Price Action in Day Trading by Dadas

If I did not understand one indicator, I would search for one I would understand.
I found a couple I had understood very well.
That did not help anything, because I still did not know when to enter, when to exit.
Because I did not understand the chart and Price Action.

I saw it post-factum.
Never, when the action was on.

Today, I could use any indicator, but what for?

Actually, the PTECZ is all I need.

The Zone Candle is just extra aid.

Dadas

I think your posts have complicated what is a fairly straightforward strategy of trading CZ's, it took me a number of attempts at reading your thread to understand all your acronyms for different zones etc, but it all comes down to when price consolidates between buyers and sellers and you've done a good job of explaining that. Having been through numerous indicators and gone back to pure price action myself, I do not believe there is any other way to trade forex and the final jigsaw piece comes down to trade management for me. I was going to comment about your description of looking at shadows etc. and respond to you stating that these only exist for that timeframe, but I am pleased to see you address this in one of your posts, which has prompted me to respond to your thread.

I would be interested in reading your opinions on what I believe is the most important factor, that is, when to enter these zone breakouts and although you've provided different risk scenarios, I think this area is worth discussing in more detail.
thanks

Dadas, it seems like you are quite confused. Price action IS a form of indicator. Technical analysis is about using indicators to signify and rationalize our entry and exit points. Even price itself is a form of indicator. It is indicating to us what has happened in the past.

If I can use other indicators to help pinpoint a specific market pattern which has proven to provide a statistically proven edge over a long period of tests, why would I not use them? Should I abandon them because like you said, price action is all I need? No. Whether you should add indicators to your trading depends on precisely HOW you use those indicators.

Though I agree with you that a trader should have a strong knowledge of price action and how it works before turning to the typical indicators. Understanding what price is doing is important, and by using specific indicators you can really add to your edge. Like I said, I used to trade using only price action but as I am always looking to improve my method, I found out that I can improve my edge in backtest/forward tests by adding some specific indicators.

Please, please, please, and one more time: Please!

Please, remain open-minded and try to understand the whole of what I am writing.

Please, try not to be biased and see only those parts which bring out your own doubts!

I am NOT telling You or anyone to abandon anything, including indictors, because
price action is all that is needed.

The sheer fact tnat You are still reading my post and that You have read a thread
with "Price Action" in the title, is proof that You are not fully convinced with You indicator
method of trading, that You, still have doubts, that You, still are looking for Your Holy Grail.
Otherwise, why read a thread on Price Action? What for?

If I were the Indicator Trader and found a method which worked for me, I would be
preaching that method, I would start a thread on Trading my way with this or that
Indicator, and I would not bother with Price Action threads.

I am not telling You to drop Your Indicator method.
I am not asking You to abandon Your Indicator method.

Ask Yourself, and be honest, why You came to a thread on Price Action?
Just to find the sentences or statements taken out of the whole context
which justify Your picking on the author?

Just to prove to Yourself, that Your Indicator method is the right method?

Just to prove Your doubts wrong?

If You are absolutely convinced with You method, please, carry on,
do not bother and waste Your time on doubts and trying to convince others (ie. Yourself)
that You are right!

I am not trying to convince anyone!
I am not telling You or anyone what they should or should not do!

I am presenting my method, my realizations, my way.

Want it? Take it!
Need it? Take it!

Not interested? Fine, carry on Your way!

Ultimately, You will be able to say, honestly: "But, most of all, I did it my way!"

BTW.
It is said that indocators can indicate, but not predict the future.
Well, attached, please find one that does!
It is supposed to be 80% - 90% correct.
I have not had enough time to test this.
However, if You can trust that, assuming Your R/R and MM is correct, You should be profiting.

A word of explanation:
Maybe I have not stated it precisely enough, even though I thought I had.
For me, there is a great difference between an Indicator as such, and a Tool-indicator.
An Indicator is a programme which Indicates Trend and Trend shifts.
It is a programme which is supposed to indicate moments of potential trend shift and/or
trend strength based on the idea of Moving Averages.
An Tool-indicator is a tool programme which helps to identify certain areas of the chart.
Thus, a Tool-indicator indentifying Candle Patterns and somehow highlighting them on the
chart is not a traditonal Indicator, just as my Zone Highlighting Tool, I do not consider
to be an Indicator!

