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Price Action Trading Was Hard, Until I Found This "Momentum Tactic" (Strategies Included) - YouTube
Channel: The Secret Mindset
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If youāre looking for the most effective
strategies to trade price action, I want your
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full attention, because Iām about to reveal
my most important tactics after over 10 years
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of price action trading.
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Weāre not going to talk about support or
resistance, candlestick patterns, or chart
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patterns.
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I will share something more important: how
to read price action momentum and how to decode
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the market rhythm.
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And if you want to show your support, please
leave a like to help us with Youtube algorithm
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and turn on the bell, so you donāt miss
when new videos are released.
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Traders often have this big obstacle: they
arenāt able to recognize if the market,
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today, is trending or ranging.
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Hereās your first lesson.
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The moment you recognize what type of day
you are dealing with, then you can apply the
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appropriate methods for trading.
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If itās trending, pullbacks are the best
choices.
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It doesnāt matter whether itās the first
or second pull- back; a one bar pullback or
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complex pullback.
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If itās a trading range day, you only enter
at the extremes of the range, wait for clear
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confirmation and stay out of the middle because
it can be very choppy.
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In order to read the market and to evaluate
the price momentum, I use price action.
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The main reason I prefer price action instead
of employing indicators is that indicators
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will lose their powers when the market is
not trending.
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They create all kinds of false signals on
a Range day.
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That is a big problem because market is rotating
in sideway motion over 70% of the time.
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One thing I discovered through many years
of trading is that trading ranges is surprising
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predictable!
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The reason behind this is because the market
is in a zone of āfair value of priceā,
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where the buyers and sellers are somewhat
āpassiveā.
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Here are several strategies which can help
you to potentially tell what type of day is
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ahead.
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First weāll talk about price action during
trending days.
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1.
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Strength and follow ups
On a trending day, whether itās an uptrend
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or a downtrend, the bar which initiate the
trend usually have decent follow ups.
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Market has a rhythm, like music.
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You can sense the urgency in tempo and strength
behind every bar when itās forming.
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One side is dominating the other one and this
should be fairly obvious.
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In a strong uptrend, the chart is filled with
green trend bars with average size body, but
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closed high.
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Bars are slowly moving upwards which can create
a parabolic curve.
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Any pullback red bar is short lived with narrow
body and long wicks at the bottom.
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At a glance, there are just simply more green
bars than red bars!
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When a strong uptrend is in progress, itās
very hard to make money selling.
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But for buyers, you should see profit not
long after you entered.
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The price is pushed up and nobody is taking
profit, until it reaches a fairly strong supply
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zone.
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Any countertrend attempt will fail and becomes
the most reliable setup to resume the trend.
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The wick of a candle is very important in
price action trading, it shows both rejection
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and strength.
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Itās the hidden truth about domination.
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In an uptrend, you should see long wicks at
the bottoms of the bars, not on top.
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It means any selling is being rejected and
pushed up.
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The same principles apply for downtrend.
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More consecutive red bars with average size
body and wicks on top of the bars.
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Any green bar pullback is small and short-
lived.
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Here we had a very strong downtrend.
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There are few green bars, and many bearish
bars.
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The close of each candle is lower than previous
close.
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Itās in parabolic curve rather than boxed-in.
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Ina trending day, a market controlled by bulls
is often characterized by the following bar
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patterns:
First, then obvious one is that we have more
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bull bars than bears bars.
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When he see this on our charts, this means
that the bulls have more power and are increasingly
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moving the market upwards
Also, we will see consecutive bull bars.
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Consecutive bull bars is a clear indication
of a bullish momentum
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In a bull market, the green bodies are bigger
than the red bodies.
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When he see this on our charts thatās a
signal that the bulls have more strength than
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the bears.
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Also, during a bull controlled market, we
will see the green bars closing near their
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highs.
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This suggests a good momentum on the upside,
because the bulls are trying to maintain the
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prices higher.
