There are 2 main reasons why I use multi-timeframe trading: For getting better trade entries For reducing stop loss distance so I have a better risk: reward ratio which means I can also increase the number of contracts I trade without risking more of my trading account…so if my trade direction is right, I make a lot more money! Now, I will explain both in detail… How To Get Better Trade Entries And So Reduce Your Stop Loss Distance With Multi-Timeframe Analysis And Trading If you are trading strictly using the large timeframes like the daily chart, your stop loss distance will be huge and the issue with that is your risk: reward ratio can be reduced (not necessarily all the time): The risk to Reward Ratio Explained Simply put, investing money into the investment markets has a high degree of risk, and if you’re going to take the risk, the amount of money you stand to gain needs to be big. If somebody you marginally trust asks for a $50 loan and offers to pay you $60 in two weeks, it might not be worth the risk, but what if they offered to pay you $100? The risk of […]
What is confluence? Well, let’s find out here in this following example… What if you were watching the market and then you saw that price is heading to a resistance level and then you checked your Fibonacci retracement and it’s almost like a coincidence that the resistance levels are also at 61.8 Fibonacci level as well. And there’s even more…the overall trend is also down. So you have 3 things lining up for you, here they are again: the overall trend is down you have a resistance level that price is coming to and you notice that the price is also heading up to the fib level is 61.8 which coincides with the resistance level. What I’ve described above is an example of confluence. A confluence is a point/level in the market where two or more levels intersect each other (or come together) and they form a flash point or hot point or confluent point. Here’s An Example Of How I Trade With Confluence Let me give a real example of a trade that I took as I was writing this. This is the daily chart for AUDUSD. Have a good and close look at it. Here’s why I took […]
When you use price action trading with one other indicator or a combination of indicators which are incorporated into your trading system then that’s what I call Not-So-Pure Price Action Trading. (Call it whatever you like, if you think I’m wrong, I really don’t care). Many new traders that find it difficult to define the structure of a trending market, therefore they rely on moving averages for trend detection or identification. The only thing I see useful in moving averages is for dynamic support and resistance levels. I will explain this concept shortly. As a matter of fact, moving averages do a terrible job of predicting trends in that they only do that after that trend has already started already and the price has moved a great deal already. So price action is telling you that you are now potentially in a downtrend but moving average is saying “not yet”. So you have two conflicting signals. And by the time moving average confirms what the price action has indicated, price has already made plenty of moves downward already as shown by this chart on the left. So which are you really going to pick? Depend on moving average to tell […]
When the market is heading down, it forms downswings and upswings as it continually moves lower. Similarly, when the market is in an uptrend, it will form upswings and downswings as it continues to move up. The peaks that are formed by the upswings and the troughs that are formed by the downswings can be used to draw trendlines. And you need a minimum of 2 peaks to draw a downward trendline for a market that is in a downtrend and you need 2 troughs to draw an upward trendline for a market that is in an uptrend. How To Draw Downtrend Trendlines Now, for a market in a downtrend, you can connect the peaks with a line and that forms you downward trendline. What you are waiting for is for the price to come back up and touch that trendline and when it does, this could mean that a downswing will start and it may be the best time to enter a short trade. The use of bearish reversal candlesticks as trade confirmation is highly recommended with this trading method. How To Draw Upward Trendlines When the market is in an uptrend, connect 2 troughs and you have an […]
Now, I don’t know about you but one thing I continue to see is that price action respects Fibonacci levels…not all the time but when it does, some of the market moves generated can make you money very easily. The trick is to use Fibonacci and combine it with price action by using reversal candlesticks. But first, if you’ve never heard about Fibonacci retracement tool, then here’s a brief introduction… What Is The Fibonacci Retracement Tool? This tool is a series or sequence of numbers identified by a guy called Leonardo Fibonacci in the 13th Century. (He’s long dead…) No, need to go into pointless details about how those numbers are derived. So what actually is a Fibonacci Retracement? In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on your forex chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels. The two fib levels I use the most are 50% and 61.8%. I really do not focus at all on the others. If you […]
