You’re probably wondering:

“What is Price Action Trading?”

Price action trading may be a methodology that relies on historical prices (open, high, low and close) to assist you create better trading decisions.

Unlike indicators, fundamentals, and some other factors … price action tells you what the market is doing — and not what you think that it should do.

Now, this isn’t the grail . But, if you spend time to learning price action trading, you’ll trade with cleaner charts, and may pinpoint your entries & exits with better precision.

Here’s what you’ll discover:

• the reality about Support and Resistance nobody tells you
• Secrets of market behaviour : How the market really moves…
• the key to reading Candlestick Patterns — the way to time your trading entries with deadly accuracy..
• Candlestick patterns cheat sheet: the way to understand any candlestick pattern without memorizing only one
• The one famous Trading Formula (A simple Price Action Trading system anyone can learn)
Are you ready?
Then let’s get started…

The truth about Support and Resistance
nobody tells you

First, let’s define what’s Support and Resistance so we’re all on an equivalent page.
Support – A horizontal area on your chart where you’ll expect buyers to push the price higher.
Resistance – A horizontal area on your chart where you’ll expect sellers to push the price lower.
Here are a couple of examples…
Support and Resistance on NIFTY50 Daily:

HIGHLIGHT IS AREA OF SUPPORT & RESISTANCE

Also:
Support and Resistance is of inverse nature.
This means when Support breaks it can become Resistance. And when Resistance breaks it can become Support.
An example…

PREVIOUS SUPPORT BECOME RESISTANCE

But why does it happen?
Because when the worth breaks Support, traders who are long are losing money and in the “red”.
So, when the worth rallies back to Support, this group of traders can now get out of their losing trade at breakeven — which induce selling pressure.
And that’s not all because traders who missed the breakout will want to short the markets which increase the selling pressure. And that’s why when Support breaks it tends to become Resistance. Make sense?
Now you’re probably wondering…

“But how do I draw Support and Resistance on my charts?”

That’s an honest question.
So, here are the rules I use…

  1. Zoom out your charts (at least 200 bars for me)
  2. Draw the foremost obvious levels (if you would like to second guess, then it’s not an
    important level)
  3. Adjust your levels to urge the foremost number of “touches” (it are often body or wick)

Dynamic Support and Resistance

According to proved Technical Analysis, Support and Resistance are horizontal areas on your chart.

This is useful when the market is during a range or weak trend.

But in strong trend markets, it won’t work well and that’s where you would like to believe dynamic Support and Resistance.

What the heck is dynamic?
It means Support and Resistance “move along” with the worth rather than being static.
For example:
The 20-period Moving Average can act as strong Support in trending
market…

20-period Moving Average can act as strong Support in trending
market…

Pro Tip:
Dynamic Support & Resistance also can be within the sort of Trendline or Trend Channel.

Market behaviour secrets: How the market really moves…

Here’s the deal:
The markets are always changing (I’m sure you’d realize this by now).
It is in an uptrend, downtrend, range, low volatility, high volatility, etc.
But, if you’re taking a step back and appearance at the large picture, you’d realize the market tends to be in 1 of 4 stages…

  • Accumulation
  • Advancing
  • Distribution
  • Declining
    I’ll explain…


Stage #1: the accumulation Stage

The Accumulation stage occurs after a decline in price, and it’s sort of a range market during a downtrend.
Here are the items to seem for:
• Occurs after the worth/price have fallen over the last 5 months or more (on Daily timeframe)
• It’s sort of a range market with obvious Support and Resistance areas — during a downtrend
• The 200-day Moving Average is flattening out
• The worth whips back and forth round the 200-day Moving Average
Here’s an example…

Accumulation Stage
And when the price breaks out of Resistance in an Accumulation stage, that’s where
it moves into the Advancing Stage…

Stage #2: The Advancing Stage

The Advancing Stage is an uptrend with a series of upper highs and lows.
Here are the items to seem for:
• Occurs after the worth/price breaks out of Resistance in an Accumulation stage
• You see a series of upper highs and lows
• the worth is above the 200-day Moving Average
• The 200-day Moving Average is beginning to point higher
Here’s what I mean…

Now here’s the thing…
No market goes up forever. It eventually gets “tired” and that’s where it enters stage
3…

Stage #3: The Distribution Stage

The Distribution stage occurs after an increase in price, and it’s sort of a range market in an uptrend.
Here are the items to seem for:
• Occurs after the worth/price have risen over the last 5 months or more (on Daily timeframe)
• It’s sort of a range market with obvious Support and Resistance areas — in an uptrend.
• The 200-day Moving Average is flattening out
• The worth whips back and forth round the 200-day Moving Average
It looks something like this…

DISTRIBUTION PHASE

At now , the market remains in equilibrium with both buyers and sellers on equal footing.
However, the tide is turned if the worth breaks below Support and that’s where we enter the ultimate stage…

Stage #4: The Declining Stage

The Declining Stage may be a downtrend with a series of lower highs and lows.
Here are the items to seem for:
• Occurs after the worth/price breaks out of Support during a Distribution stage
• You see a series of lower highs and lows
• The price is below the 200-day Moving Average
• The 200-day Moving Average is beginning to point lower
An example…

BREAKDOWN OF DISTRIBUTION PHASE

“What’s the purpose of learning the 4 stages of the market?”

Here’s the thing:
If you’ll recognize the present stage of the market, then you’ll adopt the
appropriate trading strategy to trade it.
Here’s how…
If the market is in an Advancing stage, then you would like to be a buyer (not a seller).
This means you’ll look to buy for breakouts or pullbacks.
An example:
Buying breakouts or pullback in an uptrend
Or…
If the market is during a Distribution stage, then you recognize there’s an enormous potential the downside if the worth/price breaks below Support.
This means you’ll look to short the breakdown of Support or await the breakdown to occur, then sell on the pullback.
Short breakdown or the pullback during a downtrend

Now once you can understand the 4 stages of the market, then now you’ll know which Price Action Trading strategies to use during a given market condition — and you’ll never be “lost” again.

Spread the love