Forex Trading Romania

  • How to Trade Breakouts Like a Pro

What is a breakout

First off, let’s talk about basics, what is a breakout?

A breakout is, for me, classified in two ways:

  • Breakout of swing high or swing low.
  • A breakout of support or resistance.

Let me explain…

Breakout of a swing high or swing low

It looks something like this:

The swing low is like a mini version of support and resistance.

They are not as significant, but it’s pretty obvious on the charts when you identify a swing high or lows in a market!

Trading breakouts, you can either trade the break of the swing high or swing lows.

Or you can trade the break of support or resistance…

Breakout of support and resistance

It looks something more like this:

Resistance in a market is an area where there will be potential sellers coming in!

In the example given, you can see an area of resistance.

Price tested twice in an area of resistance and then price break and closed above it.

This is a breakout of resistance, a slightly different from a breakout of a swing high.

Because a resistance is a much more respectable area.

And is obvious on your charts when you have identified key areas of support and resistance.

There are two ways to go about it: a breakout of a swing high, swing low, or the breakout of support and resistance.

Moving on…

What to avoid

Let’s talk about when you should avoid trading breakouts:

  • You don’t want to be trading breakout against the trend
  • You don’t want to be trading breakout when the market is far from the structure.

Let me explain…

Trading against the trend

Trading against the trend is, I’ll say, quite illogical, and that you don’t want to do this.

You’ve heard the saying, ‘a trend is your friend until it bends.’

So, let’s see why trading with the trend puts you in a much more favorable position:

Because think about this…

You notice that there is a downtrend right here, and you see a series of lower highs (Red arrow).

So, when you are trading the trend this means that you are preferably looking to get short.

And if you are looking to get short…

You can see that a move towards the downside is much more sustained!

Look at these downside movements here:

They are pretty much stronger and lasts longer!

Whereas compared to someone wants to trade against the trend, where they’re looking to get long.

Look at the bull traders who are going long in this market.

Look at the up moves that resulted from trading against the trend:

So, these are the up moves, very sharp, very limited.

You can see that the strength by the Bulls is very weak compared to the Bears.

If you are looking to trade against the trend, then you can see that there is really not much so-called ‘meat’ in the move.

Your gains are pretty much limited because you’re trading against the trend!

Likewise, if you want to trade breakouts, I would strongly discourage or strongly advise you not to trade against the trend.

Because, for example, you see over here there is an area of resistance:

And let’s say you’re looking to trade the breakout higher…

I would say chances are this breakout isn’t really going to go very far!

Because, after all, you’re trading against the trend.

What is likely to happen is that even if it does a breakout, It would trade higher before it collapses lower, giving you a false breakout over here:

So, beware of trading against the trend whether you’re trading breakouts, pull back or whatever entry techniques you will use.

This usually isn’t really the best ideal situation to be trading.

Okay?

Next…

Far from structure

What does it mean?

Look at this example:

This chart is the GBP/AUD 4-hour time frame.

But bear in mind, whatever market you’re looking at, whatever time frame, the principles are essentially the same.

Whether it’s a 4-hour, a daily, the weekly, the hourly, they are the same.

Just apply and learn the principles and don’t really care too much what markets or time frame this is.

But nonetheless, this market, we have a very nice uptrend.

At this point in time, you see the price has traded at this point, it is so high.

And traders look at this chart and they say, “Oh wow! Rayner, look how bullish this is! I better get long before price trades higher without me!”

So, you got long at the high over here:

But what’s the problem with going long at this high based on the example.

Think about this…

The thing is, where are you going to put your stop loss?

Or should I say, where is the logical place for you to put your stop loss?

Well, you’re not going to put anywhere here:

Because there is no structure to lean against.

The nearest structure that comes is this high over here:

Previous resistance with a possibility of becoming support.

This level is the one that you need to lean against to place your stop loss.

And of course, you don’t want to be putting exactly at this level as well because the price could just come into this level and bounce higher.

Chances are, you need to put your stop loss somewhere below here:

A rough estimate.

The size of your stop loss is very large!

You compare back to the magnitude of the move previously.

The size of this stop loss is very big compared to this recent move.

When you have a very large stop loss, what happens?

You’re going to get a poor risk to reward, right?

Because the price has to move an equal distance in your favor before you attain a 1:1 risk to reward.

As you can see, having a large stop loss gives you a poor risk to reward.

Usually, most of the time or I would say 99% of the time…

I don’t really want to deal with guarantees, because there are certain times in the market where traders can be successful doing this kind of trading approach.

But I would discourage you to trade breakouts when it’s far away from the structure.

Because of the fact that you need to have a very large stop loss.

And it gives you a very poor risk to reward as a result of it.

Okay?

So…

How do you identify high probability trading breakouts like a pro

These are the three things to bear in mind:

  • You want to trade with the trend.
  • You want to trade near structure.
  • You want to trade breakouts with buildup.

Let me explain…

Trading with the trend

So, trading with the trend is something which you should be familiar by now.

Because earlier I discouraged you from trading against the trend!

And it only makes sense to be trading with the trend!

In this example:

You are in an uptrend.

You can see that price has consolidated and broke higher.

At the recent price, a flag pattern is emerging, then you could possibly trade higher from it.

When you have a trend in your favor, trade the breakout in favor of the trend.

You will increase the odds of your trade working out.

Trade near the structure

Earlier, you saw that trading, when the price is very far away from the structure, doesn’t really make much of a sense.

Because your stop loss is so large and you get a very poor risk to reward.

And in this example:

What if you’re trading the breakout when it’s near structure?

See, this is an area of resistance, and the price has broken above it.

If you are looking to get long right now, where is the logical place to put your stop loss?

Below this previous resistance turns support, right?

You can just put your stop loss somewhere over here:

So, this is a much tighter stop loss to use compared to the earlier example you saw.

With a much tighter stop loss, it gives you a better risk to reward!

Because the price doesn’t have to move a lot in your favor before your R multiple starts going in your favor.

When price moves in your favor, you get almost a 1:1 risk to reward, or even slightly more than that.

It gives you a much favorable risk to reward because of the fact that your stop loss is much tighter.

And why do you have a much tighter stop loss?

It’s because you are much closer to the structure of the markets.

You can lean against this structure to place a logical stop loss.

Compared to the earlier example, the structure is way too far away and it doesn’t really make sense to me to be trading in that scenario.

The last thing you want to pay attention to is…

Trade breakouts with the buildup

This is a question I get a lot from traders, “Rayner, what is buildup?”

Alright, I do apologize if I didn’t explain clearly, but this will definitely clear your doubts…

A buildup is basically a congestion, consolidation or a tight range.

You can think of a build up along these lines!

In this example, you see that we have a trend going in our favor, uptrend with an area of resistance:

Then, we have this buildup, a consolidation over here:

A lot of traders will look at this chart and say, “Oh, Rayner, prices consolidating at resistance? I’ll look to get short!”

Then, they go short somewhere in the middle of the range and get their stop loss above the high.

That’s what they’ll do because, at resistance, it makes sense to go short.

But think about this, think deeper…

If the price is consolidating at resistance, what does it tell you?

You know that resistance is an area where there are potential sellers who will come in and push price lower.

But in this example, the price is consolidating at this area of resistance!

Where are the sellers?

Why aren’t they pushing price lower?

Why is that?

Think about this, my friend.

The reason why the sellers are not pushing down the prices could be one of two things:

  • The sellers are no longer there.
  • There are equally strong buyers.

No matter which scenario it is, whether it’s number one, there are no sellers, or number two, there are equally strong buyers…

It doesn’t look good for traders who are looking to short either way.

And on top of it, the cluster of stops above the high would create an incentive for the smart money to actually breakout higher, so they can rake the stops above the high.