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We will also see a lot of wicks below the
green bars.
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This also represents a good signal that the
bulls are in control of the market and that
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are trying to push the prices upwards.
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When we see the green bodies getting bigger
this signals a clear bullish momentum.
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2.
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The old-school Higher High & Lower Low
First, the follow-up bars should be breaking
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out previous bars.
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For example, each follow up green bar in an
uptrend should have higher low, higher high
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and higher close to the previous one.
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Vice versa for downtrend, red bearish bars
should be making lower low, lower high and
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lower close than the previous bar.
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Another interpretation is based on structural
pattern: The pivot point of each swing.
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Price never moves in straight line, it moves
in waves.
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And each wave will create pivot point on the
chart.
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These pivot points can often be found in pullbacks
of a trend.
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They are important turning points which represent
zones of the demand/supply.
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The best way to use these pivot points to
identify the trend is to create a trend line
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by connecting them with straight lines.
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You donāt need advanced knowledge to draw
complex trendlines.
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Just connect a low and higher low, you get
a simple trendline pointing in an up direction.
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For downtrend, connect any high and a lower
high.
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This trendline gives you both the direction
of the trend and great reference points for
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support/resistance for future price movement.
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3.
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The dynamic support/resistance tool, namely
EMA (Exponential Moving Average).
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I personally use the 20-period EMA on my chart
when trading price action because itās reacts
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to price quickly and follow the price action
closely.
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There are many ways of using the EMA, but
I found two methods are quite effective.
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First, I use the 20-day EMA to give me a broad
idea of what to expect for the day, whether
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itās trending or ranging.
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For trending days, bars usually stay consistently
above or below one side of EMA, most of the
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time not touching the EMA for hours until
a deeper correction.
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For range day, itās very obvious that price
interacts with EMA very closely.
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Another usage for EMA is to watch the price
action around the EMA when itās touched,
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and based on the reaction, you find tradable
setups.
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EMA isnāt like trendline, a straight line.
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EMA follows the price and it serves as strong
support/resistance reference point.
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But it only works best when price is trending
in one direction.
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When price move sideways, EMA lose its efficiency
and does not produce any reliable setups.
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As long as price stays above the EMA, you
will only buy, never sell.
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The opposite is true for downtrend.
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One of the trade model I employ often is to
enter the ā1st Deep Pullbackā.
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In a strong trend, price goes too far away
from the EMA and not touching for hours, but
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when it does for the 1st time, this deep pullback
is a very reliable setup to resume the original
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trend.
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Some experts call the EMA āthe Meanā.
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When price moves too far away from the āMeanā,
it can create a rubber-band effect, and price
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would stretch back to the EMA.
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Traders watching for the EMA, know that probability
of the 1st pullback of a strong trend to turn
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into a reversal is quite rare.
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So when price returns to the EMA, they would
enter, hoping the original trend will resume.
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Now letās talk about the Trading Range (Sideway
price action).
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Trading ranges can be very tricky because
itās very difficult to distinguish between
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range and trend.
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Itās understandable because they have some
similarities.
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The relationship between Trend and Range is
that they are interactive.
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One canāt survive without the other.
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Trend is essentially a breakout phase.
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Range is essentially a consolidation phase.
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And market is rotating between Trend and Range.
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So how do you actually read a price action
range.
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1.
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Wicks
Trading range is filled with wicks especially
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more on top and bottom of the approximate
range parameter.
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The reason behind this is back to back failure.
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When price is being pushed up to the upper
boundary of the range, sellers are letting
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it go, to see how far price can go.
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The higher it goes, the more profit for sellers
when they sell into it.
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It creates a vacuum effect.
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When price becomes excessive, sellers will
jump in and sell into buyers, pushing the
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price towards the lower boundary of the range.
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Entering at the extremes offers great risk-reward
ratio for traders.
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You should try to embrace range days, because
they are somewhat āpredictableā.
