The System (Irony included)

Absolutely no offence taken. Hey, I'm honored you'd take the time to host such a thread. I feel there's wisdom in your message that suits my vision of how I'll be trading going forward. I'm not a newbie to Forex, but I am a newbie to using price action as a standalone read on the market.

My intermarket skills are, frankly, non-existent. I have no clue how to relate the ups and downs of the S&P500 or Oil to currencies. Don't know how to even begin. I've been staring at the charts you posted earlier of the move on 8/16/07 and trying to understand how looking at one would have helped me in another, but everything just seems to be happening simultaneously... such is the depth of my ignorance. Or the shallowness of my understanding

I've been an indicator junkie too long. Not out of laziness, but because it's so alluring to think that some clever math and some graphical, abstracted interpretation of the chart will reveal a 'truth' about the market that otherwise would remain buried — and thus lead to buried treasure... I'm looking for the treasure, just like everyone else here. If I ever end up doing this just for fun, it'll be because I already found the treasure

I believe indicators have their value — I wouldn't accept that the Gann's of this world weren't on to something — but I want to go deeper and become more literate in price action itself.

Another thing that I've been studying — something I thought would transform my understanding of price action — is the role of Volume as it relates to PA. But I now see that it has almost no relevance in Forex (despite the tens of indicators written to make you think that it does), because Volume in Forex is not centrally reported like it is in futures etc. It's merely tick volume that's broker or data stream-specific. I spent a week learning how to read divergences and hidden divergences between volume and price, only find out it was irrelevant to Forex!

Anyway.

Martin Pring's book has just arrived on my doorstep from Amazon, so that's my weekend read taken care of.

Please, keep the examples coming. Keep the challenges to see what you see coming. Put the charts up and ask us to identify the opportunities and traps — doing it is the only way past the ignorance for me.

Thanks for your continued help.

Without question, this is one of the best, informative and professional threads I have read on this forum. Like many, I was taken in by indicators, mostly as a confirmation of what I was seeing or thought I was seeing. Price action for me in the past was limited mostly to inside bars and buying/selling the break of the high/low of the IB. This thread has opened my eyes to a few more tools that I can place in my arsenal such as the "V" to the 1,2,3 (2)break entry.

Many thanks to those that started this thread as well as to those who keep it going with their questions.

feb2865 ... I would apprecate your feedback/opinion/advice about the following (I am open to feedback/opinions/advice from anyone else, as well, however I am trying to concentrate on feb's style of trading, so I need to keep it "trend" following on the Daily and not breakout, etc. ... thank you ):

I have recently gone from shorter-term to longer-term trading. What I am currently trying to test, however, is if I can capture some shorter-term TPs while I'm doing the longer-term. Besides the fact that banking some pips would be nice, I am mainly wanting to do this because I have to put a pretty large SL in order to do the longer-term trades, so it would help minimize my drawdown in the case of my SLs being triggered.

What I am doing is, putting in 2 lots initially on a position (1 lot with only a SL - I will manually exit the position when the Daily shows signs of a retracement, and the other lot I am putting a TTO (SL and TP targets)). The TP would be 50 pips (or at a major resistence/support level). Then when one TP triggers, I will enter another position at the right time when a retracement happens on the 30m. For entry I am using your example in Post #102. Basically, the 1 lot will stay in the long-term, and a revolving lot will be taking the interval TPs.

On my 4 recent trades, I would have banked a total of approx. 200 pips (around 50 pips each) before stopping out on them (I did manage to bank 66 pips on one of them, after realizing I should do this taking of shorter-term TPs, lol), so taking some 50 pip TPs would have helped in buffering my SL in this recent retracement of the pairs I was in (EUR/USD and NZD/USD) which totaled approx. -300 pips, lol.

In order for me to TP on the shorter-term trades upon re-entry however, I used a shorter-timeframe chart (the 30m). I originally thought I would need to do that for shorter-term TPs, and figured this price action method could be implemented no matter what timeframe is being used. I have attached a chart to show where I entered.

However, as I am writing this, I am almost coming to my own conclusion/realization that maybe even for the shorter-term TP, I should still be using the 4hr chart since there is more likely a higher degree of probability of it reaching 50 pips as long as I get in on the right candlestick and forget trying to re-enter on the smaller timeframes and just sit it out and only re-enter on 4hr retracements (this will certainly be a test in patience, lol). It will be less and far between, but it's probably a lot safer and more profitable in the long-run.

