A Basic Guide On How To Read and Trade The Markets

A Basic guide on how to read and trade the markets

We want to categorize the markets and its current state and therefore draw a Map , so to speak highlighting the important key levels in order to help us in judging the current market situation and its context based on the buying and selling pressure , aswell as if the market is balanced , imbalanced or about to change in one of the two states. In order to know where we are and how to trade whatever is in front of us at the moment.

For this we only need to know the context, location and price action to make an informed decision in all market situations without getting lost , we do this with the
following guide

We do the following in all relevant timeframes , starting with the biggest and work our way down to the lowest.

You can use the following techniques on ALL timeframes , however you should be aware that usually the bigger timeframes dominate the smaller ones , as long
term traders dominate small term traders , due to their size , and risk tolerance (wider stops etc.) so if you trade a long breakout on a 1min chart wich trades at a
daily or weekly resistance level , you have some big odds stacked against you . aswell as you shouldnt overdo with drawing in all timeframes from hourly to 30min to 15
min to 5 min etc.. or you will get into analysis paralysis and really all relevant

information is allready there. for our basics we use the Weekly , Daily and Hourly timeframes thats it , anything else can be added later on individual TFs if needed, due
to entering or managing a position ,more on that later..

Start with the Weekly then Daily and last on the Hourly with the following process

First we draw in the levels of support and resistance

One can expect to find support where the most substantial buying has occurred in the past and resistance where the most substantial selling has occurred. to halt price
for further advance and even reverse. However price may also reverse at extremes due to the fact that there is no interest in following price any higher or lower ,ie less
activity, resistance in this case refers to resistance of a continuation of the move.

Second we spot ranges and consolidations which may visualized due to the all ready drawn in support and resistance levels.we also draw in the mean of the ranges.

Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers. if value is found price is in a balanced state and is moving
sideways limited between support and resistance , the middle of the range where most of the trading activity is located is considered fair price or mean.

Third we draw in trendlines and trend channels aswell as the mean of the channels and the 50% retracements of any relevant trend (intermediate)

Trendlines are simple tools to judge the markets trend direction buying and selling pressure , pace,momentum and stride to gain an idea on the current imbalance and
how strong it is and when its likely about to come to an end.

A Trendchannel is nothing more then a diagonal trading range where price is contained in well defined limits of upper and lower channel lines reffered as overbought and
oversold line with a rising or falling mean 50% retracements are a good to measure the strenght or weakness of a move as it usually indicates capitulation if its
broken or strenght/weakness if it holds.

if have drawn in all relevant levels we can start our analysis like so


1st we analyse the context of the market ie. the bigger picture


Waht ?
are we in a trend ? up? down ? is it contained within a channel ? are we moving in a range ? at support ? at resistance ? signs of weakness? signs of strenght ?




Context:
we are still in a downtrend on eur/usd ,the decline came to an halt as price attempted a rally from the lows of 1.0464 , which tunred into range with
resistance beeing 1.1490 and support at 1.0808 whch leaves us with a mean at 1.1160 , we had a breakout attempt which quickly reversed back into the range ,
respecting the trendline any furthe atempt of a break resulted in a lower high and a respect of the resistance , price now is on decline on increased selling pressure
breaking the support at 1.0808 and heading towards the lows of 1.04640

2nd we want to know where we are in the bigger picture


Where?
at support ? at resistance? at a mean? at a 50% retracement? overbought? oversold? signs of strenght ? signs of weakness ?




after we broke the minor support at 1.10930 , price tested that level and it turned into resistance the decline happens on increased momentum and broke the support
level of 1.08140

signs of weakness:
broken support 1.10929 turns resistance
increased momentum to the downside

location:
broken support 1.08140

3rd what setups and trading ideas do we lookout for, based on 1-2 and ABC


How?
signs of strenght ? signs of weakness?, buying pressure ? , selling pressure ? what is price capable to do and what not and at which key level ? what if price does this or
that ? higher low ? lower high ? , balanced ?, imbalanced ? indecision? is momentum picking up or slowing down ?, where are potential stop levels ? how does the
market react at certain levels? how does this all fit into the context ? what setups are worth to consider ? where are potential trouble areas ahead? what about the
risk ?