My point is this…

When you see a consolidation at resistance, basically buildup just in front of the area of resistance.

This is a sign of strength.

I repeat, this is a sign of strength.

In this scenario again, I’ll be looking to get long when price trades above the highs.

And put my stop loss around 2 ATR.

This is something to look out for.

Look through your charts, look through in price approaching support and resistance area.

Ask yourself what happens if there is a consolidation at support and resistance area.

Does it improve the odds that a breakout will succeed?

Do this research on your own and you’ll be amazed at the results that you’ll find.

So, this is the thing to look out for, trade breakouts with buildup and this will really improve the quality of breakout setups that you’re taking.

And on top of the earlier two tips I shared with you

Trading with the trend and trading near structure.

Now…

Let’s do a recap on what have you learned today.

Recap

  • What is a breakout.
  • When not to trade breakouts.
  • You don’t want to trade breakouts when you’re trading against a trend, and when it’s far away from the structure.
  • You want to be trading breakouts when you’re trading with the trend when you are trading near structure.
  • Trade breakouts with buildup.
  • How to Trade Pullbacks Like a Pro

What is a pullback

A pullback looks something like this:

If you have an uptrend, then the move that is against the underlying trend are known as pullbacks in the market.

Basically, if you’re talking about trading pullbacks…

You’re basically entering the trade as the market trades at a lower price in an uptrend.

So, the pros and cons of a pullback are this:

Pros

You’re basically buying low and selling high.

If you are trading pullbacks in an uptrend, you’re basically buying low.

And if you are selling pullback in a downtrend, you’re basically selling high.

And the second thing about this is that it is actually easier on your psychology when you’re trading pullbacks.

Reason being is that you’re basically trading from an area of value.

Because buying low and selling high is something that we all are very accustomed to.

Because when we are going to the supermarket or we buy all this stuff, we always want to buy low and sell high.

Cons

And the downside of it is that you may miss the move.

Let me explain why…

For example, in an uptrend, it consists of higher highs and higher lows.

Let’s say the price is pulling back right now.

And let’s assume you are hoping that price could retest back to the lows.

What happens in the market is that the price doesn’t pulls back deep enough.

And then it broke out higher without you, so it ended up causing you to miss the move.

This is the biggest downside in trading pullbacks, is that sometimes you may actually miss the move while waiting for the price to come to your desired level.

Where will the pullback end

Now, once you embrace the pros and cons of trading pullbacks…

The next question you probably have is, “Hey Rayner, where will the pullback end?”

So, I want to share with you three scenarios where I find that the pullback would usually end in either one of these three particular scenarios:

  • It tends to respect support or resistance.
  • It tends to respect a moving average.
  • It tends to respect a trend line

Let me explain…

Pullback respecting support

We can see that this chart over here:

Doesn’t matter what timeframe or what market this is.

This is pretty much a universal rule, a universal principle that you can apply.

So, you can see on this chart.

This there is an area of resistance, price broke out of it, and then it pulled back:

Where did it pull back into?

Previous resistance now turned support.

Then price rallied higher once more, and then it pulled back once again:

Where did it pull back into?

Previous resistance now turned support.

This is an example of price pulling back into an area of support in an uptrend.

And this is just vice versa for a downtrend.

Pullback respecting moving averages

The next thing that the market could potentially pull back into.

Is back towards the moving average.

In this example:

The red line here is the 20-period moving average.

The blue line is the 50.

Price tends to pull back into the 20 and 50-period moving average.

Again, this is just a cherry-picked example, I’ll admit.

Because there are times when the market will respect the 100-period moving average or the 200.

So, this is something that you probably have to be more proactive.

And to notice which moving average is more applicable in the current market condition or whether it’s even applicable or not.

Moving on…

Pullback respecting a trend line

Another thing that a market would respect is a trend line.

We can see over here:

Price trends higher come lower, and trends higher with respect to the trend line.

At this point, you have multiple touches.

The touch is something that you could actually pay attention to.

Recall earlier, the cons of trading pullbacks are that sometimes the market may trade without you.

This is one example:

If you were to be waiting for the price to come towards the area of the trend line, you have missed this move higher, and then it comes back lower where it touches the trend line, trends higher, and then it trends lower.

And starts to hug the trend line all the way here:

And then it breaks out higher once again.

These are the three particular scenarios where the market tends to pull back into.

Now comes the important question…

How do you trade the pullback

There are, of course, many different ways to trade the pullback.

But I just want to share with you three very practical ways that you can consider trading pullbacks.

Because I find that these approaches very sound and logical to me:

  • You can look for reversal candlestick patterns.
  • You can look for a break of a trend line before you enter the trade.
  • You can wait for a break of structure on the lower time frame.

Let me explain…

Reversal Candlestick Patterns

For example, take this chart as a reference:

The first way you can look to trade it is to use candlestick patterns.

If the price has pulled back to an area of value, an area where you think the market will reverse from.

You can start to look for reversal candlestick pattern before you enter a trade.

For example, you have a bearish engulfing pattern and price traded lower.

It’s not really a very bearish candle, but nonetheless, it engulfs the body of the previous candle.

Then, you have another bearish engulfing.

A bearish pin bar, and another bearish engulfing candle.

Mind you, this is obviously a cherry-picked chart.

I cherry picked this chart, not to show you that this method is the best, but rather is to illustrate my point.

Because if you have a well-picked chart, it is much easier to illustrate the point I’m trying to put across.

But I hope you understand that there’s no such thing as a 100%-win rate in trading.

There will be winners and losers no matter what your trading strategy is.

So, don’t be mislead about the current chart that I’m showed with you recently.

The reason why it seems to work really well is that we are in a clear downtrend.

When you have a very clear downtrend, you realize that no matter what entries you use, chances are is that it’s going to make you money as well.

With that said, the following in the example is the candlestick entry that you can consider.

Moving on…

Break of Trend line

As you can see here, you look for a break of trend line:

When price breaks the trend line, you can short.

Again, it works, right?

I hope you get my point that I’m just trying to illustrate to you the different ways that you could consider entering on a pullback.

But don’t be misled by thinking that this is such a very high win rate strategy.

It’s definitely not the truth, and it’s something that you have to be prepared for.

You have to be prepared for losses no matter what approach you use.

Okay?

For this, the trend line example, how you go about trading it is when price breaks and closes below the trend line, you can look to go short in this market.

But for this over here:

If you look at the strong bearish close, you probably wouldn’t go short at a very low level.

This is a trade that you possibly want to consider skipping altogether.

The last thing I want to share with you is what is called…

Break of structure on the lower time frame

Let me explain this…

For example, a price has come into this area of value in the 4-hour time frame:

What you can do is to go down to a lower time frame, like the 1-hour time frame.

And wait for a break of structure to signal to you that the trend is about to go back into its original direction.

Let me show you:

This is the same portion we saw earlier in the 4-hour chart.

How you go about doing it is you start to observe the structure of this market.

You notice that the retracement consists of higher highs and higher lows:

At this point, things start to change based on the structure of the market.

Notice that you have a lower high and a lower low:

Once you have a lower low and a lower high, it’s telling you possibly that this retracement is coming near towards its end.

You can look to go short in this market when price breaks below the support over here:

This is what I mean by a break of structure on the lower time frame.

These are basically the three different ways, three different methods that you can use to enter on a pullback.

Now…

My next question is, “Rayner, what about stop losses? How do you actually manage your stop losses?”

The most logical area to set your stop loss is above the swing highs on a downtrend:

Since this is a downtrend, above the swing high would be a logical approach (red).

If you want to be more conservative, you can actually use the previous swing high as well (black).

This is something that is personal.

It really depends on your own personality and your attitude towards risk itself.

