The Ultimate Guide To Price Action Trading PDF
The Ultimate Guide To Price Action Trading PDF
Contents
DEDICATION ......................................................................................................................................................... 4
INTRODUCTION.................................................................................................................................................... 6
THE 4 STAGES OF THE MARKETS EVERY SERIOUS TRADER MUST KNOW ...................................................... 14
HOW TO READ THE PRICE ACTION OF ANY MARKETS (AND DETERMINE THE STRENGTH AND WEAKNESS
OF IT) .................................................................................................................................................................. 27
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EXAMPLE 1: .................................................................................................................................................................................................. 29
EXAMPLE 2: .................................................................................................................................................................................................. 30
EXAMPLE 3: .................................................................................................................................................................................................. 31
FORGET MEMORIZING CANDLESTICK PATTERNS, YOU ONLY NEED TO KNOW THESE 4 THINGS ................. 33
WICK ............................................................................................................................................................................................................... 33
PINBAR........................................................................................................................................................................................................... 37
A PRICE ACTION TRADING STRATEGY TO CAPTURE MOMENTUM AND RIDE TRENDS .................................. 52
GUIDELINES: ................................................................................................................................................................................................ 53
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Dedication
This guide is dedicated to all traders out there, young and old. You are awesome
and I’ll see you on the battlefield.
The information contained in this guide is for informational purposes only.
I am not a financial advisor.
Any legal or financial advice I give is my opinion based on my own experience.
You should always seek the advice of a professional before acting on something I
have published or recommended.
Please understand that there are some links contained in this guide that I may
benefit from financially.
No part of this publication shall be reproduced, transmitted or sold in whole or in
part, or any form, without the prior written consent of the author.
Users of this guide are advised to do their own due diligence when it comes to
making business decisions and all information, products, and services that have
been provided should be independently verified by your own qualified
professionals.
By reading this guide, you agree that myself and my company is not responsible
for the success or failure of your business decisions relating to any information
presented in this guide.
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Rayner Teo
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Introduction
What moves the market?
It’s not because there’s more buyers than sellers.
It’s not because of support & resistance.
It’s because of buying and selling pressure.
Imagine:
I want to sell 1 million shares of "Apple."
And, at the same time, there are 10 buyers wanting to buy 100 shares of “Apple”
each. In total, their buying pressure is 1,000 shares.
Now, compare this with the selling pressure of 1 million shares from me.
Where do you think price is headed?
Down.
Why?
Because there’s more selling pressure than buying pressure. And not because
there’s more sellers than buyers!
In this case, there is one seller (which is me) against 10 buyers, but the price is still
heading lower.
The takeaway is this...
Price goes up because there’s more buying pressure than selling pressure.
And price goes down because there’s more selling pressure than buying pressure.
You can call this price action trading, order flow of the market, supply & demand,
etc. But let’s stick to price action trading.
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◉ How to read the price action of any markets (and determine the strength and
weakness of it)
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Remember...
...Support & Resistance is not a single line, but an area on the chart.
And when price breaks Support & Resistance, a role reversal occurs.
Role reversal
Simply put...
If the price breaks below support, previous support becomes resistance.
If the price breaks above resistance, previous resistance becomes support.
Here's what I mean...
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Now:
You've just learnt what Support & Resistance are, and their role reversal with one
another.
This is "static" Support & Resistance, where their areas are fixed on the chart.
But wait, that's not all…
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You're wondering:
Rayner, is there anything special about 20 & 50 EMA?
The answer is no. I use it because it fits my trading style. Ultimately you need to
find something that suits you.
Indicators are simply trading tools. It’s how you use them that make a difference.
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◉ Accumulation
◉ Advancing
◉ Distribution
◉ Declining
◉ The 200-day moving average tends to flatten out after a price decline
◉ Price tends to whip back and forth around the 200 day moving average
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◉ The 200-day moving average tends to flatten out after a price decline
◉ The price tends to whip back and forth around the 200-day moving average
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◉ Short term moving averages are below long term moving averages (e.g. 50
below 200 day ma)
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So, you've learned what the 4 stages of the market are, and the key
characteristics to look out for.
Now, let's move onto the next section...
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So, now you understand that trends can exist on different time frames.
Now... let's learn how to define a trend objectively.
There are two ways you can go about doing this:
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Moving average
Alternatively, you can use moving average to define the trend.
Here's how you can do this:
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Now, before the light bulb in your head goes off with "buy low and sell high," I want
you to see the reality of trading range markets.
Because, in the real world, you get variations like:
◉ Range expansion
◉ Range contraction
Range expansion
This occurs when the market does a false breakout and trades back into the range,
thus expanding the "space" between Support & Resistance.
Selling at resistance would get you stopped out as the price breaks above the
resistance only to trade back into the range.
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An example:
Range contraction
This occurs when the market enters a period of low volatility, usually due to an
impending news release.
Looking to "buy low sell high" would put you on the sidelines, as the markets go
into a tighter consolidation.
Here's what I mean:
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Personally, I find range expansion and contraction one of the hardest markets to
trade, and I usually stay out of it.