we are currently movinge sideways , with a well defined resistance level at 1.0750 any break of the current lows and we will retest the cuurent lows at 1.0710 representing a short opportunity (A)

should a retest of the lows tunr out to be sucesfull one could watch out for a reversal for a long play (B) to test resistance again if price breaks that low aswell one
should excpect further downside potential to the lows of 1.0500

a breakout to the upside and a pullback wich turns resistance into support could be played to test the 50% retracement of the selloff (C)

a potential reversal could be played at the rejection of the 50% retracement at 1.07930 of the selloff (D)

shorts are in the favour of the bigger picture and the current location , which is in the middle of nowhere , so one could wait til price hits
the extremes at 1.0500 or 1.07930

Price is capable of only three things, either a breakout, a retracement or a reversal

If, for example, price bounces off or launches itself off the bottom of the range (support), trade the reversal and go long. If instead it falls through support, short the

breakout (or breakdown, if you prefer). If you dont catch the breakout, or you prefer to wait in order to determine whether or not the breakout was real, prepare
yourself to short whatever retracement there may be to what had been support and may now be resistance.

A) Breakouts
breakouts occure out of ranges and or support and resistance levels , breakouts can be played aggressively or more safer if ones waits for a retracement after a breakout
, as often breakouts are faded by institutions and to catch most on the wrong side , ie fakeouts, and shakeouts, one can also lookout on any signs of absorbtion or
consumption to position oneself well ahead of the breakout , this requires some skill to read price , but riskwise its on the safer side compared to an aggressive entry.


B) Retracement
The first pullback after a break through support or resistance or a V reversal , a retracement can either be seen after a breakout or in any form of absorbtion and
consumption aswell as at the mean of the ranges and in trends preferably into former support and resistance levels and 50% levels , these are continuation moves.



C) Reversal
A bounce of or rejection of the upper or lower limit of a trading range. aswell as of overbought , oversold levels of trading channels , any reversal may add to weakness
or strenght , its also the result of a buying or selling climax

A Guide how to judge the markets by its own action and read price action based on what price is capable to do and what not , to gain relevant informations on the current state of the market and the balance of supply and demand and its corresponding buying and selling pressure or lack thereof.

Example On USD/JPY H1

in this example we cover all three options : Breakouts, Retracements and Reversals its up to each individual what one perfers to trade and of course his trading plan.



we have a well defined range with support beeing 120.20 and resistance beeing 121.48 as price repeatedly rejected those levels , the mean of this range is at 120.85

with this context that this market is in a range and we are heading towards support again we are looking for signs of reversals at or near support to enter a long
position , now one can place a limit order at or near support (passive), or one waits for price to come to this level and decide from there if and when he wants to enter
(active) , we wait and watch price as the range is quite wide which gives us enough time and room to plan an entry.



therefore we draw in a trendline from the highs , to judge when the selling pressure is confronted with enough buyers to halt the down move or even reverse ,
as soon as the trendline is penetrated we wait for the first retracement and place our buy stops above the high of the bar and our stop loss below support. this would
be our first long entry opportunity in form of a reversal at support. targeting the resistance , * however as we try to hold on to winners for as long as possible (letting
winners run) these targets are not fixed , we may give our position room to develope into a big winner



price however turned back and test support again one can draw in a new trendline covering the recent swing high and i yet another entry opportunity resolves ,one
could play this break of the trendline straight away as its prety close to support, if one waits for the first retracement he would have waited till price made a higher
low at 120.53 now as we are in a long position we judge the strenght of the buyers therfore we draw in a trendline from the lows intersecting the recent swing low
,

as price rejects somewhat the mean of the range and breaks our trendline we should consider exit options on our long positions for this we use our recent swing
low, and the 50% retracement level of the most recent rally which happens to be near our recent swing low at 120.535 . so we give price room to this levels
and hold on to our long as long as these levels hold. price retraces after the trendline break back to the mean and for now our levels hold.