With that, I pretty much just want to give you a heads up into the things to look out for when you’re trading the pullback.

And what are the options that you have as well when you are trading pullbacks.

Just to recap to what you have learned in today’s video…

Recap

  • What is a pullback and the pros and cons of trading pullbacks.
  • Where will the pullback potentially end. Either support or resistance, support in an uptrend, resistance in a downtrend, or back towards a moving average or back towards the trendline.
  • How you can trade pullback. It can be candlestick patterns, the break of the trend line, and the break of the structure on the lower time frame.
  • Where you could put your stop loss. You could either put your stop loss above the current swing high or at the previous swing high.

This is basically how you could actually go about trading pullbacks.

It’s not an exact trading strategy for you to use, but it’s to give you all the different possibilities or the important stuff that you need to consider before you want to trade pullback.

I hope this really gives you a good insight into how you can actually trade pullback in your trading career.

So, with that, I’ve come to the end of today’s video.

If you’ve enjoyed it, feel free to hit the subscribe button below so you always stay updated.

And lastly, if you have any questions or feedback, feel free to let me know in the comment section below.

With that, I wish you good luck and good trading. Talk to you soon.

  • The Truth about Support and Resistance

What are support and resistance

So, let’s talk about support and resistance.

The first thing I want to explain to you is, what I call…

The Undershoot

It’s a term that I came up with, so if it sounds weird to you, don’t worry, I’m going to explain to you what the undershoot is about.

Basically, you see price rally, then it retraces back towards support and tested three times:

Now, you know there’s  support over here!

When the fourth touch comes back, you are in anticipation that the support will hold!

What you do is, you place a buy limit order at support.

The funny thing is…

The price undershoots.

It did not trade to the support level that you want to get long and then traded higher once again:

Thereby causing you to miss the trade because it undershoots the support.

Now, another example is what I call…

The Overshoot

So again, similarly price rallies higher and retraces.

And then, you notice that there is a support level…

What happens is that you place your buy limit at support hoping to get filled:

And then what happens is that it overshoots your support, and then it trades higher.

So, in this scenario, you got long, and you’ve got stopped out at the same time:

Are you with me?

So, what is my message to you?

My message is actually very simple, support and resistance are an area on the chart it is not a line on a chart.

An area… This is the keyword.

When you look at support and resistance and treat it as a zone where price could potentially bounce before it reaches the exact level you are highlighting out.

Or it could exceed the level that you are looking at, and then reverses from there.

To make things simple, what I want you to look at is to treat it as an area where the price could come close to support.

But not very deep into the support area that you have highlighted.

Or it could exceed the area you have highlighted, and then reverse from there.

Here are a few examples to show you:

I would draw it as an area on the chart.

I use two lines to illustrate an area, rather than one line.

If the price were to retrace, at this point in time I should alert myself that there is a possibility of price really retracing higher!

You want to be alert, you want to give yourself some buffer for this.

Another example, support is an area on a chart:

Notice, I’ve used it as an area.

You don’t want to just put one line on your chart.

Because if you are just focusing on one line.

Chances are you will experience the two problems I shared with you earlier.

Either price undershoots, or overshoot.Okay?

Moving on…

Number of re-tests

I’m sure you’ve heard in books or other people telling you that the number of times support and resistance gets tested…

The stronger it becomes.

But, let’s think about this, does this make sense?

First, let’s understand why support and resistance holds.

Well, they hold simply because there is possibly an order in a market.

For example, in the area of support, there are buyers willing to bid up prices.

Every time price comes towards the area of support, they want to buy in that area!

Because they think it’s an area of value!

But what happens when the order runs out?

So, let me walk you through a hypothetical example.

Say, there is an area of support, and I have a very big fund.

I want to buy 100 million dollars’ worth of stocks, or currencies, whatever, it doesn’t matter.

100 million worth of stocks, currencies, bonds, whatever.

Each time price comes lower, I managed to get filled 30 million over here:

And then I cannot get filled anymore before price retraces higher!

And, it comes back down, I buy another 30 million:

Then it trades higher, come back down I buy another 30 million:

And it trades higher, and it comes back down. I buy the remaining 10 million:

Now, I basically have been filled out my entire order of 100 million orders of stock, shares, or whatever they want to fill!

And right now, there is no one supporting the market anymore…

So, if these entire orders are filled at support.

There are no more orders willing to buy in this area of support!

What will happen to this area of support, if there is no more buying pressure down here?

You can see clearly the support has tested four times, and there is no more buying pressure…

The logical sense will be that the support will break!

Am I right?

Because there are no more orders down here to fuel the buying pressure!

When you see a chart, and support or resistance has been tested many times, you want to be careful of it.

Because there is a good chance that it will break.

Because of the buying or selling pressure has basically been used up.

The orders in the market have been filled, so be aware of this.

The message that I want to put across is…

The more times it tests the support and resistance, the weaker it becomes.

This is my message for you, this is a key takeaway.

Stop loss placement

For example, you have a range market, price trades higher and lower, and then trades to the middle:

And, you want to short this market…

You notice there is a resistance, so the price trades higher, and you go short.

Where would you put your stop loss?

Well, logically speaking, you will put your stop loss above the highs, over here:

Why is that?

Because the textbooks tell you that if you put your stop loss above the highs, and if price trades into the highs taken off your trade, it is telling you that price is breaking out.

Then, your trade is invalidated, and you should get out the trade.

But, recall the earlier example where I talked about overshoot.

Support and resistance can overshoot on your charts.

Meaning, they can just simply trade higher, and then come back lower:

And if you were to place your stop loss just above the highs.

Wouldn’t you be subjected to be stopped out unnecessarily?

Does this make sense?

Similarly, if you were to go long at support, and again, the textbook, or the courses you attended, they tell you to put your stop loss below the lows of support.

Because the price has not reached beyond the lows of the support you’ve identified.

And if the price reaches beyond the lows is telling you that the support is breaking, and you should be out of the trade.

But again, think about this, earlier I shared with you.

Support and resistance, they can overshoot like this:

So, if you were to put your stop loss just below this low, what’s going to happen is that you will get stopped out unnecessarily, and watch price goes back in your favor!

What is my point?

My point is very simple…

Don’t place your stop-loss just below support, or above resistance.

Because of the fact that I shared with you.

That support and resistance can undershoot or overshoot.

Meaning that they may not come close to the support area you have identified.

Or it may even exceed the support area you have identified, and then trade back in your intended direction.

Are you with me?

Moving on…

Stop hunts

Let me share with you a few examples of what I mean by overshoot:

You can see a support area.

Then you notice the price just trades lower, and then it trades higher from there!

Picking on those who place their stop loss below these lows over here:

Another example:

This is the chart of crude oil.

You see that price rallied higher, came back lower, triggering the stop loss on the lows and then trade higher once more!

This phenomenon is common.

You can look at your charts, and see for yourself.

Use this information I shared with you.

Go, and verify whether it makes sense to you.

Because all these I’m sharing with you is based on my experience.

I could be wrong, but still, I’m just sharing based on my experience.

So, it’s best that you go look at the chart, and see whether Rayner makes sense or is he just talking nonsense.

Let’s do a recap…

Recap

  • Support, and resistance is an area on the chart. It’s not a line on the chart. Because, there is a possibility of price undershoot, and overshoot.
  • The more times support, and resistance gets tested, the weaker it becomes. Because the order in the markets gets filled and the barrier will break.
  • You should not place a stop-loss just below the lows, and highs in the market. Basically, don’t place your stop-loss just below the low support, above the higher resistance.
  • Trend Trading Secrets

So, here’s the thing…

You know that the trend is your friend.

Traders have told you…

“You should be trading the trend. Trend trading is the real deal. That is how, you know, you make money in the markets.”

