Automated Trader Base on Price Action, Fibonacci, Imbalance and Liquidity
TYG's Trading Log - Thoughts, Trades and Techniques
- #84
- Last Post: Jun 20, 10:08pm (3 hr ago) Jun 20, 10:08pm (3 hr ago)
Price Action: The Big Picture
This roadmap outlines the foundational framework for developing a comprehensive trading plan using Price Action. While this serves as the high-level overview, each phase will be detailed comprehensively in later sections.
At its core, Price Action utilizes a variety of technical concepts to build a structured trading plan. It all begins with the foundational elements: Candlestick Patterns and Price Swings. By mastering these two components, traders can accurately define the overarching Market Structure.
Once the market structure is clear, it becomes the bedrock for developing a repeatable Trading Strategy. Testing this strategy yields the necessary Trading Statistics (win rate, risk-reward ratio, etc.), which ultimately dictate the rules for sound Money Management.
The 4-Step Price Action Framework
To truly master Price Action trading, the learning curve is broken down into four distinct phases: 
Step 3: Lower Timeframe (LTF) Confirmation
Once you have identified the momentum and mapped out your Key Levels on the STF, you are ready to drop down. The next step is to look for localized price swings (HH/HL or LH/LL) on the LTF as your final confirmation to execute the trade.
This roadmap outlines the foundational framework for developing a comprehensive trading plan using Price Action. While this serves as the high-level overview, each phase will be detailed comprehensively in later sections.
At its core, Price Action utilizes a variety of technical concepts to build a structured trading plan. It all begins with the foundational elements: Candlestick Patterns and Price Swings. By mastering these two components, traders can accurately define the overarching Market Structure.
Once the market structure is clear, it becomes the bedrock for developing a repeatable Trading Strategy. Testing this strategy yields the necessary Trading Statistics (win rate, risk-reward ratio, etc.), which ultimately dictate the rules for sound Money Management.
The 4-Step Price Action Framework
To truly master Price Action trading, the learning curve is broken down into four distinct phases:
- The Base Elements: Mastering candlestick anatomy, patterns, and price swing dynamics.
- Market Structure: Reading the market's bias (uptrend, downtrend, or sideways) by connecting the base elements.
- Strategy Development: Crafting specific entry, exit, and trigger rules based on the market structure.
- Money Management: Utilizing trading statistics to define risk per trade, position sizing, and long-term portfolio preservation.
Price Action: The Base Elements
Concepts like Higher Highs (HH) and Higher Lows (HL) are staple vocabulary for any Price Action Trader (PAT). However, while these concepts are incredibly important, they become practically useless if analyzed in a vacuum without the support of other critical elements.
Before we can even begin analyzing price swings, we must first identify the unique characteristics of the financial instrument we are trading.
The Multi-Timeframe (MTF) Approach
While some price action traders prefer a single-timeframe approach, the vast majority utilize Multi-Timeframe (MTF) analysis. Ideally, this requires defining two specific environments:
- The Strong Timeframe (STF): Used to identify consistent, high-probability price movements and overall market direction.
- The Lower Timeframe (LTF): Used exclusively for fine-tuning entries and seeking trade confirmation.
Step 1: Identifying Momentum on STF
The way you look for a trend on STF is fundamentally different from how you approach a LTF. On the STF, your primary goal is to identify momentum.
Traders approach this in two ways:
- Indicator-Assisted: Some use tools (like moving averages) to help objectively smooth out and identify the STF trend.
- Pure Price Action: Others rely strictly on large-scale candlestick formations to judge directional strength.
The Duration Rule: The longer you plan to hold a trade in the market, the more historical candlestick data you must consider to accurately define that higher-level momentum.
Step 2: Uncovering Liquidity via Candle Rejections
Alongside momentum, looking for clear candlestick rejections on the STF will uncover major areas of Support and Resistance (SnR). In price action terms, these SnR zones represent liquidity pools—areas where large institutional orders are waiting to be filled. These become your Key Levels.
Step 3: Lower Timeframe (LTF) Confirmation
Once you have identified the momentum and mapped out your Key Levels on the STF, you are ready to drop down. The next step is to look for localized price swings (HH/HL or LH/LL) on the LTF as your final confirmation to execute the trade.
Automated Trader Base on Price Action, Fibonacci, Imbalance and Liquidity