As I look at the 4hr chart, I can see now very clearly that my entry on the 30m chart is 3 candlesticks above where the better entry point would have been for the 4hr (.7735).

I thought the trend looked strong but because there's no telling when it can turn on you, I guess I can see now why it's better to use the 4hr at minimum for even taking shorter-term TPs.

Haha, it's funny how when you start writing down your thoughts like this, you can see better your mistakes and things start to become much more apparent.

Anyway, if you have any feedback/opinion/advice on my above, I'd love to hear it. This transition to go long-term from having traded 8 months short-term is not easy to get used to, but the more I look at the bigger picture of it, the more it just makes sense.

Your thread has been an eye-opener for me and I thank you and everyone who has contributed to it for the lessons/samples/dialogs and insightfulnesses (lol, if that's a word)!

Here a pair of charts. One is the AU/US and it was atrade I made last week focusing on Feb's method: The orange broken line shows where i entered the trade. I had a Stop Buy order just at the low of the previous candle (the one just after the reversal candle). So far, so good. It has stopped at my resistance line. My position is still open, but it might bounce back up. I expect it to fall down to 0.8748. But I will have my TP a little above that. Just to be save. Meanwhile, I also have a trailing stop, so if it does not hit my TP and reverses I will be able to keep some pips.

The 2nd one is a trade I am planning for next week in the Eu/US. If that seudo-pinbar is a reversal candle, on monday I shall see a bearish candle and I will put my BuyStop Order at the low point of it. So if everything goes as planned I will be in the Euro by tuesday.

I know...I am an advocate for total nudity but I have indicators!!!! well..I use the EMA's that I have in my chart the same way that Phill uses them in his awesome thread about MACD. As S/R lines. And also as indicators of the speed of the trend: If the candles are closing above the 8 EMA the trend is moving fast. AsIt starts to drop to the 21 the trend starts to lose some fuel. I also have the ATR but that is to determine the size of my stops. 1XATR.

So FEB...how am I doing so far?

Hi Kev,

Sorry I have not posted I have been kind of busy.

First thanks for the recognition. It's always nice to hear or in this case to read a thank you. And I think we are all greatful to Feb for bringing realism back to the orum along with the James16 Group. Indicators have their place and yes I do use them but in a limited fashion. Heck even EA's can be useful but ONLY if monitored. I am not going to get into a long drawn out discussion on either of these right now because like Feb said let's stay on topic.

Price action can tell you so much about a chart and where the market may go it's not even funny. Yesterday the market handed out pips for those who were watching. Sadly though someone has to be on the losing side of the trade. Thankfully in his market it is usually the brokers .

Ok now on to my thoughts. I am going to have to break this up in multiple posts.

Feb my friend again I appologize to you for posting so many times and and i I speak out of turn please step in and smack me about a bit.

I have many thoughts and will try to produce them in a clear manner.

Stay tuned for the next post.

A quick note on timeframes:

I make my entry decisions on a 4H TF. I use the daily and weekly for areas of S/R and overall tend analysis. I never enter a trade based on anything below a 4H chart. In my opinion decisions made on anything lower than 4H charts are for individuals who are looking to get in and out of the market the same day. Otherwise known as day traders.

Ok now that I got that out of the way…

Up until now we have been talking about using price action and how o use it to get into the market. It is no big secret that making trades in the direction of the primary trend presents a trade opportunity with the highest probability. So the question is going to come anytime now about how do we determine the trend? What time frame is most reliable and so on and so forth?

Let me make this clear to anyone who reads this. Lower timeframes build the trends we see on the higher timeframes. So a 1H feeds a 4H which feeds a Daily which feeds a Weekly which feeds a Monthly. So knowing this allows us to use this to our advantage to catch the intermediate or minor trends based on price action of lower timeframes.

What this also means is that one mans up trend is another mans down trend hence the difference in opinions about the market which cause price to go up and down.

There is no right or wrong only a difference in opinion about where the market is heading.