There are tools in the toolbar of the MT4, like the lines, the trend line, the rectangle, elipse,
among others, which are not indicators, just tools. You can use them manually.
You can write a programme which will use those tools to highlite certain areas.

They could be written as Expert Advisors or as Indicators (because that is the MT4 way).
They are, usually written as Indicators, because You can only run 1 Expert Advisor on one chart
and You can run many Indicators on one chart.

The similar missunderstanding arrises with the term "Script".
In the programmer's language, any programme written is a script.

In the MT4 way, a Script is only one type of programme.
This brings out some confusion, especially when poeple only know the MT4 way
and treat it as the normative.

We are always trading one Timeframe or another.

The Candle Shadow Zone is a part of my method, as anyone who has read and understood, can see.
Of course, the Shadow or Wick of the Time Period Candle is relevent to this Time Period.

However, the larger Timeframe Candle Shadow Zone remains valid for the smaller Timeframe.
It is because the smaller Timeframe Candle is a part of the larger Timeframe Candle.

The other way, of course not!

Yes, I will discuss the when to enter these zone breakouts issue in more detail, later on.

very nice thread. I'm reading it and trying to understand so hard (coz my english is not that good ) I'll try it on demo next week, hope you can give me the feedback. Cheers,

Some people say that they use Price Action in their trading strategy,
yet they are still searching for new information on Price Action.
They claim to understand Price Action, yet they are still looking
for answers, looking for something, the Holy Grail, perhaps?

Thus, I feel the neccesity to explain once again!

Price Action is just that, the Action of the Price!
There is nothing else to Price Action.

In order to be able to read a text, we must first know the language,
then learn the alphabet, put the letters together into words, the words into
sentences, sentences into paragraphs, and paragraphs into whole stories.

In Forex it is much simpler.

There is the Candlestick, which is the abbreviated story of the Price Action in a given period of time.

The MT4 platform provides us with the following Timeframe charts:
1. The Monthly MN chart which consists of Candlesticks representing the time period of 1 month.
One 1-month Candlestick contains the abbreviated story of the Price Action during that month.
2. Then, the story is broken down to a Weekly chart W1 which consists of Candlesticks representing
the time period of 1 week.
One 1-week Candlestick contains the abbreviated story of the Price Action during that week.
3. Next, the story is broken down to a Daily chart D1 which consists of Candlesticks representing
the time period of 1 day.
One 1-day Candlestick contains the abbreviated story of the Price Action during that day.
4. Again, the story is broken down to a 4-hourly chart H4 which consists of Candlesticks representing
the time period of 4 hours.
One 4-hour Candlestick contains the abbreviated story of the Price Action during those 4-hours.
5. Still, the story is broken down to a 1-hourly chart H1 which consists of Candlesticks representing
the time period of 1 hour.
One 1-hour Candlestick contains the abbreviated story of the Price Action during that hour.
6. Continuing, the story is broken down to a 30-minute chart M30 which consists of
Candlesticks representing the time period of 30-minutes.
One 30-minute Candlestick contains the abbreviated story of the Price Action during those 30-minutes.
7. Further, the story is broken down to a 15-minute chart M15 which consists of
Candlesticks representing the time period of 15-minutes.
One 15-minute Candlestick contains the abbreviated story of the Price Action during those 15-minutes.
8. And on, the story is broken down to a 5-minute chart M5 which consists of
Candlesticks representing the time period of 5-minutes.
One 5-minute Candlestick contains the abbreviated story of the Price Action during those 5-minutes.
9. Finally, the story is broken down to a 1-minute chart M1 which consists of
Candlesticks representing the time period of 1-minute.
One 1-minute Candlestick contains the abbreviated story of the Price Action during that 1-minute.