But if you look at my chart right now, you can see that this is an uptrend:

This second chart over here, it’s a downtrend:

And this third chart over here is another downtrend:

One thing that I want you to pay attention to is, again, look at the first chart again…

Notice this over here that it has a shallow pullback:

The second one over here, this chart has a much deeper pullback:

And finally, the third chart you have a deeper pullback over here:

So here is the first secret of trend trading…

Not all trends are created equal!

I do not know why traders don’t talk about it.

They talk as though trends, they are all the same, but it’s not.

They are not created equal, and that is why in today’s video, I want to share with you:

  • The three types of trend that every trader must know.
  • When is the optimal entry point to enter a trending market, depending on what type of trend it is.
  • And finally, by the end of this video, you will be a professional trend trader who can handle, who can profit, in the different types of trending markets.

Sounds good?

Then let’s begin.

Three types of trend that every trader must know

The first type of trend that I want to share with you is what I call a…

Strong Trend

A strong trend is when the trend is strong, okay?

So, how do I actually define a strong trend?

It’s when the price respects the 20-period moving average:

This over here is the 20-period moving average.

As you can see, the market remains below it.

This gives you a big clue that this trend is actually strong, and that’s why it has been consistently below the 20 MA.

How would you trade a strong trend?

Ideally, you would want to trade a breakdown or a breakout:

In this case, since it’s a downtrend, you want to trade the breakdown of the swing low.

Why do you want to trade a breakdown?

Because in a strong trend, seldom does it do a nice pullback for you to time your entries.

Seldom does it retest a moving average.

Seldom does it retest resistance.

If you look at this, it only tested the moving average over here once:

And if you are waiting for it to come to the moving average or the previous swing high…

You will be disappointed because the market, is in a strong trend!

That’s why it doesn’t have a deep retracement.

If you want to trade pullback or retest or key levels, again you will be disappointed.

That is why I say that in a strong trend it’s ideal to trade breakouts or breakdowns.

In this case, you can just simply go short when the market breaks below the swing low.

And to set your stop loss, ideally, you want to set it beyond the 20MA.

Don’t just put it above the 20MA because what could happen is that the price can spike up higher and then collapse lower.

So, give it a distance, give it some buffer above the 20-period moving average.

The second type of trend that I want to share with you is what I call a…

Healthy trend

How do you know that a trend is healthy?

A healthy trend usually has a clear pullback towards the 50-period moving average.

This means that you can actually time your entry towards the 50-period moving average.

If we look at AUD/USD over here:

The market has tested the 50MA four times.

You can see that in a healthy trend…

What you need to do is wait for the market, be patient, and let it come back towards the moving average.

You can see that we have a bearish engulfing and a shooting star pattern before closing near the lows of the candle:

These are all entry points that we can use to trade in a healthy trend.

And one tip that I want to share with you is that…

Based on my years of trading trends, I realized that in a healthy trend the market tends to respect previous support turned resistance or previous resistance turned support:

You can see that on top of it…

A confluence factor that you can look at is not only the 50MA, but also at previous support turned resistance.

This is where there’s a good chance of the market reversing in a healthy trend.

And to time your entry to just wait for a reversal candlestick pattern and you can time your entry.

And again, you don’t want to set your stop loss just above the moving average.

Give it some buffer, give it some distance away from it.

You can use an indicator like the Average True Range or just eyeball or give it some buffer.

This is how you would go about trading the healthy trend.

So, what I don’t recommend in the healthy trend is that you don’t necessarily want to trade breakouts.

Why is that?

Because if you look at this…

In a healthy trend the market tends to pull back towards a moving average:

So, if you were to trade the breakdown of the swing low…

You can see that the market went slightly in your favor and then you have to swallow deep pullbacks against you.

This would happen often if you were to trade breakouts on a healthy trend.

You would have to endure quite a sharp pullback when it comes back towards the moving average.

It doesn’t happen often, but more often than not it will revert back towards the mean.

So, this is why I don’t really recommend trading in breakdowns or breakouts in a healthy trend.

It’s much better to time your entry and wait for a pullback, either towards the moving average or previous support and resistance.

And moving on, the last type of trend that I want to talk about is the…

Weak trend

For example, a weak trend usually occurs when the price doesn’t respect the 50-period moving average anymore.

It tends to exceed beyond it.

You can see it over here on the EUR/USD:

Price has been respecting the 50MA and then it trades beyond it repeatedly.

So, how do you actually trade the weak trend?

This is where your support and resistance come into play.

For example, based on this chart over here I identified that this is an area of resistance:

What I’ll do is I will now time my entries at resistance!

Since this is a downtrend.

Price comes into the area of resistance and shows price rejection over here:

You have this Dragonfly Doji rejecting the highs.

Then the next candle had a slight bull candle and finally, another candle reverses lower towards the downside with a bearish close.

This is a sign of price rejection and if you look at this, you can look to go short again.

And set your stop loss a distance away from the highs.

And this is how we actually trade the weak trend when the price comes towards an area of value like support or resistance.

So just to do a quick recap…

Strong trend: Price tends to respect 20MA
Ideal to trade breakouts

Healthy trend: Price tends to respect 50MA
Ideal to trade pullback towards 50MA

Weak trend: Price tends to trade beyond 50MA
Ideal to trade pullback towards Support

So now, just an additional quick tip to share with you…

When not to trade in strong trends

The concept of trading breakouts for the weak trend is that although you are trading breakouts…

You want to use a little bit of discretion over here:

This is the same thing as the healthy trend.

If you notice that the price has already broken out over here:

Are you sure that you still want to chase the market at this point, even though it’s a strong trend?

Even though it’s breaking down, are you sure you still want to go short?

Because if you think about this, right now the price is very far away from the 20MA.

And if it decides to snap back, pull back towards the mean like a rubber band…

You have to potentially endure that retracement.

So, is this a good trade that you want to take?

I don’t think so, right?

I don’t want to be trading when the price is so far away from the moving average.

If you compare that to this, let’s say over here:

If you are to go short, it is much nearer towards the 20MA so even if the pullback were to come, you don’t have to endure that much pain.

Whereas you come back to this portion over here:

This is a lot of distance that you have to endure in a pullback.

So again, you want to watch where price is relative to the moving average.

If it’s too far away, I usually suggest the trader to wait for the price to come to you.

Okay? This is important.

So that’s the first tip that I want to share with you.

And are you interested for an additional tip?

Okay, let me share this with you…

How to use multiple timeframes to enter a trend

So, what I’ve just shared with you as entry points are:

1. We trade breakouts.

2. We trade the pullback by using very basic reversal candlestick pattern.

But what I want to share with you is more advanced stuff.

And it’s ideally for traders who have really been trading for at least a year or more.

It’s because you can actually use multiple timeframes to time your entry.

So, let me share with you an example and look at AUD/USD:

You know that it’s in a healthy trend and you see that AUD/USD, came into an area of value (50MA).

One way you can go about it is that traders can just go short based on this reversal candlestick pattern!

Alternatively, if you want to better time your entry and have a better risk to reward.

You can down to a lower timeframe like the 4-hour and time your entry:

Notice that the market has actually formed a lower low and a lower high.

At this point in time, when the market actually breaks and closes below the swing low, you can go short and set your stop loss just a distance away from this high:

So instead of originally when you’re trading off the daily candlestick pattern, the daily price action, your stop loss would go a distance beyond the high shown in the example.

But right now, if you go down to the lower timeframe.

You can actually reduce the size of your stop loss and improve your risk to reward!

You go short on the break of the lows and set your stop loss just a distance above the highs.

