Price Action Trading with Indicators! The Freebie System

I've had loads of distractions lately which has not allowed me to do much in the way of trading but, on the plus side, it's given me the opportunity to look at a few new things, and this thread looks to be one of the more interesting things.

I've not read the full thread yet but I hopefully will have done by Monday morning with a view to giving it a go next week

Yes, support and resistance comes into play on every time frame. What I was trying to point out is not to lose sight of the bigger picture and to look for clues about direction. Let's face it, if you're trading a 5 or 15 min chart I think you would agree if you trade with the trend on the higher TF you're increased your odds of having a profitable trade, especially if you have a good idea of which direction price might move in the next day or two.

Look at the 1 hr EJ chart. We had a long up move and then we started down at the green vertical line. We have wave 1 formed , followed by wave 2. Now in real time we don't know if wave 2 will continue the up trend by breaking the previous high or not but we should start to plan our trading strategy. If you know anything about wave structure you will know that corrective waves come in 3 waves ABC. So we keep a close watch on wave 2 to see if it starts to fail before it gets to the top of the previous high. Looking at wave 2 we see price goes up and then we have a day where price makes a new high and then retreats and closes on its lows (purple rectangle). What I start to look for is for price to break under the daily low. That will give me another hint that wave 2 may be over and we're seeing the start of wave 3 down. Each day after the initial break of the low
(bottom white line) you see price makes a pullback (green arrows) but never gets close to the high of wave 2. This is another clue that price may go down further from here.

As someone who trades on the 5 or 15 M chart how does knowing this information help me???

If I see price being rejected and it can't push past the wave 2 high than the odds are that we are seeing the start of wave 3 down. Again, keep in mind that corrective patterns have 3 waves. If I know this information I can start looking for price rejections at pivot points and start taking short positions when I see these rejections. In this way I am putting the odds in my favour. I hope you can see by looking at the bigger picture we can enhance our chances of making profitable trades on the lower time frames.

I'll give you a clue about ABC patterns, typically wave 1 and 3 are about the same length. Do you see the aqua lines I have drawn on wave 1 and wave 3? These lines are about equal in length right now. Measure it for yourself and see. If this is truly a corrective pattern than we should start to see a retrace. If we get a retrace the question to ask yourself is, will we resume the previous up trend or will we get a price rejection and go further south.? If this turns out to be more than a corrective pattern we would expect 2 move more waves down. If not, we will continue to the up side. Now all of this won't happen in day so watch this pair over the next week and see if you can figure out direction and put the trading odds in your favour on the smaller time frames.

Dave,

one of the most informative posts I have ever read. Thank you so much.

Excellent stuff Dredding. Looking forward to the EA. Thanks for taking the time to develop it as i'm sure it'll help a lot of people.

Dave please 'carry on posting', personally I find your posts similar to Dreddings and Paulis', very educational and useful

I agree

I have decided to 'cap' potential TP's to a max of 3:1 risk reward

This will help fo example when we have a large move day followed by a small move day

Ie

the pivot are calculated on the large days move and then space out pivots accordingly..the following day we have wide spaced pivots with small moves that may trigger a signal but the TP could potential be 6 - 8 times the risk away

by this I mean if the risk is 12 pips and the TP 60 pips because of the wide spacing of the pivots then that gives a ratio of 5:1

The actual trade may get to 3:1 then reverse and hit the TP as the volatility isnt there to take if further.

As I dont use a sliding stop I have to protect profit and a trade at 15% gain on account ie 3:1 risk reward should be banked

here are 2 example from Friday

Hi Dave

Thanks for the explanation. Much appreciated.

P.S. I have a long bias on this pair on Daily TF as 115.0 seems to be like a wall at the moment.

Hi prtflefool...

So let's take a look at even a longer term view so we might understand what could happen next with price.

We have a daily chart and as you can see we had a major down trend on the left hand side. Once we bottomed out we have what appears to be an ABC correction to the upside. Which is what you would expect in the longer term chart.

So let's zone in a bit on the daily chart. Now here's where things get a bit more interesting. I have marked the ABC correction as waves 123. I did this because we don't know for sure if the waves are corrective or if it's a reversal in longer term trend. The last down leg can either be a 1 wave or a 4 wave, at this point we don't know what it will be.

So you ask how will we know what it is?

You see I have labelled the last wave down with H. L. LH and LL. This typically denotes we are in a down trend in this current wave. So to break the down trend we need to break above the last high. If that happens we will know that the down wave was 4 and the current up wave is 5. If this doesn't happen and we get a pullback and failure before we reach the last high (LH) and price reverses and breaks the last low (LL) we know that we are in wave 1 of 5 waves down. Keep in mind that we may go a little lower before we get the pullback. The pullback is the key, does it keep on going north and break the last high or does it reverse and break the last low.

Knowing this information will help you plan your trades on the 5 and 15 min charts and will put the odds in your favour.

I know some of this stuff is a bit off topic but I think it's important to keep an eye of the longer term charts so you have an edge when trading on smaller time frames.

First trade of the week. AUD long for 21 pips. Took 2nd rejection of DPV.

Bit of a slow burner, but grabbed 15 pips off this move

aud usd before and after...about 1:2 risk reward

Paul

Hello Dreddings - or indeed anyone who may be able to help.

Do you know how to get the semafor indicator for ProRealTime/IG charts? I have been working with the zigzag only but think the semafor would be really helpful.

Hope someone can help...

Hi Delite, I trade on IG index and as far as I can tell you cant get the semafor. I execute on IG and use mt4 charts alongside so I can see the set ups.

T

Hi Tritan

Thanks for the reply! Will have to look into using mt4 then...

Thanks again!

No worries but wouldn't completely take my word for it as not 100%. Others here may know of a way or you might get some info by emailing IG (IT Finance). Good luck and if you find a way i'd be keen to hear

Hi Guys...

Here is the 5 M EU chart. See how price tests and retests the DPV. Price never pushes too far away. You could have traded any of the green arrows but the best set up is the 3 rd one.

It doesn't egt any easier than this.

Nice one Dave. I traded both the third arrow and the next set up after that. Reason being that I haven't perfected my exits yet so only took +11 on the first trade (your third arrow) and then +35 on the second trade (where the HA candles turned red again 13:45 GMT)).

What exit strategy do you adopt if ou dont mind divulging?

T

Great charts Dave, I am learning alot from you and Paulus, please keep posting.

Hi T,

I really don't have a set exit strategy. What I do know is that on a 5 M EU chart waves tend to run from 15-30 pips, so I gauge my exit on those numbers and how PA is looking. I know that's not the answer most people are looking for but that's how I do it.