A block of five 1-minute Candlesticks contains the more precise story of the 5-minute Candlestick.
A block of three 5-minute Candlesticks contains the more precise story of the 15-minute Candlestick.
A block of two 15-minute Candlesticks contains the more precise story of the 30-minute Candlestick.
A block of two 30-minute Candlesticks contains the more precise story of the 1-hour Candlestick.
A block of four 1-hour Candlesticks contains the more precise story of the 4-hour Candlestick.
A block of six 4-hour Candlesticks contains the more precise story of the 1-day Candlestick.
A block of five 1-day Candlesticks contains the more precise story of the 1-week Candlestick.
A block of four 1-week Candlesticks contains the more precise story of the 1-month Candlestick.

Any other combination, it is all on the charts.

Other Timeframes can also be generated by Indicator-type programmes.
However, they must be calculated from the M1 chart.
Due to missing data, these artificially generated Timeframes do not represent exactly the real thing.

That is all there is to Price Action.

All other concepts are only expansions upon this basic picture story.
The story contained in a single Candlestick which builds a bigger story of a series of Candlesticks,
blocks of Candlesticks, blocks of blocks of Candlesticks.
Then packed into a single Candlestick of a bigger Timeframe, and so on.

There is nothing more to it!

Take it, you have it, it is all that you need!

And, the story is something like this:
"During the Day, the price Opened at some level, tested some Low level, found some Support and retraced back up. Then it tested some High level, found some Resistance and retraced back down, finally
Closing at some higher level than it Opened at, thus showing a Bullish tendency = trend."

This is the abbreviated story of the D1 Candlestick.
If we want to see a more detailed story of that D1 Candlestick, we must look it up
in the block of Candlesticks of a lower Timeframe which builds that D1 Candlestick.
And so on, until the M1 chart, which is 24 hours x 60 minutes = 1440 one-minute-Candlesticks.

And that is all!

Hi Dadas,

I would like to learn from this great thread.
Thank you for sharing.
Subscribed!

Thank you.

Well, OK, someone will say, if it is so simple, where is the problem?

First of all:
I want to see the D1 Candlestick in as much detail as possible.
What do I need to see all the 1440 one-minute-candlesticks at once?
A very widescreen monitor!
Possible, these days.
However, sitting close to the monitor in order to see the details,
I am not able to see the whole picture, I must move away.

Second of all:
As a Daytrader, I need to relate this detailed picture to yesterday's D1 Candlestick.
I need to see the action of the price in relation to yesterday's Support and Resistance Zones -
the Candle Shadows or Wicks. Yesterday's Support and Resistance Zones remain valid
as long as the price does not object one of them, goes through to the other side. Until the
corresponding Candlestick Closes on the other side! Which is the first signal that the
price is showing tendency in that direction.

The wider the screen, the better, the more I can see without rewinding.

Yes, there are other Tool-Indicators showing higher timeframe candles in the background
of the lower Timeframe, but what can I see?
Nothing, just an outline or a colored rectangle of the body and two lines representnig the Wicks.
How can I relate to the Support and Resistance Zones, without extra lines?
Why not simplify the visuals and draw a Zone Candle instead?
Why not have an automatic tool to draw the Zone Candle I choose, for me?

As a Daytrader, do I need to know where the Price is heading tomorrow or in a week's time,
or even later? No, I do not.

If I wanted to trade a longer term, say a week or so. All I need to do is relate to the higher
Timeframe, the Monthly Zone Candle.

And, if the price happens to be in a Consolidation period inside the yesterday's Zone Candle?
Then, I can go lower, relate to the H4 Zone Candle and see what is going on there.

Finally:
I use the PTECZ to recognize and follow the local trend in Price Action.

OK, Gumrai has just provided an interesting live trade case on GOLD (XAUUSD).
I will not show his trade, but I will show my approach to this case.

The trade took place 12 March 2013.

Now, for GOLD (XAUUSD) I like to relate to the weekly W1 Zone Candle,
thus I would start my analysis from this picture:

At the start of day I would see that on the 8 March the price bounced off
the weekly Low level in the strong W1 Support Zone (CSCZ).
And, ever since then there is a Bullish local trend building up.
The price has entered the W1 resistance Zone (CSCZ) and is in the middle now.

