This is my approach to price action trading. So far, its worked pretty well on every trade I've executed with it. I'm thinking of making it my primary strategy. The strategy is extremely simple. Use lower highs and higher lows to make a triangle or wedge. The triangle should make a apex, or point where the two trend lines meet. Simply watch for the lows to continue to get higher and the highs to continue to get lower. If the pattern breaks before it nears the apex, ignore it. If it stays inside the triangle, pay attention.
Definitions,
Breakout, point where price moves significantly above/below trendline,confirmed by a spike in volume.
False run, a false breakout, normally not confirmed by volume.
test, when volume passes trendline without significant move in volume, retraces back, then spikes in direction before retrace followed by volume spike.
Strategy.
When a wedge or triangle is identified, it's important to confirm any move with volume. The volume gets lower and lower the closer the price gets to the apex. Once it breaks out, there will be a instant jump in volume. If there is no volume spike, it's probably a false run or test.
You can determine exact entry exit points based off the length of the triangle. Take the highest high or lowest low, and draw a vertical line. This line will end at the top trendline. Take the trend line and put the bottom of it at the apex, the top represents a take profit point. Repeat, but put the top of the vertical line at the bottom of the apex, this defines a take profit point for a short. To date, this system when implemented according to the rules hasn't failed. The trick is to be patient. Use volume as a indicator to determine when a spike has happened. DO NOT purchase anything until volume confirms.
Tips, symmetrical triangles can go either way. Upward triangles always go up, and upward wedges always go down. Downward triangles go down, and downward wedges go up. It can be hard to tell the difference sometimes. To avoid losing money guessing if its a triangle or wedge, wait for breakout and volume spike.
Definitions,
Breakout, point where price moves significantly above/below trendline,confirmed by a spike in volume.
False run, a false breakout, normally not confirmed by volume.
test, when volume passes trendline without significant move in volume, retraces back, then spikes in direction before retrace followed by volume spike.
Strategy.
When a wedge or triangle is identified, it's important to confirm any move with volume. The volume gets lower and lower the closer the price gets to the apex. Once it breaks out, there will be a instant jump in volume. If there is no volume spike, it's probably a false run or test.
You can determine exact entry exit points based off the length of the triangle. Take the highest high or lowest low, and draw a vertical line. This line will end at the top trendline. Take the trend line and put the bottom of it at the apex, the top represents a take profit point. Repeat, but put the top of the vertical line at the bottom of the apex, this defines a take profit point for a short. To date, this system when implemented according to the rules hasn't failed. The trick is to be patient. Use volume as a indicator to determine when a spike has happened. DO NOT purchase anything until volume confirms.
Tips, symmetrical triangles can go either way. Upward triangles always go up, and upward wedges always go down. Downward triangles go down, and downward wedges go up. It can be hard to tell the difference sometimes. To avoid losing money guessing if its a triangle or wedge, wait for breakout and volume spike.