This is now your stop loss distance, instead of the original distance which is much further over here:

This actually improves your risk to reward on the trade, and this is what I call…

Reading the price action…

Identifying weakness…

And then getting a tighter stop loss on your entry.

This concept can be applied whether it is a strong trend, healthy trend, or a weak trend.

If you look at EUR/USD:

Notice over here the market came into this area of resistance.

Of course, traders can trade this daily reversal candlestick pattern.

Alternatively, if you want a better risk to reward on your trade, you can go down to the 4-hour timeframe and look for what I would call a “break of structure.”

Again, you can see over here:

You have a series of higher lows and higher highs.

But over here at this structure, things have started to change!

The highs and lows are pretty much equal now.

And the first clue that tells you that the sellers are in control is when it actually broke and closed below this area of support:

And again, you can just reference your stop loss from this swing high:

Or from this swing high over here:

Again, you would have a tighter stop loss compared to trading it on the daily timeframe.

This is a very powerful entry technique that involves the use of multiple timeframes.

Basically, if you are looking to short, what you are looking for is that market will be in an uptrend on the lower timeframe

Then it breaks the previous low swing structure, then, you can go short on the break of the swing low.

Stop loss is just set a distance away from the highs.

You can see that you have a much tighter stop loss in this case.

And hopefully, you can ride the whole trend lower:

 

And on top of it, if you think about this…

You are leaning against the structure on a daily timeframe like this EUR/USD trade:

You are leaning against the resistance on the daily timeframe.

And on the AUD/USD:

You are leaning against the 50-period moving average which is another market structure that the market has respected.

This is an additional tip for you.

I believe it would really help your trading.

It can be applied whether you are trading support resistance, a weak trend, a healthy trend or even a strong trending market.

If you don’t believe me, let me share with you another example.

Just a final one, okay?

So powerful that I have to share more with you.

This is the chart of silver:

If you look at this 20MA on the daily time frame.

You see the same phenomenon.

Again, you can just trade off the price rejection on a daily.

But if you want a better risk to reward on your trade…

You can go down to the 4-hour time frame and just look for that break of structure pattern I mentioned, which is over here:

Notice over here this is a lower high and lower low!

You’ll to go short when the price break below this lower low, stop loss I just set it a distance away from this high:

You can see in this case you have a much tighter stop loss and a better risk to reward on your trade.

With that said, I have come towards the end of today’s video.

Just a super quick recap…

Recap

  • Strong trend tends to respect the 20MA. Ideal to trade breakouts.
  • Healthy trend tends to respect the 50 MA. Ideal to trade the pullback towards the 50MA or previous support and resistance.
  • And a weak trend, the price tends to trade beyond the 50MA. Ideal to trade a pullback towards a market structure like support or resistance.
  • Then we talked about trading breakouts. You want the price to be near the moving average, as near as possible.
  • And finally, we talked about the break of structure technique, how you can go down to a lower timeframe to better time your entry and get a better risk to reward on your trade.
  • 3 Powerful Trend Reversal Strategies

Hey hey, what’s up my friends!

In today’s video, I’ll share with you practical strategies and techniques that you can use to identify trend reversal in the markets.

I know often most of you are thinking of buying a stock or trying to go long.

And the market has moved up so much already.

When the pullback comes, you’re wondering, “Is this for real? Is this a pullback or is this the reversal of the trend?”

I’m going to share with you three things that you can pay attention to look for to help you identify trend reversal in the market.

The first thing that I want to share with you is what I call the…

Break of structure

Think about this…

In a trending market, let’s say an uptrend.

You know the price makes a series of higher highs and higher lows:

What do I mean by a break of structure?

The break of structure means that the first clue that the market is telling you that it’s about to get weaker or it’s about to reverse…

Is when you have a break of the structure where the price makes a new lower low and lower high:

In this case, you have a lower high and a lower low.

This is the first clue to you that the market is about to reverse lower.

There’s no guarantee, but it’s a clue given to you by the market that “hey, there is a break of structure, the price could potentially reverse lower.”

Let me share with you a few examples.

This is the Bitcoin:

If you’re aware, in 2017 bitcoin had this meteoric rise to 20,000.

People are buying, going long.

You can see a strong parabolic move higher.

Now, at what point would you be alert that, “hey, this trend is about to reverse?”

Again, the concept I just shared with you, an uptrend, higher highs, and higher lows.

We are looking for a break of structure, what you are looking for is a lower high and a lower low.

At this point, you have actually got a lower high, and when price breaks below the area of support, you have a lower low:

This tells you that this trend could be weakening.

The trend could reverse.

You really want to be careful down here.

In fact, this pretty much sealed the deal as bitcoin went to the lows of 6,000 over here:

This would be a confirmation where it’s telling you that the trend on bitcoin is about to end when you get a lower low and a lower high against the existing uptrend.

Another example, if you recall BCOUSD in 2015, 2014 had a very strong decline.

It declined to a low of about $20-$30:

Again, can we apply this concept, a break of structure?

We can see that previously the decline, a series of lower highs and lower lows:

Simple market structure.

At this point, this is where things got interesting!

Right now, you have a higher low:

When the price breaks above here…

You have a higher high, because the price broke this prior resistance.

This, again, should give you a strong clue that “hey, this downtrend could possibly have come to an end!”

You don’t hear me using words like guarantees, confirm, bottom out or top out.

There is no such thing as a guarantee in trading or in technical analysis or whatsoever.

If anyone promises you guarantees, run far away.

This is why I like to use words like probably, likely, possibly.

There is always this element of non-guarantee behind it.

Anyway, this is another example of the break of structure.

You can see the price did eventually rally up higher from here:

Another technique I want to share with you is what I call…

The higher time frame structure

It’s important to pay attention to where you are in terms of the big picture.

This is why you often hear traders say, “Hey, you know you should pay attention to what higher time frame is doing.”

That is so-called giving you the bird’s eye view of where you are in the big picture.

This is why I want to share with you about the higher time frame structure.

Let’s look at the first example.

Over here, you might wonder and look at this chart, “Hey, Rayner, why did the price come up here and then decline? What’s so magical about this area?”

Price apparently breaks above this swing high over here and then it collapses lower.

At this point, a lot of traders were unaware.

They buy the breakout, only to get caught on the wrong side.

Why is that?

Again, I mentioned something called the higher time frame structure.

Let me point out to you, if you look at this chart over here, you can see the higher time frame.

This is the daily time frame:

What you’ve seen earlier is in the 4-hour time frame.

You see that over here on this higher time frame.

This is why you have previous support that could act as resistance.

The breakout that you’ve seen earlier is actually this portion over here:

You’re buying the breakout into this previous support that could act as a resistance, which is a low probability breakout.

You are buying into huge selling pressure.

It’s pretty much no wonder why this market reversed from here.

This is what I mean by the higher time frame structure.

You want to pay attention to where the price is coming into, especially if it’s coming to any higher time frame structure, like support resistance, trendline, channel, et cetera.

Another example over here, NZD/JPY on this 4-hour time frame…

Price comes down lower, bounce, doing, doing, and boom…rally:

“Hey what happened? What’s going on?”

A clue right?

Higher time frame structure…

Although, I do agree that you have a series of higher lows and higher highs, as the price breakout of this resistance as well.

I do agree.

Another thing that I want to share with you to look out for is higher time frame structure!

Looking at the daily time frame:

You can see that over here I notice quite a bit of line over here.

But what I want you to pay attention to is the encircled portion.

It came into strong support on this daily time frame.

In fact, I think it’s even obvious on the weekly time frame.

If you draw a trend channel, it has this confluence of this trend channel as well.

Again, no surprise that hey, you could expect a bounce or even a reversal of this area on your chart.

This is what I mean by the higher time frame structure.