There are lots of candlesticks, but out of all of them only 9 that you really need to know. Why? Because there are very popular are really powerful so why waste time with the rest? When these candlesticks format support and resistance levels or Fibonacci levels they are great trade entry signals. #1: The Doji Candlestick Patterns. The Doji candlesticks are single (individual) candlestick patterns. There are 4 types of Doji candlesticks as shown below: The Doji cross can be both considered a bullish or bearish signal depending on where it forms. The Gravestone Doji is considered a bearish reversal candlestick when formed in an uptrend or in a resistance level. The Dragonfly Doji is considered a bullish candlestick pattern when formed in a downtrend or in a support level. The long-legged Doji shows a period of indecision by bulls and bears and depending on where it forms (uptrend/resistance level=bearish signal, downtrend/support level=bullish signal) it can be considered a bearish or bullish signal. #2: The Engulfing Candlestick Patterns The engulfing patterns are 2 candlestick patterns. For a bullish engulfing pattern, you will see that the first candle is bearishly followed by the second candle which is very bullish and this 2nd candle completely […]
There’s a difference between chart patterns and candlestick patterns.Chart patterns are not candlestick patterns and candlestick patterns are not chart patterns: Chart patterns are geometric shapes found in the price data that can help a trader understand the price action, as well make predictions about where the price is likely to go. Candlestick patterns on the other hand can involve only one single candlestick or a group of candlestick which have formed one-after-the other in regard to how they form in relation to one another in terms of their body length, opening and closing prices, wicks(or shadows) etc. Not knowing what chart patterns are forming can be a costly mistake. If you are like that, this is your opportunity to get back on track. Why costly mistake? Because you are completely unaware of what is forming on the charts and you end up taking a trade that is not in line with what the chart pattern is signalling or telling you! These are the 9 chart patterns you will learn about today: Triangle chart patterns-symmetrical, ascending and descending (3 patterns) Head and shoulders and Inverse Head and Shoulders (2 patterns) Double Bottom and Double Top (2 patterns) Triple Bottom and […]
Nothing is more noticeable on any chart that supports and resistance levels. These levels stand out and are so easy for everyone to see! Why? Because they are so obvious. As a matter of fact, support and resistance trading is the core of price action trading. The key to successful price action trading lies in finding effective support and resistance levels on your charts. Now, in here, I talk about 3 types of support and resistance levels and they are: 1.The normal horizontal support and resistance levels that you are probably most familiar about. 2. Broken support levels become resistance levels and broken resistance levels become support levels. 3.Dynamic Support and Resistance Levels Now, let’s look at each in much more detail. Horizontal Support and Resistance Levels These are fairly easy to spot on your charts. They look like peaks and troughs. The chart below is an example and shows you to trade them: How To Find Horizontal Support And Resistance Levels On Your Chart If the price has been going down for some time and hits a price level and bounces up from there, that’s called a support level. Price goes up, hits a price level or zone where […]
A reversal is a term used to describe when a trend reverses direction. For example, the market has been in an uptrend and when the price hits a major resistance level, it reversed and formed a downtrend. That’s what reversal means. Now, where can reversals happen? The following are the major areas where price reversals do happen: Support levels Resistance levels Fibonacci levels Here’s an example of price reversing form a support level and went up and then later broke it and went down. Now that broken support level acts as resistance level when the price came for a re-test of the level and sent the price tumbling down: So the big question is: how to spot trend continuity and execute trades at the right time? The secret is in the identification of specific chart patterns as well as very specific candlesticks patterns and you will discover more on the Chart Patterns and Candlestick Patterns section of this course. Top 3 reasons why it is so important for you knowing reversal points/levels as well as understanding trend continuity patterns and signals: You don’t want to be buying near or at a resistance level (which is a reversal point). You don’t […]
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