I would want to check the situation on a higher Timeframe.
D1 and H4.

I would draw a D1 PTECZ.
This shows me that the Bullish trend is actually building up, but there is no BreakOut Candle, yet.
The D1 Candle of 12 March is in formation, thus it is not Closed, yet.

On the H4 I see a different PTECZ inside the D1 PTECZ.
I see the price has BrokenOut of this PTECZ (2.), but is bouncing off the Resistance CSCZ.
The previous D1 trend was Bearish, so I must be careful.
There was a characteristic strong pull up starting 21 February (1.) which ended with a PTECZ,
and a retrace to the lower PTECZ with the Low higher than the previous Low (2.).
This, obviously tells me that the trend is Bullish and the potential is around 250 - 260 Pips
measured with the crosshair (PTECZ to Zone Candle).
There is one more sign. There was a strong pin (3.), an attack towards the floor, SL clearing, whatever,
the important thing is the price Closed as a short body Candle and the next Candle was Bullish, and it BrokeOut, Closed higher then the Open of the previous. This was, actually a trap for all newbies watching the current Candle in formation. This (3.) Candle was Bullish at the begining, thus many could have entered Long with SL a few Pips below the previous Low, by the book, and swoosh, wiped out!
So, a BreakOut from the upper W1 CSCZ would be what I am looking for to enter Long.
There is still another PTECZ on the H4 where the action took place.

GOLD is tricky, you must know GOLD to play it.
Having all my Zones in place, I wait and see what happens.

I am reluctant to enter Long, because the Price is at the top of the W1 Zone Candle,
thus S would be more obvious, if the signals were for Short, but the signals are for Long,
so must wait for a BreakOut. And it happens, it happens fast and strong.
I want to enter at the bottom, thus I must wait far a retrace.
I would be on the M5 chart.

The Bullish BreakOut Candle was 86 Pips long, there is still potential, so there is a PTECZ
and the price is BreakingOut, so it's Long now or forget it.
When there is another PTECZ, the one at the top, the Price BreaksDown.
The first Bullish Candle that did not make a new High after the two Bearish ones, it means Close L.
If it means Close L, it means open S if potential 48 Pips is worth a go.
However, there is a strong Bullish momentum, I would say, play L on retrace.
This part is up to you, I can not tell you what you want to do.

What happens next is the same, from PTECZ to PTECZ.

There are no L BreakOuts until the PTECZ, and a Retrace to the PTECZ.
I would have to know the Daily Range at that moment and the ADR to make an L decision.
Had I opened the L, I would have to be very careful at the top, to Close it just at the Close of
the Bearish Candle inside tha upper PTECZ.

GOLD is a very tricky instrument to play. The trader must have a lot of experience with GOLD,
in order to be able to profit. GOLD can really kill you.

Ulitimately, as we can see, the price did reach the higher PTECZ, but also retraced pretty Low.

Hi, Dadas, great thoughts on PA! I did learn a lot from this thread. Thanks a lot for sharing, and please keep doing this wonderful work!

Cheers,

george

Hi Dadas,

As you wrote on the very beginning of this thread (post number 4) that: "the most important Price Consolidation Zones ...... are: the Shadow Zones of Candles, the first negation Candles and Candles preceding the Engulfing formation".

My question is: In order to create a zone, among these 3 candles, which is the most significant to start the zone? Because in my view, sometime they will be intersect each other. Are they equal? Or should we prioritize one candle than the other?

Please be kind to help me with this choice.

Highly appreciate your help.

Thank you.

Show your picture, how can I see your situation, when you do not post the image?

I think I understand your problem.
Did you read all of the thread, or not yet?

Just some later I explain about the Zone Candle, which I use as background.
A higher Timeframe Zone Candle.

Then I write how we work on closed candles always.

Then, that I use the PTECZ, the first negation Candle - Potential Trend Ending Consolidation Zone.

Everything is already in this thread, we can only discuss examples, now.