So do your analysis make your choices and stand by them. If you get stopped out on a trade don’t let it affect your mentality about your ability to trade. You will have losing days it’s part of the business and that’s the way it is. There is not a business that I know of that hinges its success on its daily profits and losses rather it bases its profits over the longer time frame.

If you do not know how to determine the trend direction on your given TF then my suggestion to you would be to stop trading immediately and do some research! Not trying to be mean just trying to save you some aggravation.

So what does all this mumbo jumbo mean anyway? Well for KevTCW it means that the points that you have indicated on the chart you provided are areas that “I” would look at and trade on based on a violation of those areas. This may not be the same for everyone who looks at it. Someone else may interpret it differently and enter a short position at the Black number 2. This is where Feb would most likely enter a trade. I on the other hand am a bit more conservative with my entries and prefer to look for a breakout. Let me caveat this by saying I do enter trades as Feb does but based on specific criteria I will touch on at a later time.

For now lets keep things moving in the right direction by understanding that we are looking to enter trades in the direction of the trend with an entry point based on a price action setup after a pullback or a break of he most recent #2 point after a pullback for you more conservative types like myself.

Still more to come.

Trader_V

LOL, alcastro, you are so cute. I'm a woman, so I can say that to you : hopefully without you taking offense to it. I am married so don't worry I'm not hitting on ya nor making fun of you, believe me, I am saying it with the most gracious terms of endearment at heart

I, myself, was still hanging on to several of my indicators, but decided that they truly got in the way of my eyeballs cuz they yelled out at me thus distracting me from focusing and concentrating on the price action. I took out all my EMAs and the Ichimoku and the only one I'm leaving is the Fractal, since that one I feel has some advantages with using with this price action method. But I know how hard it is to go completely naked, so I can relate to ya, lol.

For my EUR/USD, I can see that this was my problem. I didn't put my SL at the low of the previous candle. I got in at a higher point of the daily candle and so it was too far away from the previous candle's low. My trades were put in before I read this thread, so I'm not going to beat myself up too badly, lol, but this thread has brought me to realize that it is very important to stick to the rules and also where it's safer to enter the trade and where the SL needs to go.

For my NZD/USD trade, on the Daily chart, I clearly got in at the wrong place after reading this thread and seeing the examples. Even though for this particular instance, getting in at the right place (which would have been two candlesticks to the left of my position as shown on my chart attached) would have still been stopped out, in the long run, being consistent and following the rules of the system will have a higher degree of successful trades than losing ones. I truly believe this from studying the charts for past scenarios.

Consistency is such an important factor, in my opinion.

Anyway, I'm looking forward to seeing where all of us progress with this method, and hopefully in the future I can be of assistance (when I am having a certain degree of success with it) to others as many of you have been doing here in this thread and elsewhere

Thanks for the confirmation and great info, Trader_V!

I am not sure if this comment is directed at my post of the NZD/USD chart, but if it is....I was asking if that was a possible 1-2-3 forming. (assuming it goes lower.) The pinbar formed after trading was even uglier than that one, (as I posted it early EST.) so I assumed it could be a good example of price action as well.

If you think it is jumping the gun, by all means....erase the post, I will take no offense at all.

I am truly thankful for this thread, and may have been asking a little ahead of the curve, which is cool.

If you wouldn't feel comfortable answering my question in the open, please PM me you thoughts. I will not make a decision based on your message. (In fact, I already have decided on what to do at price "x", if it gets there. If it doesn't - oh well.)

Clockwork

Wait a minute, I have to retract my above statement in RED, because had I put the SL at the low of the previous candlestick (.7617) as per the rules, that price hasn't been reached yet, lol.

We'll see on Sunday

I want to talk a bit about trends and how I identify trends. These are my thoughts so take them with a grain of salt please.

Many folks will use trend lines to assist in identifying possible areas of S/R within an existing trend to identify possible areas to enter a trade. I personally do not do his because I find them to be confusing and I will explain why.

On the following chart of the AUD/USD I have drawn 4 trend lines on the Daily TF. The blue is the initial up trend. The purple is the tend line redrawn based on he new lows that were made at point A. And the yellow is the start of a down trend. The Orange is a redrawn trend line based on the new highs at point D.

I would like to draw your attention to some points that I have labeled.

Point A:

You can see that price has retraced through the initial trend line in blue and formed a new low which you would use to redraw your trend line. Some folks would see this as an area of support and enter a trade to go long based on the previous trend direction.

