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The Market Explained by candle sticks and price action

  • #61
  • Mar 27, 2010 10:14pm Mar 27, 2010 10:14pm
Quoting Xtrader

However what IS interesting is what he (perhaps wisely?) did not/will not say.
Trust me there is no secret to making money in markets.
I guess i'm kind of biased because of my research and experience BUT i believe its kind of common sense when you understand how market move.

There is only understanding, which involves understanding why markets exist and who they truly exist for. Markets exist to make money. Institutions and people with insight into the mechanics of markets make money. How they make money is by understanding price action.

When an institution or firm (or people with intentions and more money than we do) place a order or a series of orders based on a decision they defend it heavily. This is what a price action trader looks for. They want to determine what the people with more money and market "power" are doing.


Lets focus on Fridays Charts to Hone in on when im trying to Say.

Okay the Eur/usd have been rallying since 5pmish EST on the 25 of march.
So here is the scoop a lot of smart, rich and and or rather ballsy people made a very big investment and prevailed to support it around the 1.32666 area. They kept defending it till eventually the sentiment was that this is now a time for buying.

Attached Image (click to enlarge)
Click to Enlarge Name: Current Bull Rally.JPG Size: 51 KB


This picture shows all the times they (the smart rich and ballsy people) supported their original entry with the help of smart day traders who also bought when they supported their original entries.

Attached Image (click to enlarge)
Click to Enlarge Name: Friday.JPG Size: 64 KB


The same thing occurs on a small scope like friday for instance.
So all the smart traders know that this has been heavily supported serveral times for a day or so...so the smartest thing to do would be to wait for a counter trend move to fail.

So the day started off basically in a down trend most smart traders sat and waited for a break of the bull trend line that was projected from the start of the trend it was broken at 930 or so but when the bears tried to move it further below the old low the strongest market powers prevailed once again. They bought up all they could and turned the market around. First clue for the day that no new lows would be accepted and today was a rally day.
So through out the day every single low marked with a horizontal line has been defended which is where we as smart price action traders would hop in and ride the flow of bear traders covering their losses (buying).
  • #62
  • Mar 28, 2010 12:29am Mar 28, 2010 12:29am
Quoting Fuzzyzc
Trust me there is no secret to making money in markets.
I guess i'm kind of biased because of my research and experience BUT i believe its kind of common sense when you understand how market move.

...

So the day started off basically in a down trend most smart traders sat and waited for a break of the bull trend line that was projected from the start of the trend it was broken at 930 or so but when the bears tried to move it further below the old low the strongest market powers prevailed once again. They bought up all they could and turned the...
Very insightful.. thank you.
Time flies like an arrow; fruit flies like a banana.
  • #63
  • Mar 28, 2010 9:15am Mar 28, 2010 9:15am
Quoting Bwana
Very insightful.. thank you.
No Problem... If you have any more questions feel free to ask im an open book.
  • #64
  • Mar 28, 2010 9:53am Mar 28, 2010 9:53am
Quoting Fuzzyzc
No Problem... If you have any more questions feel free to ask im an open book.
Thank you. If i may take you up on that offer, how do you handle "stop hunting" or spikes. Is there a correlation between how strong the spike is expected to be and the ATR of the pair say over 100 periods?

Also, do you have a time checkpoints on your trades? Say, after 5-7 bars if price action has not reflected a trend and is still ranging, do you close it out, even for a small loss or let it hit SL or at least show signs that your seup has become invalidated?

Thank you for your time and efforts.. and likewise, if you have any questions regarding mass transfer, structural integrity / analysis, or 3d modeling, let me know!
Time flies like an arrow; fruit flies like a banana.
  • #65
  • Mar 28, 2010 3:40pm Mar 28, 2010 3:40pm
Quoting Bwana
Thank you. If i may take you up on that offer, how do you handle "stop hunting" or spikes. Is there a correlation between how strong the spike is expected to be and the ATR of the pair say over 100 periods?

Also, do you have a time checkpoints on your trades? Say, after 5-7 bars if price action has not reflected a trend and is still ranging, do you close it out, even for a small loss or let it hit SL or at least show signs that your seup has become invalidated?

Thank you for your time and efforts.. and likewise, if you have any questions regarding...

You cant really predict spikes. Traps are kind of part of the game really, but we try to be caught in the other peoples traps. Example. In a bull trend riding a bear trap panic to cover (which means we tuck our buy order in with the bears who are buying to cover in a panic).

Well to be honest you dont really handle stop hunting in theory you have to become the stop hunter.