Price broke through the mean and trades towards resistance , momentum picked up as seen by the new trendline drawn in, starting point the endpoint of our first
trendline and intersecting the recent low before the new high. as price broke the new trendline and we are near resistance our first potential target / trouble area, we
should be cautios ,we again give price room to the recent swing low and the mean of the range , before considering a closeout.



as price never went below the swing low nor the mean we now can draw in a new trendline again intersecting with the swing low before the new high, price penetrated
the resistance level and is now on a decline , but notice the stride of the decline, compared to the rallys, the rallys are more pronounced and the decline is
somewaht not making any significant downward progress its even stair stepping.. signaling or pointing out potential stop loss levels of short players at the lower
highs , (stop loss cascade ) so the selling pressure compared to the buying pressure is weak. presenting us with another entry opportunity for a potential high
momentum breakout to the upside , placing a buy stop at the recent swing high.



here comes the stoploss cascade in a form of a big upside bar , gaining back all ground within one bar , compared to the downside action which took several bars , the
breakout long playing the stop loss cascade would be semi aggressive entry , if one would have waited rather for a retracement then he would have been long on the
second bar, with a stop loss below the recent lows.



price retraces back to the broken resistance , now we wait and watch when supply is drieng up for a long entry , or if its just a fakeout , everyone long previous to
this retracemet is still safe as the stops should be placed below the recent low before the stop loss cascade, as price penetrates the red trendline ,we place our buy stop
entry above the high of the recent bar.



price didnt go anywhere and we have signs of indecision at hands due to a series of lower highs and higher lows ,now anyone long prior to the indecsion should reduce
risk by moving his stop, to the most recent lows at the indecision , anyone still missed the bus, one could play the breakout of the indecision, which occured to the
upside (sign of strenght), and price trades back at its recent highs, take notice at the bars on the right hand side , we have a clustering of closes somewaht higher
lows which indicates absorbtion , this and the fact that we had several signs of strenght in the background and enough room to manage our risk , indicates
further upside potential

now for the sake of it lets zoom in on that most recent action (absorbtion) (5min)



we have a defined range with support beeing 121.84 and resistance beeing 121.93 and the mean at 121.88, take notice on the rallys compared to the declines , we
have indication of strong buying pressure against weak selling as seen by the strong upbars and the rather weak downward progress , ie. price has rather
least resistance to the upside , while it looks like someone is buying into each decline.

continued...

we can draw in a trendline like this , and we notice a lower high just before the break of the trendline , which indicates that we are not ready to move any higher as
of now.



one can draw in a channel to help him judge the buying pressure at this level to give further insight , as we see price tried to break out the resistance level but
we didnt come close to the oversold line of the channel , as following reaction at the demandline of the channel brought us near the mean of the channel before
price reversed yet again, this is a sign that no one is following price any higher at the moment , and any break of the channel to the downside and we will trade
back into the range ,



as we rejected resistance , we take notice of the lows of the rally , where sellstops might be placed and watch how the market reacts to those levels , the decline
is rather slow and steady resulting in yet another channel this time to the downside which gives us furher judgement oportunities , we also take notice that at each
potential stop loss level, price actually reversed ie. someone is cosnuming the sellstops here., as we head towards the mean of the range which also in
confluence with the oversold line of the channel , where price attempts a rallie and breaks the channel to the upside. this and any pre occuring signs all align to
the conclusion that this range is an absorbtion (re accumulation) .



as the rally is rather strong compared to the declines we assume that the buying quality is rather good , as price yet again found resistance near the resecent
breakout attempt , we can redraw our range with support beeing the former mean ie. a fromer fair price si now considered unfair low , (sign of strenght) at
121.88 and resistance at 121.950 and the mean at 121.910, we could lookout for a long opportunity and as this is rather an absorbtion we must expect that the
breakout is of rather high momentum and and violent we must look for opportunites well ahead of the breakout ie, at support or the mean,



price trades towards support and rejects that level aswell before it breaks the trendline , where the first retracement is our entry signal.



once again lets zoom in (1min) as we coul have drawn in yet another trend channel to help us judge the imablances of supply and demand and define a nice
entry opportunity , as price attempted yet another decline off the upperlimit the decline came to an halt at support and well off the lows of the channel , indicating
buying activity , as we broke through the channel the retracement rejceted the mean of the channel resulting in a higher low wich also would be our entry
opportunity,volatility picked up but we never got back to the lows, the buying acivity is of better quality, , price from then on never looked back and this is the end of
the absorbtion



violent breakout occures , driven by absorbtion and news , but as withnessed one could have placed his long positions well ahead of this ,
just like the smart money did



here is the h1 chart of that breakout

cheerz

Subscribed.