The last thing that I want to share with you is to pay attention to the…

200-period moving average

For those of you who have been following me a while now, you know that I tend to say that if the price is above the 200 MA, try to stay long.

If the price is below the 200 MA, try to stay short!

The reason is quite simple actually…

If you think about this, the 200-period moving average, it summarizes the prices of the last 200 candles.

If the price right now is above the 200 MA, it is telling you the price has been trending higher!

That’s why it’s above the 200 MA.

If the price is below the 200 MA, it’s telling you that the price has been trending lower.

This is a simple way to tell you what’s the long-term trend of the particular chart that you are trading.

Notice that I use the word “long-term trend of the particular chart of your trading,” because it could be the 200 MA on the 5-minute time frame.

That isn’t really a long-term trend, because it’s a five minutes time frame.

Likewise, it can be a 200 MA on the daily time frame.

Then hey, that’s a pretty long-term frame.

I would say it’s the long-term trend of the chart that you are trading, depending on what time frame you are looking at.

Anyway, let’s have a look at the example. This is the 200 MA on the daily time frame:

How do we apply this technique?

Again, at this point over here, the price is above the 200 MA:

I said half a long bias, I didn’t say buy.

This means that you want to look for long opportunities.

You want to look for long opportunities to buy in this market condition.

From the looks of it, I would say this is an area of support:

Every time the price comes into an area of support it forms a price rejection that is a valid trading set up.

On top of it, you know that you are trading together with the long-term trend, which is on the uptrend.

There are a couple of potential setups on this.

But this one, price just sliced through it:

There wasn’t any price rejection of anything, for me, there is no reason to be long.

Now that the price has traded below the 200 MA … You say to yourself, “Hey, I have a short bias.”

Now you can look for opportunities to go short!

You can look at previous support and resistance or right over here:

Now, this is how you can actually use the 200 MA to give you a bias to know whether it should be long or short.

Then, just reference to a market structure like support and resistance.

Or maybe moving average to kind of identify the area of value that you want to trade from.

This is how 200 MA could give you or alert to you that the trend may be about to reverse.

Another example, shall we?

Aussie Dollar against the Japanese Yen.

Again, the price at this point is above the 200 MA:

Again, you should have a long bias.

Another question is: “Do you have a long trading setup?

In this case, to me, there isn’t.

Because there isn’t any price rejection.

The price just pretty much went through it.

At this point now, the price is below the 200 MA:

My bias has gone from long to short.

Again, I ask myself…

“At what level on the chart do I want to trade?”

As the price heads lower, you can notice that there is a really significant level:

Because it tested the 200 MA and into the area of resistance.

And you have this false break of the highs.

The price did trigger above these highs, then collapse and reverse lower.

Then again…

Price re-tests the 200 MA, came down lower, did a pullback towards the previous swing low that could act as resistance, and then continued lower:

You can see that if you reference the 200 MA for your bias.

You can see that chances are you are, you are usually trading on the right side of the trend.

Of course, there are times where this totally breaks down.

Especially if the market goes into a long-term range.

Let’s say a long-term range like this:

200 MA is pretty much in the center.

At this point in time, you might get a chop up a little bit.

But if just use a little bit of common sense and see that the market is in a long-term range, you can still adapt to it accordingly.

Anyway, this 200 MA is useful to help you identify the trend reversal and to help you trade on the right side of the trend.

Moving on, let’s do a quick recap.

I like to do this to make sure the concepts and techniques go into your head…

Recap

  • The first thing we spoke about the break of structure.
  • I spoke about referencing it to the higher time frame structure. Where are you in the big picture. Are you coming into a long-term strong support resistance trendline, etc.?
  • The third thing we spoke about is how you can use the 200 MA to identify trend reversal and to help you trade alongside the right side of the trend.
  • How to Avoid False Breakout

So, this is a true story…

When I first got started in trading, I was new to it right?

I just learned about price action trading and I would look at a chart, a naked price chart.

And I see the market breaks out.

Strong bullish momentum.

I can imagine the candles, they’re so large and I think to myself…

“Man, the breakout is real, it’s time to go along, it’s time to buy because I don’t want to miss any more of the move, so I buy!”

And then what happens is that, shortly afterwards, the market reverses and I cut my trade and I suffered a loss.

I was stubborn!

I was an idiot!

I kept doing this a lot of times!

I lost track the number of times I did this…

Every time the market stages a strong rally, the stronger the momentum, the larger the candles, you can be sure I would buy that kind of breakout.

And I lost money consistently…

It’s only after I’ve been in the trenches for years, I realized that “Hey, chasing this type of breakouts is a losing money proposition.”

Now, the question is how do you actually avoid false breakout?

That’s what today’s video is all about!

Firstly…

How do you avoid false breakout?

The first thing to let you know is that there is no way you can avoid false breakouts completely.

There are certain times, a certain percentage that no matter how good the setup is…

You are still going to get caught on a false breakout, but you can minimize the chances of you getting caught in a false breakout.

The first tip that I have for you is…

Stop chasing parabolic moves

What are parabolic moves?

Parabolic moves, they are in essence what I’ve just described earlier.

The price moves up with little to no pullback and then it goes up higher:

If you see a big ballistic strong momentum move like this…

Don’t chase this type of breakout, because more often than not, the market will reverse:

Why is that?

Let me give you a simple explanation why this usually occurs…

When you chase a market where it’s making a strong move or a parabolic move, there is no floor to support these higher prices.

If you compare to markets that exhibit this type of price action that goes up and retraces…

This type of price action has levels like swing lows to support these higher prices:

This means…

If the market were to reverse, it would find a floor or support, where potentially buying pressure could push the price higher.

These types of moves are more sustainable, because they are a series of higher floors along the way to support higher prices.

Unlike this type of strong parabolic move:

It goes straight to the moon, those are the type of breakout trades that are likely to fail.

Let me share with you a few examples…

The first one that I want to share with you is a chart from NATGAS GAS FUTURES (NG1!):

If you look at this chart of natural gas…

Do you want to be buying at this point and time?

Well, you might be thinking, “Oh Rayner! right now you can be sure I would buy this market right now. After all, it’s bullish! it’s parabolic! look at the strength of the momentum!”

I need to slap myself and wake up because no…

I will not do it anymore…

Because in my experience based on my own trading account, I know that this in the long run, it is a losing proposition.

What happens is that the market has gone parabolic.

If you want to buy now, it’s too late.

In fact, you want to stay away, stay on the sidelines.

Because there’s a good chance that if the reversal comes, it can be very swift towards the downside back to this nearest support or floor area where buyers could come in:

And the nearest area would possibly be somewhere here where previous resistance could act as support:

It’s going to be a huge distance, where the reversal can only reverse quite a long way down:

Okay?

That’s one.

Number two, if you were to buy a breakout at this point in time.

Ask yourself…

Where is a logical level to put a stop loss

If you ask me…

The nearest market structure or support is somewhere here:

Your stop loss, in essence, would have to be this wide:

From a risk to reward perspective, it doesn’t make sense.

Because for you to earn your initial risk, the market has to move this much in your favor for you to earn 1R

Which is basically multiplied by one from your initial risk.

If you risk $500 on this wide distance as your stop loss, the market has to move this much just for you to make $500:

A wide stop loss, in essence, gives you a very unfavorable risk to reward.

This is one example of natural gas.

Stop chasing markets like this, because you will eventually thank yourself that you don’t make these poor breakout choices in future!

Another example that I want to share is the chart of NZD/JPY:

If you look at this, the magnitude is not as large but the concept is the same…

You don’t want to be chasing breakouts after the market has made a strong momentum move.

For example, this one over here:

A strong momentum move towards the upside and breaks out.

If you see such breakouts, tell yourself, “I’m not going to chase it.”