How long to stay in a trend is really up to your taste because the first leg of a reversal can have many more legs but it could be your taste to just take the first leg and then wait for another move that is with trend.

I dont use any indicators to trade well i use a EMA for reference but i dont use the EMA to actually place trades i look at pure price action through candle sticks.
  • #66
  • Mar 28, 2010 3:48pm Mar 28, 2010 3:48pm
Quoting Fuzzyzc
Trust me there is no secret to making money in markets.
I guess i'm kind of biased because of my research and experience BUT i believe its kind of common sense when you understand how market move.

There is only understanding, which involves understanding why markets exist and who they truly exist for. Markets exist to make money. Institutions and people with insight into the mechanics of markets make money. How they make money is by understanding price action.

When an institution or firm (or people with intentions and more money than we do) place...
wrong, big money doesn;t care about price action.

They create movements so why would they care. the Fed doesn't say 'aww guys lets sell our euros here right at resistance'.

Though SOME do use price action for stop hunting- they know tonnes of sells are under support so they buy there...
  • #67
  • Mar 28, 2010 3:54pm Mar 28, 2010 3:54pm
Oh my god is this place becoming a hub for reading a post, skewing the words in your brain, then replying with a totally irrelevant reply or what
  • #68
  • Mar 28, 2010 6:09pm Mar 28, 2010 6:09pm
Quoting TGpop
wrong, big money doesn;t care about price action.

They create movements so why would they care. the Fed doesn't say 'aww guys lets sell our euros here right at resistance'.

Though SOME do use price action for stop hunting- they know tonnes of sells are under support so they buy there...
"Big money" is a collection or the personification of the market not one person or persons controls a market. When Enough people with the same idea get going a trend is established it will continue until the collective believe they are not at the best risk to reward ratio.

I never said institutions cared about price action they are the price action or more specifically it is beleived that they are what creates price action.
  • #69
  • Mar 28, 2010 6:50pm Mar 28, 2010 6:50pm
Quoting TGpop
Though SOME do use price action for stop hunting- they know tonnes of sells are under support so they buy there...
Market makers are not in the business of loss, because resources and market power are always limited. The path of least resistance is to use the energy of the countertrend traders against them.

Think of it this way every dollar is a unit of energy. So every Sell order has to be covered and has a reversing property.

If enough people go short at a point its all pent up buying pressure to cover so every order that has been sold has to be reversed. All a market maker has to do is scare a bear out of his position creating a panic. Now the Supply and demand has changed. Demand to buy (or cover) Creating a lack of supply that can be bought. Now the price keeps getting chased up because everybody want to buy including people who understand that a trend doesnt end until a trendline has been broken and tested and fails.

This is what institutions and firms do when there is a trend they will continue to buy as long as the sell or buy orders dont overwhelm their ability to fight.
When they do lose the ability to fight countertrend traders. They will just go short. That easy. they dont wast time or energy trying to fight what the majority of traders are doing. Example if everybody want to exit or take profit from a giant projected three day rally they let them and most the time the join in on the short.
  • #70
  • Mar 28, 2010 7:00pm Mar 28, 2010 7:00pm
Quoting Sim
Oh my god is this place becoming a hub for reading a post, skewing the words in your brain, then replying with a totally irrelevant reply or what
i think alot of people read what i say or basically everyone says and if they dont like it or dont want to see what i understand they would rather scrutinize.

This a thread for learning how to trade with candle sticks and price action...but i guess people feel its a thread to argue.
  • #71
  • Mar 29, 2010 5:23am Mar 29, 2010 5:23am
Quoting Fuzzyzc
........This a thread for learning how to trade with candle sticks and price action........
If that's the case, I may have found my new home.

Japanese candlesticks are not very reliable on their own. One needs to understand the price action that creates them. Focusing on a hammer line will be less reliable than focusing on the price action the hammer line is within. Under certain conditions, a hammer line with limited reliability can traverse to much more reliable hammer pattern.

Many traders that say candles do not work on small timeframes, tend to be neglecting the context, or price action the candles are within.

BTW, price is continuous. Therefore it is true that an interval based on time, or contracts, or ticks, ultimately is arbitrary. But man is finite and therefore temporal. This doesn't have anything to do with what I have to say, but I wanted to address it as it was brought up earlier.

I have attached a screen shot of the Euro/USD. The timeframe is daily, but as I said I trade off of smaller timeframes. I was looking to show a particular pattern and I found one on the daily. The pattern is a Low Close Doji Pattern. John Pearson talks a lot about high/low close dojis. In fact, there is a CME presentation by him on the subject. He uses a very generic pattern that is not that reliable. A more reliable pattern is shown in the chart.

