Today’s video covers Trading Price Action Patterns for the Stock Market and Forex Market that are rarely taught.
There are many indicators to choose from and some can be very helpful. But even if you have indicators you love, be careful that you don’t become over reliant on them.
Price is still king and every trader should understand how to trade price action patterns in whatever market they’re trading, whether it be the stock market, Forex market or futures.
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Hey welcome to this video on trading price action patterns. This is going to cover price action patterns for the stock market, forex price action and E-minis. Actually this will apply to pretty much any market that you can plot on a chart.
I’m going to use a tool that’s in Ninja Trader. You don’t need this tool to do it. It’s called the ruler. What we are going to do is go from a high to a low. And we’re going to measure 2 things:
THE FIRST THING TO LOOK AT REGARDING PRICE ACTION
Number 1, how many bars is that impulse move down? By the way, one way to do this is if you get 2 equal lows here, you always go to the second one. The last one in the impulse move down. That’s the rule. Okay, so this goes down 16 bars. Now you can just sit there and count them if you want to. But it’s kind of nice way of this tool that counts them for us.
So 16 bars down that means that the markets spent 16 bars. This happens to be a 3 minute chart. So 3 times 16 ended up spending that amount of time going down.
Then we can go from that low to this high and we can see that it spent 8 bars going up. In other words, half this much time going up as it went down. So that’s our first clue. How much time is the market spending going one direction as opposed to the other and that is one clue of the dominant energy. That’s what this is really about. Measuring the dominant energy of the market.
As you can see before this, the market had been going up. Right? So we have higher highs here, higher highs here. Therefore our first clue that this thing might be turning around is that we still need a higher low, but we spent more time coming down, than we did going back up. Time and price are the 2 factors that we’re looking for, the confluence of time and price as W.D. Gann says.
THE SECOND THING TO LOOK AT REGARDING PRICE ACTION
Alright, so then the next factor is price. As we go from here to here, alright, that looks kind of switched up there. But basically the market came somewhere between 38 and 50, we’ll call it 50, about half of the way back up. But it didn’t make it more than half of the way back up to the beginning of the move.
And so therefore confluence of time and price has spent more time going down then it spent time going up, and it covered more price going down, price range than it did going back up.
So those 2 things indicate that okay the dominant energy has shifted now. And now the dominant energy is to the short side. And sure enough. Bam! The market really takes off. Crunches down. Alright. So let’s take a look at another example.
TRADING PRICE ACTION PATTERNS RARELY TAUGHT: RIGHT AND LEFT TRANSLATION
Oh, By the way one last thing on this, this is called a cycle analysis. This is called right translation. If you haven’t heard the word right translation. That means we can do this another way too. We can graph it with a little rectangle here. Ah, there to there.
What right translation means is if you were to draw a line. Well what the heck. Let’s do it. Horizontal or vertical line here.
LEFT TRANSLATION PRICE PATTERN
Alright so let’s look at an example of left translation. So if you go from this high to that, or from this low to that high, to this low. By the way, may bring up my crosshairs over here. Remember we always go to the last low. So if you’ll notice might not have been obvious that the low of this bar is the same as the low of these 2 bars. Bring my crosshairs across so you can see, so therefore we use this bar as our low.
Let’s do a little ruler here and same here by the way. We go to the last low, equal lows. There to there, alright we have. Bring our label down here. So 6 bars going up. Now obviously it spends less price coming down. Comes down, not as far as it went up. But where, how many bars does it take to do that. How much time, it takes 10.
So it went up on 6 bars, and it spends 10 bars, again these are 3 minute bars. That’d be the difference of 18 team bars going up, and 3 bars coming down. With 30 minutes.
The point with that is the underlying market participants. How encouraged are they that this is really a bullish market. If the sentiment is very very bullish than they’re going to want to get on board this. But if they’re waiting a long time to get on board, that means there is uncertainty. And if there is uncertainty, there’s probably going to be fewer people jumping on board, so it does make a higher high, but that’s the end. That’s the end.
RISK/REWARD RATIO IN TRADING PRICE ACTION PATTERNS
That’s not a very big reward if you are going to take that trade. We don’t want that. We want a nice reward to risk ratio. Want to make lot more money than we’re risking. And you are not going to get that on a trade like this.
This is an example of left translation, by the way. So if we go back to our rectangle, and we draw it from here to here. Again just a different way of showing the exact same thing by the way. And where is the middle here, I could count them out, it would be 8 bars. 1, 2, 3, 4, 5, 6, 7, 8 okay. So it’s that far. Now we’re being exact.
You could see that the high comes into the left of middle. Between that low and that low. And that’s your cycle. Cycles are measured from low to low. And then your high comes to the left of it. And these were just 2 different ways of measuring the same thing. So and then you can see when it goes down.
Well then you can really just eyeball it, we don’t have to really do these numbers here. But boom, spends more time going down, less time coming up. Right, more time coming down. Less time coming up. More time going down. And sometimes it’s about the same. As long it’s not too much more, we’re ok.
Trading price action patterns like this can make a big difference in your trading results. when done correctly.
This is the kind of pattern that we really like, right here. Where the market, as we talked about before, the retrace in price, how far is it going to retrace in price. It’s also important. So we fit in, makes an impulse move down, and makes a very shallow retrace that’s generally good. I mean there’s not a lot of buyers coming in if we are short. So little profit taken will be ok, a few retail buyers coming in. that’s okay. But we don’t want professional money going along. Yeah going along here if we are short.
And that will be indicated by how much time and how much price it’s covered on the retrace. So the best scenario is to get something like this. Where you’ve got a nice impulse move down and then look, there’s really no retrace. The market just goes sideways. So yeah there’s probably a little bit of profit taking there, but there’s no major buying at all. That means that the bearish energy is still very dominant in this market. And if you’re short that’s exactly what you want to see.
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