Follow Up on EU , what setups did the market reveal , from the anticpated scenarios ?



we are currently movinge sideways , with a well defined resistance level at 1.0750 any break of the current lows and we will retest the cuurent lows at 1.0710 representing a short opportunity (A)

should a retest of the lows tunr out to be sucesfull one could watch out for a reversal for a long play (B) to test resistance again if price breaks that low aswell one
should excpect further downside potential to the lows of 1.0500

a breakout to the upside and a pullback wich turns resistance into support could be played to test the 50% retracement of the selloff (C)

a potential reversal could be played at the rejection of the 50% retracement at 1.07930 of the selloff (D)

shorts are in the favour of the bigger picture and the current location , which is in the middle of nowhere , so one could wait til price hits
the extremes at 1.0500 or 1.07930


Turns out all anticipated setups took shape in the one or the other form



with the best opportunity beeing the one conform with the context and location , ie the reversal at D , indicating further weakness


so whats next ?



well , a potential reversal play (long) at the current middlepoint of a former indecision level could take shape ,
with a first trouble area at 07560ish , and further target at 07930ish ..

with the setup beeing , a break of the 0740ish level and the first retracement thereof forming a higher low ,
with a stop near the lows of 07250/07180

wheras any rejection of the 50% retr. at 07560ish . should be consider further weakness and
if one is in a long he may wait for retest and pot. higher low near his entry , before considering an early exit ,

1min chart



after price found balance , we now have some nice upside momentum ie. increased buying pressure , breaking out of the resistance level of 07400
however the breakout itself wasent violent , rather smooth , never the less we take the first retr. to go long , with the stop beeing below support...

as we trade towards our first trouble area ie. down trendline and the level of 0756ish , we will give price room to retrace.
to our broken resistance and even further the middle point of the raneg at 07333 , as our hard stop is still in place..

now we reduce risk , just incase the second retest of the trouble area fails to take it out ..

exit manually ..

no need to be in a bad trade , as another chance might turn up on a retest of broken resistance , but as we reject the trouble area (weakness)
we might pass the trade aswell.. depends..

suscribed and waiting the pdf version

Lets talk about trendlines , these lines should be used as a tool like most of the other lines one draws on his chart , in this case to track the imbalance between supply
and demand , simply said a trendline is a tool to track trend whether up or down.

More so one can even use this tool to judge the following (by the lines angle , stride,duration and pace )

The buying and selling pressure
A change in demand and supply
If momentum picks up or slows down
You can judge the quality of the buying vs selling
Find the past of least resistance



You basically follow price along by drawing trendlines from swing low to swing low (uptrend) and you may have to adjust the trendline if price slows down or
momentum picks up , you do this by fanning the trendline , to its new swing low after a new high is made.

like so



A.) is the first swing low

B.) is new swing low (higher low)

C). as the intermediate swing high is taken out you can draw a trendline intersecting
swing point A and B



A.) another higher low developed along our old trendline

B.) as price made a new high , the next swing low is used to draw the new trendline

C.) as the trendline moves away from our first trendline we can say momentum has picked up



A.) as price broke our trendline we can discard this line

B.) as price made a swing low but price failed to take out our intermediate high
we dont draw a new line

C.) price again makes a higher low

D. price now breaks our intermediate high and we can draw a new trendline starting
with our last swing low from our first trendline intersecting the new low before the new high at C

as the trendline moves towards our first trendline or away from our most recent (broken) trendline we can speak of a slowing down of upside momentum



A.) price broke this trendline as well so we can discard this line

B.) a new sing low was made (higher low)

C.) as price makes a new high we can draw our new trendline starting point our old swing low of the first trendline intersecting the new low B before the new high




A.) a new swing low is made near our actual trendline

B.) a higher swing low is made

C.) as price make a new high we can draw a new trendline intersecting the most recent
swing low A with the new swing low B before the new high was made

as we move away from our recent trendline we can say momentum picks up




A.) a new swing low was made

B.) as we make a new high we draw a new trendline starting with our recent swing low intersecting the new swing low A before the new high



A.) a new swing low

B.) as we make a new high we can draw a new trendline starting with our recent low
intersecting with our new swing low A before the new high

as we can see that each trendline moves away from the most recent one we witness an increase in momentum to the upside.

the same principle of drawing trendlines is applied to down trends , except you intersect the lines with each new swing high (lower high)

as you now know how to draw trendlines , we can start to analyze the price movement along with the trend lines to judge the markets by its own action.