But here is my question:

Once price breaks through and closes multiple bars below the up trend line that has been drawn would it not be fair to say the up trend is over and a reversal has taken place? So why then do we redraw our trend lines?

Point B:

This is what would be considered the start of a down trend and the ending of the up trend. However, bear in mind you cannot define a trend on one point alone.

Point C:

This point has confirmed that a down trend may in fact be in place. A pullback has occurred after he sell off at point B and a nice Bearish Outside Bar (or Bearish Engulfing Candle for you candle fanatics out there) has also formed at point C indicating that a short position could be in our favor. And if indeed someone would have taken this trade they would have banked some pips.

Point D:

A new lower high has been formed which has us redrawing our down trend line shown in orange. Again a pullback from the previous sell off has occurred and another Bearish Outside Bar has also formed. Indicating that a short position could have been in our favor.

If a short position had been taken the worst case scenario should have been a break even trade.

But again I ask you once an trend line has been violated by multiple closes on the other side is it not fair to assume that the trend has reversed?

So ok the big question is how do I define a trend???

I use price action to define a trend base on the classic definition of higher highs and higher lows for an up trend and lower highs and lower lows for a down trend. So by treating peaks and valleys as 1-2-3 points poises me for catching a trend.

Using the same chart I have placed these points to show where I entered trades. Entries are marked with a white line.

When I am watching the market each new high becomes a point 1 for a 1-2-3 top formation which allows me to catch reversals. And each 3 that is made in a trend becomes a new point 1.

The last point 2 is dependant upon price surpassing this point. If prices did not pass this area but instead traded beyond point 3 I would be long at the white line.

I know not everyone will agree with my views. In fact I do not think everyone should completely agree with my views otherwise how would we have a dialog J

I hope I am keeping in he spirit of things here Feb I am trying to stay on course here and not divert into other crazy areas. Trading does not have to be so stinking complicated if we do not want it to be.

I only hope I have helped someone here today see the charts in just a slightly clearer way.

I have plenty more to share but we been to take this in pieces and digest it and fully comprehend it.

PLEASE PLEASE PLEASE if you are looking for verification as to if you are looking at the chars in the same way as I or Feb; instead of asking us to verify your charts I suggest you do a little research on these things first. Then post up a chart on what “YOU SEE” if you are unable to formulate your own opinions about market direction or other things you will hinder your own trading ability and lengthen your learning curve.

So yes post your charts and share your views on what you see. If I or someone else disagrees with what you are seeing have no fear we will post our comments but you must start to become an independent trader. Become a student of the game. Formulate an opinion and share it with others. Then and only then can the true learning process begin by allowing others to comment on your findings and you doing the same in return.

BUT REMEMBER TO STAY ON TOPIC. TREND TRADING WITH PRIE ACTION SETUPS BASED ON RETRACEMENTS AND SUCH!!!

Ok I’m done for tonight. Catch yall later. If I have completely botched your trading methods by my post please just ignore my ramblings and do whatever you have already been doing.

All the best,

Trader_V

Please confirm this for me.


Did you mean a Sell Stop??? Just want to be sure.

Don't see those white lines, sorry :-(

Thanks for your explanations.

Okay, I've gone back to read this thread twice, and have highlighted important key quotes from feb2865 on his method. Sometimes it's easy to miss things first time around with so much convo going on, so I figured the following was a good summation of his main points. I basically needed to keep this handy for myself, so I figured I'd post it for anybody else who wants to bookmark it for reference:

-----------

"I have a hard and fast rule of entering after the pullback is confirmed because my job is to preserve my capital and minimize risk."

"Only pay attention to the price at the close. If you go down to a lower time frame, your job is to look for a price discount. That's it. Every trade must be done at the close...not in a middle of anything."

"you job is to enter as soon as you see that V formation....and place your stops and trail them accordingly"

Example of V-formation entry on a pullback

"Trading ranges are irrelevant in my humble opinion. I go down in time frame looking for a discount in price when a range occurs."

