This is default featured slide 1 title

Go to Blogger edit html and find these sentences.Now replace these sentences with your own descriptions.

This is default featured slide 2 title

Go to Blogger edit html and find these sentences.Now replace these sentences with your own descriptions.

This is default featured slide 3 title

Go to Blogger edit html and find these sentences.Now replace these sentences with your own descriptions.

This is default featured slide 4 title

Go to Blogger edit html and find these sentences.Now replace these sentences with your own descriptions.

This is default featured slide 5 title

Go to Blogger edit html and find these sentences.Now replace these sentences with your own descriptions.

Saturday 12 December, 2009

Price Action Trading Method

Swing Highs and Lows

The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice.


Market Phases

There are only three ways the market can go;

  • Up
  • Down
  • Sideways

With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows.

In short

  • The market is going up when price is making higher highs and higher lows
  • The market is going down when price is making lower highs and lower lows
  • The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows

This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade.

What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).

Bias Changes

Bias Change

A Short or Bearish Bias Change occurs when the following sequence develops.

HH>HL>LH>LL>LH The bias change is confirmed when price moves below the las lower low made as highlighted on the chart.

Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Red Line).

There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

Bias Change

A Long or Bullish Bias Change occurs when the following sequence develops.

LL>LH>HL>HH>HL The bias change is confirmed when price moves above the last higher high made as highlighted on the chart.

Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Blue Line).

There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

Trending Price Action

After a bias change has been seen and confirmed, one of the phases that the market can then take is to start trending either up or down depending on the bias change previously.

In the chart below we can see what price ideally looks like when price is trending up and trending down. Each phase shows price making HH's & HL's on its way up and LH's & LL's on its way down.

Trending upTrending Down

Ranging Price action

Now this is where the chart can become interesting. By using the price action counting of the swing highs and lows we can know at a very early stage IFprice is going to start to develop range bound activity.

  • Price is not making new highs OR new lows

I don't mean all time highs/lows or new day/week/month highs/lows... just simply a new chart swing high or low. Price will start to stall and not make a new swing high/low and typically will stay contained within the last swing high and low that was made on the chart. Isn't that a simple definition?

Range rule definitions

  • Price doesn't make a new high or low on the move
  • If price stays contained within the last swing high and swing low to be made, price will remain range bound until it makes news move highs or lows.
  • Price confirms the range when a lower high and a higher low is made within the previous swing high and low.

In the chart below you can see that from the left side of the chart price is making LH's & LL's all the way to the first blue arrow which in real time would be the latest lowest low. Price then moves higher to make a HH. These two swing levels have been highlighted.

At the point of the chart, in real time, price needs to either start moving higher past the last swing high (red Arrow) making a new high OR move lower past the last swing low (blue arrow) making a new low. Until either of those things happens price will most likely remain range bound. In this example that is what happened.

Range Bound

Range considerations

Some considerations for identifying ranges at an early stage in real time are;

  • That price could be creating a pullback or bias change and as the chart unfolds for you a new high or low could be made voiding the potential range.
  • There are several definitions of a range one of the more common ones is that you are looking for a double touch of support and resistance. For me this is a little too late in the game as price may not create the double touch as in the example above. With this price action method you can identify the possibility of a range developing VERY early without having to worry IF price does or does not give you the double touch. As you can see with that definition you would interpret that price is not range bound at all but, you can clearly see visually that price is moving sideways without any definition.

Bias Chage variationBias Change Variations


Acronyms used

  • HH - Higher High
  • HL - Higher Low
  • LH - Lower High
  • LL - Lower Low

By Philip Newton
www.trading-strategies.info

Philip Newton is a professional trader and teaches new and experienced traders the skills needed to trade for a living. His live chat room is amongst the best in the industry. Inside the members area traders can watch videos of his trades and receive support for any question they may have. The live trading room is the heart of the website where the real learning begins. www.trading-strategies.info

The 9 Characteristics of Great Traders

What separates the 10% that make money from the 90% that don't?

1. 10,000 hours

In his recent book Outliers: The Story of Success, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that 'try their hand' at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn't see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

2. Education, education, education.

The old cliche touted by politicians when they can't think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

3. Think for yourself.

"NO! NO! NO!"... "Bear Stearns is not in trouble"..."Don't move your money from Bear! That's just silly! Don't be silly!"

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, too many cooks spoil the broth; it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

4. Adapt or Die.

Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

5. Fail to plan, you plan to fail.

The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

6. "Be like Machine"

As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

7. Know your tools

Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a trader's bread and butter; they are the most vital part of a trader's arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

8. Know Thyself

Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

9. Profit & Loss

The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion

The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Aamar Shehzad is Chief Technical Analyst and Managing Director of Technical Analysis provider Pivotfarm.com. Prior to creating Pivotfarm.com, Aamar worked as an independent trader and analyst, he is a regular speaker at trading seminars and expos and is currently authoring a book on trading using Support & Resistance entitled 'Support & Persistance'.

via - http://www.tradingmarkets.com


Monday 7 December, 2009

Andrew's Pitchfork

Andrew's Pitchfork, otherwise known as median line studies utilizes the concepts of support, resistance, and retracements (see: Support & Resistance). As is visually depicted below, Andrew's Pitchfork consists of:

  • Handle
  • Resistance Trendline "tine"
  • Median Line
  • Support Trendline "tine"
andrew's pitchfork or median lines resistance support and tines

Steps to creating a Pitchfork

  1. Find a significant pivot or retracement (in the chart above, the lower left corner)
  2. Find the next significant pivot or retracement (the dotted blue line connects the first pivot to this second pivot)
  3. Find the next retracement (in the chart above, the solid blue line starting from the left and going down to the right)

Charting software finishes the pitchfork by creating the upper resistance "tine", the lower support "tine", and the median line. Note: "tine" is the terminology used by the creator of Andrew's Pitchfork, Dr. Alan Andrews.

Interpreting Andrew's Pitchfork

The same rules for support and resistance apply to Andrew's Pitchfork. Look to buy at support and look to sell at resistance (see: Support & Resistance). Also, prices are thought to gravitate towards the median line as depicted in the chart above of the S&P 500 exchange traded fund. The chart above shows the long-term view (1 year 6 months) of the stock market; however, Andrew's Pitchfork can be used for shorter time frames.

via - http://www.onlinetradingconcepts.com