Everybody who wants to move on and learn something about GOLD,
is invited to follow my opinions on Gumrai's new thread:
Trading Gold with PA http://www.forexfactory.com/showthre...=416818&page=1

gbp, February 22 supply

GBPUSD m30


GBPUSD m15

closed +52

closed the 2 sell (1.3035 and 1.3015) at 1.30 on euro ? or wait 1.2940 ?

sorry ignore my post, cant' add a graph, security scan never end...

Trends and contexts

Someone has presented this motto:
"Experienced trader seek to keep reasonable risk exposure, not chasing maximum profit."

A very reasonable statement, indeed.

However, who am I to tell the trader what is reasonble, and what is not?

Is taking the opportunity to take 80 Pips profit today reasonable enough?
Or, is waiting 2-3 days in order to take the opportunity to take 300 Pips profit reasonable?

I quess, reasonable is what gives the trader the reason to enter the market and expect profit.

Where is the traders profit located?
The traders profit is located in the movement of the price, thus in the trend.
We, Forex traders are looking for trends in order to take profit from the price movement.

So, where should we start?
I subscribe to the rule that every trader must have a detailed strategy written down
"on paper", point by point, in as much detail as possible.
The very first element of the strategy should be the trading context most appropriate to the trader.

Thus, the first question one must ask themselves is how much time they can spend on chart
analisys and decision making. If you can not spend much time, you should trade larger contexts,
larger Timeframes.
If you can spend 8-14 hours each day on charts, you have many options to choose from.
You can trade 1-Minute-Trading, 5-Minute-Trading, 15-Minute-Trading, 30-Minute-Trading,
1-Hour-Trading, 4-Hours-Trading, Daily-Trading, Weekly-Trading, and Monthly-Trading.

The MT4 trading platform gives us these trading contexts by default. We can create other with programmes.

So, let us look at Trends in contexts:

By definition:
Trend is the general direction in which something tends to move.

A market trend is a tendency of a financial market to move in a particular direction over time.
These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.
The terms bull market and bear market describe upward and downward market trends, respectively.

Already, we can see a classification of trend:
secular for long time frames,
primary for medium time frames,
secondary for short time frames.

Thus, trend is a relative expression. Trend is relative to the context, to the Timeframe.

Let us look at trend in different contexts of GOLD:

The Monthly chart shows us a general upward trend:

Trading the Monthly Candlesticks context requires Very Long Term investing, 1 year or longer.
This is not the basic idea of the Forex Market.
And, not many brokers will even allow you to hold an open trade for this long!
Though, it is possible to generate a Yearly Zone Candle.

The Weekly chart shows a different picture:

Here, we can not see a specific general trend. We see something like an arrow, or flag.
Inside this area, we can see Local Trends of 3-7 or even more weeks.
We can see areas of congestion or consolidation, too.
The Weekly Trader would want to exploit these Local Trends.
Thus, the Weekly chart trader must be patient, both at waiting for the right moment to enter the market
and waitng for the right moment to exit the market. This will take weeks and even months.
But, the expected profit can be thousands of Pips.

The Daily chart context shows us a still different picture:

Here, we can distinguish a general trend as Bearish.
And we can see smaller Local Trends, and even smaller trends inside the smaller trends.
Sort of a Zig-Zag pattern.
The Daily chart trader must also be patient, wait for days and sometimes a week or longer
for the right moment to enter the market and to exit the market.
But, the expected profit can be hundreds of Pips.

The further down the Timeframes we go, we see exactly the same thing, trends within trends,
within trends, etc. Obviously, the time factor gets smaller and smaller.
But, the expected profit should be the less Pips, the smaller the Timeframe.

There are profit opportunities everywhere.

But, then comes the Pip range factor.
Sometimes the market is slow, and the price movements in time are small, a few Pips or so.
In other Times the market is fast and volatile, Pip ranges are tens and even hundreds of Pips.

On larger Timeframes the whole picture becomes more averaged, thus it is safer to trade them.
On smaller Timeframes we can not see the general picture, thus trading the Local Small Trends
becomes more and more risky, the further down the Timeframe we go.