Regarding Stop Loss: "If you're looking to place a trade on a 4 hr charts - place the stop loss at the high/low of the previous daily candle. That way you give your trade enough room to breath and time to mature. Don't place them on the same timeframe you're looking to trade. After that, trail the stop-loss using the low/high of the daily candle (low/high depending on where the trend is)"

Regarding Exiting a Trade: "I use the same pattern as if I decide to go in - a reversal/confirmation candle, When that happens, I take some profit and leave some compounding."

Regarding Indicators: "But I learned thru the years that price is king. At the end, nothing else matters. I like my charts plain."

Regarding Timeframes: "I find anything lower than 4 hr is noise. A crude reality of lower time frames is that you're more exposed to news and noise. But it's up to you. I like my life easy."

Regarding Breakouts: "If it keeps moving higher then I sit on my hands and wait for the next pullback."

"Nobody knows how far the market could go so it's better to stay put. I must see a reversal and then a continuation."

"People you don't have to play if you don't want to. Don't let the market manipulate you. If you feel that you missed the bus..I assure you there will be another ride. Just get on the next one."

"I advocate a lot risk assessment. Sometimes you just have to miss the bus. But when you see an opportunity, go for it. Don't over analyze the charts. You already know what you're looking for."

"I believe as long as you follow the trend you'll be alright."

Just a question

Wouldn't it be safer to trade pivot points rather than trend lines? Trent lines tend to be very subjective. 5 traders would plot 5 different trend lines

Here is my reason for mentioning it. Pivot points already has support and resistance levels plotted. And as you can see on the charts i posted there one can use the V-formation plus bounch off pivot lines, support 1,2,3, resistance 1,2,3 can confirm the the reversal. On the charts the bounch occured off the pivot point.

I hope i am not side tracking the topic here.....

I don't use pivot points for the simple reason that you can draw horizontal lines anywhere on the chart and they are bound to have some reaction somewhere - in my opinion it is much better to use actual areas of support and resisitance rather than potential areas.

Great thread you've started here Feb, trading naked with pure price action is the way to go.

M

You are right. A SellStop. Sorry for the confusion!

Hey LEIGH, thank you for your summary. It is always helpful to make this exercise. I do the same thing and write it down so I have it by my side when i am analyzing a trade.

I agree with MP777 regarding s/r lines: I draw them based on areas where price has already found some support or resistance before. I don't believe in drawing future lines based on calculations or fibos. It don't see any logical reason for that. Of course i have always seen, and will always see that price will bounce from a fibo line. It always do. There are lots of fibo lines....so it isn't surprising that when price reacts it is always close to a fibo!!!! But of course that is me...who has not been introduced into the arcane secrets of Fibo lines and the Nostradamus brotherhood.

That is what I like about this thread. It is just price action. That makes sense to me.

OK I don't know why but the forum seems to be having a problem displaying both of the charts I posted from my above post so here is the second chart.

So weird this technology stuff

Great thread, and thank you FEB, Trader_V, and Fiveshorts.

Price action/pattern analysis is great. I used to use no indicators, no MAs on my chart, because I thought by analyzing price movement it is enough. By now I added some indicators, and EMAs. I think there is no conflict because when the trend picks up again i.e. correction/consolidation finished or 1-2-3 pattern formed, there must be some EMAs crossing, RSI botoming up, KD showing crossing etc. Of course, too many indicators make you confused and ignore most important thing--- price pattern analysis.

I wish you Feb, Trader_V to help me with your method and tell me any mistakes for my analysis:

The chart is AUD/USD daily chart.

1. On last Friday(6 Nov.), the A/U price has broken a short trend(white line). Wednesday candle is a kind of Shooting Star, and from Wed. Fri, three candles formed a Evening Doji Star. So a down trend, or a bigger correction (breaking yellow line) will most probably happen. Notice that on 1 Nov., a huge red candle indicated that the up-trend showed some weakness.

2. However, we also have to notice that, on 1 Nov., there is a support @ 0.91. And 0.9076 is the highest price on 15 Oct and that resistance shall become a support.

3. So, what should I do? Shall I jump in immediately after the daily chart price closes below 0.91 on Monday? And what about stop loss? Above 0.94? Well, that is more than 300 pips! Or set stop loss at Thursday high 0.9330?

4. Or, shall I wait for price to go up again, and try to open short positions somewhere between 0.9100 and 0.9400.

5. Or, shall I wait several days for price to break out 0.94 and place a long position?

Thank you.