Things to notice:

1. Long upper shadow of the Doji is larger than the upper shadows of the other candles in the shaded area.
2. Long upper shadow of the Doji is larger than the bodies of all the candles in the shaded area, except the EB4 (expansion body).
3. The high of the Doji is higher than any of the candles in the shaded area.
4. The candle after the Doji closes lower than the low of the Doji, does not make a higher high and slightly engulfs the body of the doji. (in a Doji, the body is simply a line as open=close).
5. The open and close of the Doji is in the lower third (1/3) of the range.

Whilst volume is not important for the pattern, I like to look at volume. From a VSA standpoint, the EB4 is a wide spread candle with climatic volume with the next candle down. The fact that the next candle is down shows that there must have been some selling on the previous candle. The Doji itself, makes a higher high and not a lower low on volume less than the previous two candles. This is an Up Thrust in the form of No Demand. Another sign of weakness.

But again, volume is not needed to validate the pattern. I personally think it helps.

I would actually only want to take this trade if it occurs within a Supply/Demand Delta Zone. But for now, we can just focus on how this doji line traverses into a valid Low Close Doji Pattern.
Attached Image (click to enlarge)
Click to Enlarge Name: ex1.png Size: 82 KB
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #72
  • Mar 29, 2010 5:42am Mar 29, 2010 5:42am
Quoting HiddenGap
If that's the case, I may have found my new home.

Japanese candlesticks are not very reliable on their own. One needs to understand the price action that creates them. Focusing on a hammer line will be less reliable than focusing on the price action the hammer line is within. Under certain conditions, a hammer line with limited reliability can traverse to much more reliable hammer pattern.

Many traders that say candles do not work on small timeframes, tend to be neglecting the context, or price action the candles are within.

BTW, price is...

Hi H/G
thanks for sharing....but if and when possible can you ,as you have shown with the EURO example, use Daily and 4 hr TF for future charts ...
thanks
and take care

baz
  • #73
  • Apr 1, 2010 11:09pm Apr 1, 2010 11:09pm
Okay sorry guys i really haven't been keeping up with the price action and candle stick examples.

Okay i guess ill explain this euro rally that we are currently in and a handful of great trades that played out.

Okay first things first the euro has been in a down trend since 3/17.
No secret there were a lot of good shorts but i will just go into the reversal that has been playing out who really knows if its the bottom its not our job to call bottoms it our job to profit we are not prophets but we do profit. hehe.

Anywho regardless if this is the bottom to bring the euro back we dont care we are here to profit on price action that is unfolding today.

Okay down trend people are short and more people want to enter short why wouldnt then it sound reasonable. Going short wasnt a bad idea but when and where. Well contrary to our psychology the best place to place a short order is the least reasonable place. The high of a down trend. "Buy high sell low" and vice versa. Believe it or not most novice traders DONT DO THAT!
Most want to go short on the test of a new low.

Okay so we know a few things on the 3/25.
Long term short are holding positions from 3/17.
Middle term traders might have got in a little later along the way.
Short term traders might have shorts open for the day.
Novice Retail traders have gone short on the next test of the low.

This Spells out the sentiment (SHORT). What a perfect opportunity to make some money, but not in shorts. These Bears need to cover at some point dont they.

Two more factors play into the reversal.

1. A Downward trend line was broken. Top Line
2. A channel line was also exceeded. Bottom line

Attached Image (click to enlarge)
Click to Enlarge Name: Channel line and Trend line break.JPG Size: 95 KB


Most Trends End with one or both of these factors present Try looking back on any chart you can find. Line up trend lines and watch for a reversal once in is broken and then makes an attempt to test the line again.

Okay so curiously look what happens when after a trend line break and a attempt to create a new low fails [key word is fails because this without the proper help from big smart money this could have just easily trapped people long and fell even harder]

A failed new low mean Trapped Traders in short positions and we can smell the blood... time to make some money.

Ill go over the data for 6am to noon every day from 3/26 to 4/01.
  • #74
  • Apr 1, 2010 11:41pm Apr 1, 2010 11:41pm
Okay 3/26 wake up drink your coffee or frapachinos or what every people are poisoning them selfs with in the mornings and draw your trend lines the market has found a bottom on the 25. So what we are now looking for is evidence that price will go higher. The best place to buy in a buyers market is where people are scared to buy. the bottom.