Due to the continuous nature of the market, the continuity of price, the continuity of transactions, the continuity of the trading activity that results in those
transactions, Trading by price, requires perceiving price movement and the balance between buying pressure and selling pressure independently of the medium
used to illustrate or reveal the activity. we simply need to think in terms of buying and selling waves , where if price moves up the imbalance between demand and
supply is in the favour of demand and its the pace, duration and stride who reveals us the strength or pressure behind this move ,with the help of trendlines one
can use this tool to visualize these spectrums to get an insight of the quality of the buying and selling and who is in control . which is of great help to plan any
further steps in the current market environment.



How To Judge Buying or Selling Pressure:



If you compare the rallies(buying) vs. the declines (selling) you witness that the rallies are more pronounced then the declines, seen by the durations of the rallies
vs. the duration of the declines as well as the angle of the lines which are more steeper on the up moves then the down moves , the rallies also gain more ground ,
while the declines go pretty much nowhere , these are indications that the buying pressure is stronger then the selling pressure. pretty straight forward.


How to witness a change in Demand and Supply



in this example you witness that the first clue is the continuous breaking of the trendlines and the fanning to the right indication a slowing down of
momentum. while we also notice that the selling waves (declines) getting more and more pronounced and while so the downside momentum picks up aswell.
take note of the shortening of the upward thrust while the previous exaplained clues take shape, ie. we fail to make any significtant upward progress.
all these actions combined gives us clues that there is a change in demand and supply taking place , and that supply is at least able to confront demand , to halt the
upmove.


Spot The Path of Least Resistance



well its quite obvious where the path of least resistance is in this example , again as price has an easy life to drop and decline , while any rallie atempt actually goes
pretty much nowhere , again note the pace and momentum and compare it with each individual rallie and decline, note that most institutional traders sell into
rallies and buy into declines , so in this case if people sell into rallies price is having a hard time advancing , but a rather easy time in declining hence the path of least
resistance is down.

The quality of Buying vs. Selling.



You dont need to be in a trend to use trendlines as we judge each individual buying vs selling wave , we can reveal the quality of the buying vs. the selling , just look
at the rallies, they are steeper , more pronounced and gain more ground on good momentum , while the declines tend to be slow and if they are on
high momentum they gain no significtant new ground. ie price has a hard time making any downward progress (buying into declines) while it rallies with no real
resistance , hence the buying is of better quality then the selling.


so basically trendlines are a tool to Track the balances between supply and demand with straight lines. nothing more.

Usually one wants to pick instruments and setups , which move soonest , fastest and furthest ,

for this one can use in FX for example, The Dollar Index(DXY) which is a basket of :

1. Euro (EUR), 57.6% weight
2. Japanese yen (JPY) 13.6% weight
3. Pound sterling (GBP), 11.9% weight
4. Canadian dollar (CAD), 9.1% weight
5. Swedish krona (SEK), 4.2% weight
6. Swiss franc (CHF) 3.6% weight

and judge how each usd/XXX pair acts and reacts against the DXY , to find weak or strong pairs to make trading decisions , because
One of the best indications of the future course of a pair is its comparative strength when the DXY market is weak, or its comparative
weakness in a strong DXY market.

In brief, when you see strong support in a Pair, with the DXY weak, you know the buying is better than the selling , And when you see the reverse,
that is, strong resistance in a Pair with the DXY advancing, you know the selling is better than the buying .

you gain usefull insights on the way the Pairs respond or fail to respond to advances and declines, rallies and reactions in the Composite Average(DXY) ,
for additional information on which to base your trading campaigns on.

You must strive to take advantage of the above principles. Seek out the Pairs in the strongest position when buying and the weakest to sell short.