The market did eventually reversed down lower:

Again, look at the very strong momentum move towards the downside.

You don’t want to be chasing these types of breakouts.

Again, as I mentioned, because if it reverses, it can reverse quickly towards the upside against your position!

And to set a stop loss on such a trade, it’s going to be very wide.

Because your stop loss has to go above this market structure at this high which results in a very poor risk to reward on your trade:

If you just implement this one tip, I can assure you your breakout trades will be much more profitable going forward.

The last example that I want to share is BTC/USD:

Bitcoin, if you recall the mania up to 20,000, again, if you look at the chart, it is very similar to natural gas.

If you see this type of price action with big, bullish candles…

Stop chasing the market, it’s too late to enter…

And true enough, in this case, the market went up a little bit higher.

You might see a few profits on your trade before it collapses all the way down to like $6,500 at this point of doing this video:

This is the first tip that I have for you, don’t chase breakouts.

Now some of you might be wondering, “Hey Rayner, okay, I won’t chase breakouts. So, how do I trade breakouts?”

I got one tip for you…

Trade breakouts with a buildup

What is a build up?

A build-up means the market is in consolidation and it can be identified in three ways:

  • It can be a series of higher lows into resistance, looking somewhat like ascending triangle.
  • It can be a lower high coming into support, looking like a descending triangle.
  • Or it can be a tight consolidation at a market structure like support and resistance.

I’m going to share with you a few examples of how you can trade breakouts with a build-up.

If we zoom out on BTC/USD, you can see that this market is actually forming a descending triangle, a form of a build-up:

Notice the range of this market is getting tighter and tighter.

The build-up is forming!

If you look at the range of this market over here:

You’ll see that the range or the size of these candles in this market are getting smaller!

Up to a point where it’s not even moving any more like a dead patient.

You can see that when you trade breakouts, you want to see this phenomenon, you want to see the range of the candles getting tighter.

In fact, this is actually the opposite of what I just said earlier…

Which is to avoid trading breakouts when there’s a large bullish momentum.

In fact, you want to be trading breakouts when there is a buildup, where the range of the candle is getting smaller and smaller.

In this case, you can see on Bitcoin, we had the breakdown over here on this area of support:

This is what I call a build-up.

In this case, it’s in the form of a descending triangle, lower highs coming into support.

Also, from a price action perspective, just to add on a little bit of a tip, notice the buyers are getting weak, right?

At first, the buyers are very strong, they have no problem, pushing the price from this low all the way to these highs:

Then…

Notice that each time the buyers try to push the price higher, the distance that they have moved is getting smaller and smaller:

Telling me that they are getting weak.

Whereas the sellers on the other hand…

They’re able to push the price lower and lower.

And that’s where you get your descending triangle.

Okay?

That’s one example of a build-up.

Let me share with you another example from EUR/USD where you can see that we have another build up that’s formed:

Notice the consolidation is nice and tight, this is a sign of strength.

Why is that?

Because when the price is at resistance, there’s a potential selling pressure to push the price lower.

The fact that the market can hold up at resistance is telling you that:

  • There is no selling pressure around .
  • There are strong buyers that are willing to buy at higher prices.

Whatever the case is, this is a sign of strength!

In this case, you can see that there is a build up.

The market didn’t break out, it did reverse, and finally breaks out higher again:

When you have a build-up…

You can actually reference the market structure nearby to set your stop loss, like this swing low:

You can set your stop loss one ATR below it.

This market structure is like a barrier to prevent the reversal from having an easy passage to go through.

You can see that in this case, the market structure held up, and bias came in again to push the price higher:

This is what a build-up can do…

You have a tight stop loss and you have a nearby market structure to hold up the reversal or the pullback should it come.

Compared to trading without a buildup, when a market reverses, there is no floor, there is no level to support the higher prices.

This is why it’s common to see the market reverse all the way down to the nearest market structure, which is the area of support.

Right now, I hope you can see the lesson behind it, this is powerful stuff.

Let’s have a look at a few more examples.

In USD/INR, the same concept, build up and then break out:

You can see over here…

This market is in an uptrend, and then it went and formed a build-up.

Some people might say this is a bull flag, but whatever the case is, the naming of the pattern isn’t important.

The understanding of the price action is what matters.

Notice the range of the candles are getting tighter and tighter on the build-up like they’re running out of space to breathe.

Usually, when that happens, it’s a sign that the market is about to break out.

I understand that some of you who are new to trading…

You might have difficulty trying to spot these tight consolidations.

Moving on…

How to easily detect build-ups using the MACD Indicator

One tip that I can share with you is that you can use an indicator like the MACD.

You want to see the histogram getting flatter and flatter.

This is a sign that the volatility of the market is shrinking:

If you don’t want to use the MACD, you can also use the Average True Range indicator.

The concept is the same.

What you’re looking for at this point, is for the ATR values to be declining, telling you that the range of the market is getting tighter and tighter:

Whichever you use is truly up to you.

But I think that visually, the MACD indicator makes build-ups easier to spot.

Of course, there are other indicators to help you identify the reduction in the volatility of the market.

So, go with whichever that you prefer.

If you are a price action trader, you can actually see these through your naked eye.

If you look at Bitcoin with the MACD, it’s even more obvious:

You can see that prior to the breakdown, the range of this histogram is getting flatter.

When there’s volatility, the histogram has peaks and troughs.

But when volatility has shrunk, notice that it becomes like a dead ER patient.

And that’s where you want to be trading the breakout, not trading a breakout when volatility is high, not when momentum is strong.

Another tip to share with you is that whenever the market breaks out and you see such strong momentum where the histogram is at its peak…

It’s a sign to you that you want to stay away from the market.

If you look at the MACD in Natural Gas, you can see that there is a strong momentum over here:

Your MACD histogram is at its peak.

This is a sign that you don’t want to be chasing the breakout.

In fact, if you just go back a little bit in time…

You can notice the MACD is getting flat before it finally breaks out:

You can use the MACD to help you identify build ups and identify momentum so you can enter high probability breakout trades.

Let’s just have a look at one more example before we conclude this video.

One last example is the USD/CAD, another example of a buildup at the area of resistance:

This is a sign of strength, telling you that buyers are willing to buy at these higher prices.

Notice the range of the candles getting smaller and smaller.

Then, you want to set your stop loss at a nearby market structure to lean against, which is this swing low over here:

The market did break out in this case and it happened to be a winning trade.

Of course, it’s a winning trade because I cherry-picked a few of these charts to illustrate my point!

Okay?

So, let’s do a quick recap, on what we’ve learned today…

Recap

  • Stop chasing parabolic moves. If you see strong bullish momentum and you see the candles are getting larger, don’t chase the parabolic move
  • You want to trade and breakouts with a build-up

This is how you would want to trade breakouts.

And I promise you, if you follow these two tips that I have just shared with you, you’ll find that your breakout trading will improve dramatically.

  • Support and Resistance Secrets

So…

Support and resistance are one of the most important technical trading concepts that you’ll learn.

Okay?

But here’s the thing…

Most traders get it wrong, flat out wrong!

They can’t even draw their levels correctly.

For example, this is a chart that I’ve seen people posting:

And if you look at this…

There’s just way too many levels, right?

Where do you want to buy?

Where do you want to sell?

Can you see that if you have too many levels on your chart, it will clutter your mind?

You will have analysis paralysis in your trading and it’s hard to make trading decisions.

That’s why in today’s video I’ll share with you three things.

Number one…

How to draw support and resistance the correct way

Once you master this…

You’ll never look at support and resistance the same way again, and trust me…

What you’re about to learn is what other trading courses would charge you thousands of dollars for.

And I’m going to share it with you for free.