However, the MOST IMPORTANT thing is to include the Risk in Your strategy.
In other words, based on how much time we can spend, decide which context we are going to trade.
Or, based on our style, patience or impatience, decide which context we are going to trade.
Then, always stick to that rule, only trade that one context!
Look for your entries and exits only through that context!
If you do not see an opportunity within that context, do not shift Timeframes to look somewhere else!

Trading the Monthly chart, the expected profit should be many thousands of Pips.
Trading the Weekly chart, the expected profit should be thousands of Pips.
Trading the Daily chart, the expected profit should be hundreds of Pips.
Trading the Hour charts, the expected profit should be tens, and many tens of Pips.
Trading the Minute charts, the expected profit should be tens to a few Pips.
The smaller the Timeframe, the fewer Pips we must take the profit, exit the market.

Trading in an muliti-context way requires years of practise, and special psychological abilities.

If, for example, your style is DayTrading, your basic context is the D1 Daily chart.
You start from there.
You read what the price is doing in that context:

You define the general trend as Bearish.
You use the D1 Zone Candle as your refference. (W1 also possible if you are DayTrading in the Weekly context).

The next step is what type of trading you prefer in DayTrading?
1-Minute-Trading, 5-Minute-Trading, 15-Minute-Trading, 30-Minute-Trading, 1-Hour-Trading, or 4-Hours-Trading?

For 1-Minute-Trading, 5-Minute-Trading, 15-Minute-Trading, the refference can be the H1 Zone Candle or the H4 Zone Candle.
For 15-Minute-Trading, 30-Minute-Trading, the refference can be the H1 Zone Candle or the H4 Zone Candle or the D1 Zone Candle.
For 30-Minute-Trading, 1-Hour-Trading, or 4-Hours-Trading, the refference can be the D1 Zone Candle or the W1 Zone Candle.

But, the most important rule is to find the right one for you!
I can not tell you which combination is best for you, because there is no one universal combination for everyone!
You must find that out for yourself, testing in real time on demo accounts, until you find the combination best for You!

Then, always stick to that one combination, always look for entries and exits in your best defined context!

What I have stated here, so far is not the complete picture yet.


Important:
Some traders trade the H4 chart, for example, but enter the market upon the M1 chart.
It is very important to understand, that these traders are not trading the M1 chart.
They are trading the H4 chart, reading price action from H4, defining the general moment of entry upon the H4 chart,
and when they see the potential area to enter, then they switch to M1 in order to catch the movement as soon as possible.

Thus, looking at the situation on GOLD, today from the H4 context we see:

A PTECZ at the top. A breakdown from the PTECZ. A retrace back up to the PTECZ.
When trading the H4, we now have at lest 3 options:

First option:
We simply enter Short when the price is in the PTECZ area, calculating the risk.
We do not need to switch Timeframes. Just do it.
Or, we can switch to M5 or M1 when price is retracing.

Second option:
When the Bullish Candle Closes, switch to M5 or M1.
The next Candle begins where the yellow vertical line is.
The entries are the same as above.

Third option:
When the 1 Bearish Candle Closes, switch to M5 or M1.
The next Candle begins where the next yellow vertical line is.
The entries are where the red horizontal line is - the Close level of the Bearish Candle.

Let us see how we can apply the method in real time.

GOLD H4 on W1 background with H4 PTECZs:


The current situation on GOLD (XAUUSD) shows a Bearish Local Trend.
We will be working with the H4 PTECZ.

Daily Range shows 923 GOLD Points = 92.3 Pips.
I will not enter Short, because:
The DR is already pretty high,
The Price is at the bottom,
There is no PTECZ on the current chart - meaning, the train is running, there is no station.

Since, there is no station, we do not know where the train will go next.
Thus, we must wait.

PS.
As we can see, the Local Trend is Bearish, but the Larger Trend is Bullish.
At this moment we do not know if the Bullish trend will continue,
or there will be a shift in the Larger Trend to Bearish.