The two first trend lines represent where buyers are present they have supported this twice. The third time fail but WE DONT GO SHORT! In a bull market the bottoms are perfect places for institutions to pick up dollars at a value to profit from. So how do we make money? We let the counter trend traders (Bears) exhaust them selves. They will load up with short orders when institutions are looking for undervalued price. TERRIBLE PLACE TO GO SHORT.

NEVER GO COUNTER TREND TILL A TREND LINE HAS BEEN BROKEN AND TESTED AND FAILS.

Attached Image (click to enlarge)
Click to Enlarge Name: 326.JPG Size: 62 KB



So if you were looking for a failed new low support A was a perfect time.
Are you beginning to see a pattern here how larger time frames duplicate them self on smaller time frames. Price action trades occur on all time frames. This was a mini version of what happened on the 25. New failed low.

Any who line B represents the power of the counter trend traders and was easily broken.

On a smaller time frame the candle stick pattern i believe it was like a hammer with a few bars with nice shadows. the truth is just knowing that bears were trapped was almost reason enough to enter then their short trade failed. There were several places to hop in after the bears were exiting and on more small buy later on as another new low failed.

So the days profit was about 50~ pips depending on your risk appetite.
This was the close of the week.






  • #75
  • Apr 2, 2010 12:06am Apr 2, 2010 12:06am
Okay the 29 was actually kind of a tricky day there was longs and short sentiment and it showed in the charts



Attached Image (click to enlarge)
Click to Enlarge Name: 329.JPG Size: 92 KB


A bull trend line was broken (not shown)
So we would wait for a test but price action didnt show a bull strength so a new bull trend line was broken for the day LINE B a showed that the bears did prevail for the moment. Line be was broken and tested with a couple tick trap that immediately fell. Short orders would be placed at the bottom of the Hammers because that is where those who presumed that this was the bottom of the down trend would place their stop losses. So we tuck our sell order in this was a 30 pip move.

The next trade is a long trade that is shown as a failing morning star.
The morning star failed to reach its goal and the goal was to fall back to the bottom of the move. Instead bull supported this in two steps up and then the bears finally gave up and covered propelling the eur/usd higher. about a 20 pip move


This later on in the day actually tested the old low and failed which propelled the euro higher later. About a safe 10 pips.
  • #76
  • Apr 2, 2010 12:29am Apr 2, 2010 12:29am
3/30


Attached Image (click to enlarge)
Click to Enlarge Name: 330.JPG Size: 102 KB


Okay line A is the long term bull trend line draw from basically when the trend began.

Line A broken time to sell
Notice how price is extremely respectful of the EMA

You can see that some buyers got anxious to hop into the trend they bought on the trend line a touch that is a no no lol. That is exactly what gets people trapped anticipating and hoping for a continuation. NO one is trapped how is the market going to move if everyone want to buy? So they trap them in a buy order and send it down.

Notice how price tanked after the second test of the trend line. that was the anxious bulls abandoning ship.

A nice morning star and a outside bar were good entries and also nice evidence that the bulls were losing the battle.

Trend line D was also a failed attempt to reverse the crash. That failed and drove the market further down. On a minute time frame it was easier to understand.


Both signals would have netted around 75 pips for the day.
  • #77
  • Apr 2, 2010 12:53am Apr 2, 2010 12:53am
3.31

Okay Im loosing steam today so bare with me im going to make these last two descriptions a little short because its getting kind of redundant lol its basically the same thing every day dumb counter trend traders getting squeezed out.


Im going to use 15 min bars too to help show a longer term perspective.

Attached Image (click to enlarge)
Click to Enlarge Name: 331.JPG Size: 106 KB



Trend line A was create from yesterdays sell off.
Line A was broken Bull now have shown their power.

Just for simplicities sake i have marked in white line everywhere bulls showed their strength and red lines shows where the countertrend bears covered sending the euro soaring.


if you would have been awake and caught the first leg up this would have been roughly a 100 pip move.

4/1 Today same shit different day lol

Attached Image (click to enlarge)
Click to Enlarge Name: 41.JPG Size: 106 KB



More failed lows
  • #78
  • Apr 2, 2010 12:55am Apr 2, 2010 12:55am
This concludes our price action examples for the week. Any questions or comments on how to trade Price action are welcome.
  • #79
  • Apr 2, 2010 3:04am Apr 2, 2010 3:04am
thanks fuzz!
  • #80
  • Apr 2, 2010 9:33am Apr 2, 2010 9:33am
Nice explanations, thanks
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