, and get into that trade, then that is all-important than something very much to be promoted. So, the technical setup itself of the trade can help determine the term of the trade. So, here we’re talking about the technical setup to identify perhaps range-bound trading for example, and finally the more price action patterns you observe in the markets, the more familiar you will become with that movement of price the easier it will be to trade that with significant confidence as well. So, all of these things are very important with regards to looking to master a price action trading strategy. So, working with this let’s have a look at how you can use price action trading to actually look to enter this market in a very consistent manner, and again we’re looking at price action on screen with a very clear easy to define level of support resistance as you can see up on screen which is blue dotted line. Now, it’s important too as well as we’re reading the book are reading this price chart, and seeing what’s unfolding it’s important to know that you know simply your breakout traders may be looking at this price action in this area, and they may decide to become buyers, if price action breaks the long term resistance levels. So, this is a level of resistance preventing prices from pushing higher and, if we get a breakout of this level then, what that might signify is an opportunity for buyers actually to get in, and certainly these are your breakout trainers they’ll be looking to get in as a, if you clearly see a breakout of this level but as you can see it becomes a fairly significant level of resistance over a significant period of time, and in fact the market bounces off that level before attacking it again and, if you move, if we move this along we can see the low of this market, and you can see that it actually starts behaving a little bit more consistently prior to getting to this level of resistance which prevents his prices pushing higher.

Now, traders have some interesting opportunities around this level of resistance. So, if the price breaks, and as you can see it breaks above it might give breakout traders an opportunity to go along this market but it also as you can see it pulls back over the next three or four days, and actually below the initial resistance level. Now, if you’re a technical trader, and you look at price action, and you can see that this is a pullback off the highs and, what we see from here is a pullback from the breakout high and, if we look at it in a bit more detail, what this can do is it can present another buying opportunity but at a specific place, and that would be potentially to buy above this particular candlestick high might constitute a great opportunity to start pushing this higher. So, when we get breaks to these levels that can provide opportunities for breakout traders to get into this market to push it higher but also you know those that trade pullback price action you can get multiple opportunities on the same bit of price action with the overall view to expect prices to push higher. Now, they don’t have to behave in that way, but you would expect them to do. So, and, if the market behaves as you expect it then that is very important and, if it doesn’t then that is the first question mark that should be placed in your head in terms of whether you continue to give this trade more room okay. So, that’s how you can use your understanding of looking to master price action in the form of a strategy, and hopefully, the challenge is to try and use that in a consistent manner over the medium, and long term. So, this effectively becomes your buy entry-level, and as you can see in this particular situation market continued to move to the upside quite aggressively over to coming over the next few days in this particular example okay. So, that is your entry strategy. So, sticking, and as you can see, you got that explosive move pushing higher so. Now, looking to use your understanding of price action trading in the form of an exit strategy, and we’re looking at a same buy entry, and again this is the same resistance level sitting in this market but. Now, that we have a buy entry, we can look to place a technical stop-loss, and potentially even look to place a profit target on in this particular trade. So, we know exactly where our buy entry was as we’ve just previously explained. Now, in observing the price structure of the price action, if we can use the last correct of low the question we would need to ask ourselves is can we use the last corrective low as a technical stop-loss, and thrust the example would be the market continued to break higher above that level. So, yes we can use that correct, if you because, if the market pushes higher, and it breaks back beneath this level then you do not really want to be in this market beneath this low anyway it doesn’t make any it doesn’t make for sound decision-making to actually be in this market beneath that level. So, you may as well use it as a very consistent place to place your stop-loss. So, that’s how you can use your understanding of price action in terms of an exit strategy, and you still see that explosive push to the upside.

So, a price moves to the upside, we can then assess the price action for potential reversal patterns, and potential profit targets as well. So, we can continue to use our understanding of price action to help us get out, and maybe even book in profit on a trade like this. So, in observing the structure of the price action we can use the last corrective low as a technical stop-loss, and that’s what’s all-important when we look to use or understanding price action in the form of a trading strategy to look to make sure we place, and we exit the market at a level that makes sense, and that can protect your capital, if the market moves against you okay. So, that just about concludes, and this particular webinar. So, we looked at some of the principles behind price action we looked at the concept of looking to to master price action, and some of the things that you would need to consider as a trader we looked at Japanese candlesticks, and the information that I can give price action traders, and then putting it together in terms of looking at price patterns, and again the way in which that can stacked the odds in favour of a technical trader, or a trader that trades price action consistent. We have a looked at the role that technical analysis can play, the use of potentially other indicators to formulate that strategy give you more confidence to provide you with more confirmation, to actually get into that particular trade, and we just finished upon looking at how we can use price action to actually formulate a trading strategy which can be based on objectivity and managing risk, and just looking for very clean opportunities to get in and navigate these markets accordingly. So, all that’s left for me to do. Now, is to thank you very much for joining us, and we do look forward to seeing you next time, so from everyone here. Bye for now!

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