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Oct 11, 2006 - Continuing with the price action primer... Continuing with the price action primer (“Price Action: Modern Day Tape Reading”), this article will focus on where and when the best spots are located for entries and exits. As explained in the previous article, trend direction or lack of direction is determined by HIGHER HIGH and HIGHER LOW for uptrend and LOWER HIGH and LOWER LOW for downtrend. Understanding the above principle is fundamental in the concept of following the trend (i.e. “trend is your friend”). With this in mind, each trade more often than not have a higher ratio of reward to risk and that the probability is much higher in getting a trade to be winner than a loser (Inertia: The reluctance of any object to change its state of motion). The chart above is the example of an uptrend in a series of HIGHER HIGHS and HIGHER LOWS. The best entries are the pullbacks, where the safest trade where the reward is high and the stop loss is small. How do we know when the pullback is finished and where to place the entry? In an uptrend, the pullback ends when a new bar is formed where its high is higher than the previous bar's high and/or the new bar’s low is higher than the previous bar’s low (although the determining the low is not a requirement). Where is the ideal stop loss? It can be the previous higher low or the last pullback low, depending on how large a risk the trader is willing to take. The last pullback is a scalp risk while the last higher low is longer intraday trade. When we do take profit? Here are two options:
This is very straight-forward way to making high probability trades if a trader is willing to take the time to learn the price action. Most professionals use this tactic time and time because it's one of the safest win-win trades (high probability of success with extremely small stop but a large profit target). With enough practice and observation, price action will be the primary confirmation and indicators will only be a second confirmation signal to make trading decisions. Despite the extensive use of technology for trading today, the market still speaks to traders in simple ways-- price action. So if a trader wants to listen and understand what the market is saying, this is the best way to learn to speak its language. Discuss this article in the forum. ...thanks
for the trust you've shown in me and my business.
Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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by Larry swing