Now, let's move onto something interesting...
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Example 1:
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c - An impulse move which is short lived. A possible complex pullback setting up.
d - Corrective move that tested the previous low.
e - Impulse move going higher, which should lead to resumption of trend.
f - False breakout. Corrective move has large bodied candles, and is getting
steeper. This doesn't look good.
g - A weak attempt by the bulls to regain control.
Overall:
Uptrend is getting weak. Support comes in around 175, which is a strong line of
defense for the bulls.
I will look to go long or stay on the sidelines. No shorting at this point.
A break and close below 175 would be bearish with the completion of a head &
shoulders pattern. If this happens, I'll look to short or remain on the sidelines.
Example 2:
a - Impulse move heading lower with a huge spike down (possibly due to news
event). Price continues trading towards the low.
b - Corrective pullback with small bodied candles. This looks normal in a
downtrend
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c - Weak impulse move going lower. Where did the sellers go?
d - Strong corrective move going higher with large bodied candles. The trend is
possibly over and could transition into a range market.
e - Sellers came in and tried to push the price lower. If it breaks below the previous
low, the trend could resume. But it couldn't.
f - Bulls taking control once more in an attempt to move towards the resistance
area.
Overall:
Bulls and bears are in equilibrium at the moment as both bullish and bearish
candles are of similar size.
I'll look to short or stay on the side. No longs at this point.
If price breaks above the resistance area at 0.6900, then I'll look for longs or will
stay on the side.
Example 3:
a - Impulse move heading higher which broke and closed above resistance.
Candle bodies are large, showing strong bullish momentum. Expect the trend to
continue.
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b - False breakout as the price trades back into the range. Candle bodies are large,
showing strong bearish momentum. It doesn't look good here. Last line of defense
comes in at the 91.00 support area.
c - Weak attempt by the bulls to push the price higher. The small bodied
candles show lack of strength by the bulls.
d - Bears regain control and push price lower, breaking the 91.00 support (this is
an impulse move lower). Large bodied candles show signs of strength by the
bears.
e - Weak attempt by the bulls to push the price higher. Again, it shows lack of
strength, with small bodied candles and a flatter slope.
f - One bearish candle wiped out the gains of the last 14 candles, with previous
support now turned resistance.
Overall:
The bears are clearly in control now, and I'm looking to short or stay on the sides.
No longs for me at this point.
For further readings, I would recommend the works of Lance Beggs.
Now, let's move onto the topic of candlesticks...
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Wick
The wick of the candle represents price rejection. If you see a longer wick, it
represents greater price rejection.
Here's what I mean:
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◉ Pinbar
◉ Inside bar
Pinbar
A Pinbar is a reversal pattern, which was first introduced by Victor Sperandeo in
his book Trader Vic: Methods of a Wall Street Master.
The key takeaway about this pattern is price rejection.
Bullish Pinbar - Small bodied candle with long lower wick, showing rejection of
lower prices.
Bearish Pinbar - Small bodied candle with long upper wick, showing rejection of
higher prices.
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Now:
Just because you see a bearish Pinbar doesn't mean the price is going to trade
lower.
In fact, it’s usually just a retracement within a trend.
Here's what I mean:
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Do not "blindly" go short when you see a bearish Pinbar, or go long when you see
a bullish Pinbar.
Chances are, it’s a retracement within a trend.
Here's what you should do instead:
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Look at this:
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Recall:
The Pinbar shows price rejection on the charts.
But, there is more than one way to show price rejection, and it may not come in the
form of a Pinbar.
So...
...if you're only focusing on Pinbar trading setups, then you'll miss trading
opportunities like these...
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Watch this training video that explains why the Pinbar trading strategy is causing
you to lose money.
In case you haven't realized...
Another variation of Pinbar is the Engulfing pattern.
If you think about it, the Pinbar is actually an Engulfing pattern on a shorter time
frame.
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Remember...
Price rejection can come in many forms. You should focus on the price, not the
pattern.
Inside bar
This can be both a continuation and reversal pattern (I'll focus on the continuation
pattern).
The key takeaway about this pattern is low volatility. Thus you can get an entry
with tight stops on this pattern (and improve your risk to reward).
Inside bar - Small candle contained within the previous bar’s highs and lows
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Here's an example:
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Another variation of the Inside bar is coined the "Fakey," by Nial Fuller.
This is when the Inside bar breaks out in one direction, only to reverse and close
in the opposite direction (otherwise known as a false breakout).
Here's couple of examples:
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Moving on...
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If you want to learn more about candlestick patterns, I would recommend the
works of Thomas Bulkowski and Steve Nison.
Next...
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There are traders who swear by Supply & Demand, and some who do just fine with
Support & Resistance.
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Again, you don't want to trade them in isolation, but instead you want to use them
with other technical tools that add confluence to your trades.
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Guidelines:
◉ The best setup occurs when the market is trending strongly, or shortly after
it breaks out of a long term range
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◉ Do you set your entry using the previous bar or the inside bar?
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Rayner Teo
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