, One Pair that stands out atm for me which is Gpb/Usd:

Weekly charts Of DXY Vs. USD/GBP:

we can speak of weakness in that you see that the USD/GBP responds swiftly on the decline (red box) ie. becoming more active to the downside
while we even make a new low on (A) whereas the DXY makes a higher low. another bearish indication is the little rallying power in USD/GBP vs. DXY
DXY trades above its high , while USD/GBP is well off its highs ,

so we look to short USD vs GBP ... which means watch out for longs on GBP/USD

lets get a lil context first:

weekly GBP/USD



after the decline we reacted near the lows , the rally however came to an halt at the 50% retracement level (A) , and currently
is on a minor decline (note on the slow decline)

Daily



after the reaction at (A) price is somewaht rangebound , and even further reacted at a fromer mean which acts as resistance now (B)
and somewhat holds a support level of 51700 m which got poked two times , but came back above support. we also note
that we make a series of lower highs down the way, all in all , this market doesnt look quite strong does it ?***

***well PT this pair does look quite weak , so why should we lookout for longs?
well , if something appears to be weak and it does act the otherway round guess who will get caught red handed
and propell your position into profits ? , trading against an expectancy of the broad mass , which doesnt fullfill they way
the ought to know or anticipate , your are in a good position .... , thats whats seperate the winners from the losers...
you now its these opportunitys which the markets generate (structure) which one can profit from

if its hard for you to judge the market on its own ,, ie buying vs selling pressure, what is price cappable to do and what not .. based on the context and location etc.. and you still think GBP/USD is weak, here is something to convice you otherwise ...

lets look at the USD/GBP VS DXY on the hourly...



you can clearly see how USD/GBP responds heavily and promptly to each decline in DXY , but is reluctant to each rally
, more so while the DXY is in a current Rally back above its highs m USD/GBP is moving sideways !

path of least resistance ?

rather down then up! , therefore short USD/GBP .. or the other way arround on GBP/USD look for longs..



so lets check GBP/USD for pot. setups to participate..

Hourly



on the hourly we are rangebound , which gives us two opportunitys to go long, either buy support or wait for a breakout + pullback..

easy

Nice thread PT ... i'll have a good read over the weekend ...do you prefer forex to futures ?

Cheers .

hi , thnx

i pefer futures over forex , what u see is what u get ...


if you got any further questions regarding this thread etc.. just shoo iam happy to help ya out ;9

gday

Hey Prymetime,

Pls disregard the PM I sent you. I found your site!

There's a hell of a lot of effort that went into the above. Well done!

Both DBP and Wyckoff have played a massive part in my development. Still a work in progress mind you


A question: How have you found the SLA approach (or derivatives of) translate to the FX market? I've been focussed on the futures market for a while now, only looking into FX again recently.

I'd think that Market analysis from the AMT/SLA/Wyckoff standpoint would be universal and applicable to any market. it would be more a case of the entry styles that might need some tweaking?

Thoughts?

Subscribed
recommended for newbies

Hi DamnPenguins , i knew that name is quite familliar (ET ?, the Lab ? ) nice to see you here !

thnx for your kind words , DB and Wyckoff also helped me in understanding "price behaviour" and how to apply/approach the teachings of wyckoff to the markets .

FX is just another market and as all markets somewhat work on the same underlying principles and mechanics of "price discovery"
so, yes you can apply the AMT/SLA/Wyckoff techniques to all markets , however there are individual characteristics from market to market
and instrument to instrument , but the universal framework of Wyckoff can be applied nevertheless and will help you in developing an approach which fits
your personal preferences and the characteristics of each market/instrument.

will , post about this later ..

cheerz

Ditto, As soon as I saw your name it rang a bell!

Wyckoff's approach to the markets resonated with me as soon as I came across it: Judging the market by its own action, the quality and balance between supply and demand, buying selling waves etc. It gave me the framework I needed to make sense of what I saw in front of me every day.

I thought you described the process of judging the relative strength / weakness of demand and supply really well. Also the absorption process.

With the FX market dynamic being so heavily weighted towards running stops in the search for liquidity - the combination of a Wyckoff style approach incorporating Order Flow analysis would seem to be a sound basis for moving forwards. Kind of what you were getting at without stating it implicitly. i.e taking advantage of the stop cascades etc

In fact I'd say that if people put the work in, there is a fully fledged Trade Plan revealed in the posts above. I wonder how many will put the work in?

OK - i'll head back into the woodwork again. Best of luck with the thread!

hi , very well said !

framework! ,

i think of it as learning how to write , in the end everyone has its own unique handwriting ....

i have an example of running stops in the following post about UJ.. check it out

cya soon