Understanding Price Action by Bob Volman (notes and examples)

I would like to give credit to both of Bob Volman's books which are simply the best in the market when it comes to learning about scalping and I have not found a thread dedicated to his 2nd book (lUnderstanding price action) so I thought to start one.

Here are my notes that I took from the book, I have listed the main points that will help in giving you the backbone to form a strategy centered around the book.

PRICE ACTION THEORIES - This gives an understanding of the key elements in price movements

1. DOUBLE PRESSURE - Compressed tension of price occurring before a breakout occurs in one direction
2. SUPPORT AND RESISTANCE (S&R) LINES - Curical zones of a technical test where we can expect price to stall
3. CEILING TEST - Think of this as a minor S&R line forming near a technical test
4. FALSE BREAKS - As the name suggests these breaks may or may not occur; we need to be aware that a break may be false, a good way of assessing the quality of a break as described in the book is to wait for price to pass above the initial break signal bar
5. PULLBACK REVERSALS - into the 40-60% region; this will provide a good risk to reward ratio the further you allow the pullback to go
6. ROUND NUMBER EFFECT - Applying guidelines on your chart in the increments of 50 pips will allow you to easily see the pulling power these lines have on the price and to use them to your advantage

MORE GENERAL NOTES

1. The setup is a 25ema (close) on a 5 min chart with a TP 20 and SL 10 (examples mostly used the EURUSD but principles can be applied to other charts)
2. Watch out for double tops, triple tops, head and shoulders, inside bars, flags which can give an indication to what price will do next
3. Try and execute orders close to the 25ema (aka the perfect filter in the book) and preferably wait for a squeeze and then a breakout to occur before confirming a bias
4. Be wary of the possibility that whilst in a trade, it may fail due to upcoming resistance/support/technical test/round-number/reversal candlestick etc and it may be wise to exit in strength and just observe what price is going to do next and then think about re-entering (or wait for another next set-up)
5. Keep away from news unless you know how to trade it
6. Maintian a minimum of 1:1 risk to reward ratio

LIST OF THE MOVES

1. PATTERN BREAK - Consists of a build up then a break out (the breakout is the signal to take the trade)
2. PATTERN BREAK COMBI - A strong bullish/bearish candlestick (i.e. 'Powerbar') next to an inside bar that closes near the direction of the Powerbar (the inside bar is the signal to take the trade, or you can wait until price passes the Powerbar)
3. PULL-BACK REVERSAL - Ideally we want three conditions met: correction at the 40-60%, testing the 25ema and also testing any previous S&R lines. Once these have been met we can either take the trade straight away or wait for confirmation

I have currently done the first set of backtests (12 of them) which I will post here, please feel free to critique it.

This here is a false break which resulted in a loss -14 pips

What looked like a bullish breakout with the signal bar being the strong bearish CS, my bias was for a bearish 20pips which resulted in -13 pips, the 50 pip round number target (grey line) was way too strong

This is another loss, what I should have done in this backtest was allow the bar next to the signal bar to take it out by at least a pip which would have resulted in a non-trade (-14 pips)

Finally! A perfect set up, this is part of the pull-back reversal set up where we can clearly see a retracement of ~50% of the bearish move into a technical test (green trend line and CS noise to the left) plus it is touching the 25ema giving us the triple threat

+20 pips

Attached Image

This trade resulted in a break-even (BE), there was no way of me being able to tell that this was going to pull back as no technical test/round number was in the way of the bearish move

Here the initial signal came from the first bullish bar, but I wanted to get a better price so I waited for a bit of a retracement and exited at the '00 round number resistance (grey line) for a cheeky +11 pip gain whilst maintaining a moderate 1:1.77 risk to reward ratio

There was a lot going on in this trade

1. We have a double top/M pattern giving us a technical test to the left of entry
2. There is a supporting upward trend

So when a bullish breakout occurred at the grey vertical line which took out the 25ema I was ready for a bullish move having set my buy stop a pip above the signal bar just in case the '50 round number is too strong of a magnet, to my avail I was able to catch the strong bullish move. However, remembering the resistance line the previous M pattern presented and seeing a bullish doji printed on its resistance line, I felt it wise to cut my wins here (and boy was I right!)

Only +6 pips

This is a questionable trade, some would have stayed in for a loss (like me) or have got out at the technical test to the left

-11 pips

-10 pips, n hindsight I should have sought a stronger breakout from the magnetic '00 round number which is a lot stronger than the '50 round number

Classic pattern break from an area of tension with the TP target near the round number +17 pips (I reduced the TP from 20 due to the round number resistance, but in future, unless it is a '00 round number I will not be reducing the TP)

Attached Image

Pull back reversal with a 20 pip profit




This completes a showcase of my backtest on the EURUSD; where I netted 12 pips having on average 2 trades per day during the US session. I will be posting my live trades from here on and I encourage an open discussion so we can all effectively trade the principles laid out in Bob Volman's Understanding Price Action

DAY 1: LIVE TRADING

This is a rundown of all my trades I took today:

 

1. GBPUSD: Lost -8 pips
2. GBPUSD: Lost -15 pips
3. GBPUSD: Lost -10 pips
4. EURUSD: Won +13 pips
5. USDCHF: Lost -10 pips
6. NZDUSD: Lost -6 pips
7. NZDUSD: Won +18 pips

Net -18 pips

I will now run through in-depth analysis on the trades and hopefully weed out some costly mistakes that occurred which can be prevented on future trades

In hindsight I may have taken this trade a tad bit too early without taking the trend line into consideration, this occurred during the UK open and later on, the GBPUSD did fall, so next time I will take the trendline into consideration when planning these trades

-8 pips

I decided to renter the GBPUSD trade without again taking any consideration to the bullish trendline, in hindsight placing the SL above this trendline would have gained me pips instead of losing it

-15 pips

Has you can see the majority of the bearish move was missed due to me neglecting the trendline; so I thought I would be able to still catch a bit of the move with the retracement, however, the round number and 20ema magnetic pull was too strong

-10 pips

Finally! A win, there was a retracement that occurred near the 25ema and trend line, due to the previous losses I wanted confirmation so I waited for confirmation of a reversal

+13 pips



Due to my greed I was not able to get the full 20 pips from this trade as I moved my TP target lower to see if I could gain more pips, this was a costly decision and something I will not be doing in the future

This was on the USDCHF and although it is a major pair it is more stable than other major pairs so I should have probably been more cautious and wait for further confirmation that price was going to go down

Here we can see a breakout from the square box which then went on to produce a ceiling test, this then led to a false breakout, at this point is where I took the trade and if I had waited for further confirmation this would have saved me loosing 10 pips

-10 pips

This trade resulted in a loss due to me not taking the spread into consideration, the price had not reached my area of resistance but because the spread is higher on the NZDUSD this resulted in a loss, the next trade shows that I re-entered based on this; and I have also learnt a lesson to watch out for spread costs

-6 pips

I soon after entered the trade having realised the issue with the spread and went on to achieve an amazing 18 pips, this could have been 20 if again I did not move my TP target!

+18 pips