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And the first step, look for many long wicks
around the edge of the ranges.
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Wicks are failures.
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Top wick means buyers failed and bottom wicks
means sellers failed.
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Remember this: Range will have multiple failed
Breakout attempts before a real breakout.
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When the real breakout occurs, you canāt
miss it because itās convincing both in
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volume and bar size!
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Any inferior breakout will fail within a short
time, generally within 5 bars.
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Look at the wicks within this range.
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Observe this area filled with Dojis and bars
that are overlapping.
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This bar shows the real breakout of that range.
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The bar is forceful, large in size, closed
high and with a minimal wick.
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2.
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Alternation between bullish and bearish strength
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This shows both sides are active.
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There is no feeling of continuation of either
side.
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There is no consistency in strength from either
side.
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The red bars and green bars are somewhat equal
in quantity.
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The strength is weak, it shines and dies very
quickly.
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Often you will see a gigantic bar in a range,
it take over the whole space.
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Then the follow up is on the opposite side.
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So no momentum continuation, and traders trying
to trade the first bar are now trapped.
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Price moved in the opposite direction.
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Again: there is no sense of consistency.
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Range days can create a weird feeling that
market is not really active and it feels lazy.
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But actually both sides are very active, it
creates an balance between buyers and sellers.
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Thatās why the price is not breaking out
to any one direction.
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All the setups which worked best in trend
trading are now losing their magical power.
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Remember this when trading range: Patience!
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Wait for confirmation and proof one side is
actually failing, then enter at the extremes!!!
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3.
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Dojis and Overlapping price action.
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When you start to see lots of Dojis and bars
are overlapping (sideways action), market
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is probably ranging.
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The Dojis are the early signs for Range formation.
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A Doji is a one-bar trading range in essence
and it has many variations, āGravestoneā;
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āDragonflyā; āHammerā; āHanging
manā.
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The names are not important, they all indicating
the same character: indecisiveness.
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Overlapping price action simply means the
size of the bars are either similar or inside
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of each other.
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Price is moving sideways, is not going anywhere.
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Sometimes, you will see two or more bars have
the same High or Low.
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Then you look to your left, and you will find
past corresponding price action that stopped
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at that level also.
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This means there is a strong supply/demand
zone for that level.
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So whenever you see two or more bars have
the same High/Low, mark that level, and watch
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for reaction when price revisit that level.
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Look for reliable setups of real breakout
or failed breakout.
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4.
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The 20 EMA
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When price is trending strong and fast, itās
hard for EMA to catch up with the price.
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Therefore, in a strong trend, there is distance
between EMA and bars.
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In trading range, itās the opposite, there
is lots of touching.
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Because price movement in a Range is not very
volatile, most of the time itās not going
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anywhere.
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The EMA cuts through the range, often in the
middle.
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The 20-day EMA is like an axis where price
is moving around it.
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There is one scenario to note here: when a
Range is about to break, watch the price action
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closely, and you will notice the EMA is somehow
holding the bars and push them out to the
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breakout direction.
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For an upside breakout, price will stop around
the middle of Range around the EMA.
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Vice versa for downtrend.
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Price will test EMA and will be pushed to
the downside.
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Being able to read a price action chart is
important to make the right decisions.
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The problem many traders have is that they
overcomplicate things and get easily confused
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ā or they donāt have a process in the
first place and donāt know what they are
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looking for.
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Now, your job is to open your trading platform,
choose one market, and start analyzing price
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action using these techniques, just these.
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I could have mentioned chart patterns like
flags or triangles, but these are just ranges.
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I could have mentioned tens of candlestick
patterns, like inside bars or piercing lines,
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but again, these arenāt as important right
now.
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Whatās important is to decode the market
rhythm, to distinguish a trend day from a
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range day and to read price momentum.
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This is the best price action approach.
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As always, if you got any value from this
and learned something new, leave us a like
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Until next time.
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