Number two, you will learn…

When to trade off the reversal at support and resistance

Meaning, when you will know if the price will likely hold at support and resistance or not.

That’s number two.

And finally, number three.

You will also know…

When support and resistance is likely to break

This is so you don’t get caught on the wrong side of the move.

So, you’ll learn all this and more in today’s post.

But before we begin, hit the thumbs up button and subscribe to my YouTube channel so that you will never miss another training video again.

Have you done it?

Then let’s get started.

The first thing that I want to share with you is…

How to draw support and resistance the correct way

This is very, very important to pay attention to.

How I do it is that I use these three simple steps that I’m about to share with you:

  • You want to zoom out your charts. You want to see the big picture, once you can see the big picture it’s much more obvious to your eyes which key levels you should be paying attention to.
  • You want to draw the most obvious level. If the level sticks out, that level matters, if you’re squinting your eyes asking if it is a level or not? Then ignore it.
  • You want to adjust your level to get the greatest number of touches.

Let me explain…

Zoom out your charts

Over here, this is a typical trading view chart:

Just right-click, reset chart, and everything is back to default view:

So, how do you zoom out your charts?

I typically like to zoom out 5 to 10 times.

You can use your mouse that has a scroll button.

You scroll it down about 10 times:

That’s the first thing, zoom out your charts.

The second thing is to…

Draw the most obvious level

From the looks of this, I can see that these are the very obvious levels to my own naked eye:

Okay?

I can plot it pretty quickly, there’s no need to ask yourself or second guess.

Because if it’s there, it’s there.

If it’s not there, don’t waste your time.

So, I’ve done the second part, draw the most obvious levels.

And the third thing is to…

Adjust your levels to get the greatest number of touches

What this means is that you want to shift your support or resistance where the price hits the level the greatest number of times.

For example, let’s look at this:

For the level on the top, I could actually draw it at the absolute highs.

But I don’t want to, because remember…

I said that I wanted the level to touch the greatest number of prices.

If I were to shift it down lower somewhere here:

Notice that I can get more numbers of touches.

Some candlesticks exceed the level quite a bit.

But, you have three touches.

If I want to, I can actually draw another level over here:

Okay?

Now I can see that your resistance looks somewhat like an area at the point on the example.

Let’s continue…

I want to adjust this one:

I can just adjust it slightly lower so that I can get 4 touches:

One price action on the left exceeds by quite a bit.

I can draw another level if I wish to, but I want to keep my charts clean.

So, I’m just going to use one level.

This one over here:

If I just adjust it slightly higher:

Notice that I got nine touches.

Quite a number of touches, right?

We can see that this is how I adjusted it to let the price touch the greatest number of times.

Same for this:

I don’t want my level it to be drawn at the extreme low.

I want to get as many touches as possible, to get the price action involved at the level I’m drawing.

So, if I’m going to shift it up slightly higher and looking back, I get six touches:

Again, same thing for this one:

Adjust it to get the greatest number of touches and I would look to the left:

Here, we have four touches behind.

Same for this one over here:

I don’t want to draw at the extreme low, so I push it up slightly higher:

From the looks of it, you can see that right now, the levels of my chart look much cleaner.

And with one look at it, you know which are the key levels that you want to pay attention to and that you want to trade from.

Another example is GBP/USD.

Let’s just reset the chart once again and do the three steps I just mentioned.

The first step is to zoom out your chart 10 times to keep it consistent:

And step number two, draw the most obvious levels:

Okay?

I’ve already drawn out the most obvious levels.

Again, notice that I didn’t spend time wondering, “is this a level? is this not a level?”

None of that!

So now, it’s time to adjust:

That’s pretty much it on how to draw your support and resistance levels.

As I said, this is so, so, so important, right?

Go and apply it, draw the levels and trust me…

You’ll see the markets in a different light.

It’s like taking the red pill or blue pill.

You take the blue pill, right? That’s it, you’re out of the matrix, you see the markets in a different light.

So, USDJPY, same concept:

Zoom out and draw the most obvious levels very quickly, and draw the most obvious levels.

If it’s there, it’s there.

If it isn’t, move on.

So, time for the adjustment:

That’s how I would draw my levels for USD/JPY.

And there you have it, right?

How to draw support and resistance.

Okay?

With that said, let’s move on, shall we?

Now that you have learned how to draw support resistance, the next question is…

How do you tell when the price will reverse at support or resistance

How do you know the level will hold?

That’s the question, right?

So, I want to share with you a few tips to bear in mind.

The first thing is that you want to see a power move into market structure.

What this means is that if you have drawn your area of support or resistance, you want to see a strong move into the level!

Big or large-bodied candles.

That’s what I mean by a power move, a very strong momentum move!

Number two, you want to see strong price rejection.

This can be in the form of a shooting star!

Where you see a long wick and price gets rejected.

Let’s say this is resistance, the price comes in, and then bam! gets rejected:

The stronger the rejection, the better.

That’s what you want to see.

The third thing is that the larger the candles are, the better.

You want to see a strong momentum move, power move!

And another thing is that the longer the time that the price is away from the market structure or support resistance the better.

Let me explain first why you want to see large bodied candles into a level.

Let’s say that when you look at resistance, and when you have a strong move coming into that level…

At this point, ask yourself where will you want to go short:

Because there is definitely an opposing pressure, buyers who want to come in and buy at good prices.

Where is a good price that buyers would come in?

Well, if you look at this chart, chances are that buyers might cue in this area of support:

Because there is an obvious market structure where they can wait for the price to retest and go Long!

However, if you didn’t get a power move, you didn’t get a clean move.

Instead, you get a very choppy move like this:

Now ask yourself…

If you’re going short on the resistance.

Where would the opposing pressure come in?

Well, this time around bias could potentially be at these swing lows:

What this means for you as a trader who is looking to short is that, as the price comes down lower into these levels…

You will face opposing pressure that could turn the tide against you!

That’s why you don’t want to go short when there is this type of stair stepping price action into your level.

Because all these minor swing low levels are where opposing pressure could come in and push the price against your trade.

Another reason why you want to see large candles or larger momentum candles or what I call a power move is very simple.

When a price comes in like this, it is a very strong move just a strong bull move:

Often, traders will just look to buy the breakouts.

I’m sure you’ve probably done it yourself, right?

When there is a strong momentum move you might be thinking, “Oh, let’s buy the breakout, the market is rallying, right? Let’s buy!”

Then where will you put your stop loss?

Chances are you put it under the resistance, maybe in the middle of the range, somewhere lower in the range, or even below this area of support:

What this means is that if the breakout fails, it’s going to hit all these clusters of stop-loss orders over here:

And if you think about this, what are these clusters of stop-loss orders?

They are simply orders to exit the market from the Breakout traders who are long!

This means that these are actually sell stop orders, which would induce further selling pressure.

The more bullish or the more you get a power move into market structure.

The more breakout traders will hop on board and get on the move!

The more buyers hop on board, the stronger the reversal will be.

Because when it reverses back towards the downside, you’ll know that it hits the sell stop orders of the breakout traders.

This is why you want to see larger candles into the market structure or a power move into market structure.

Don’t worry, I’ll share with you an example later.

And finally, the longer the time away the better.

Why is that?

Simple, right?

The Longer the price is away from a level, the more it would attract attention from the higher timeframe traders

For example, if the price has not retested the $100 price level on the daily timeframe for the last six months or one year…

You can be sure that that level can also be seen on the weekly time, or even the monthly timeframe.

And this will actually attract more traders from the higher timeframe to pay attention to that level.

And that’s why you can get a stronger so-called “price rejection,” or a reversal at that level when there has been a long time away from the level.

Alright?

I know I’ve covered a lot of theory here, so let’s have a look at the examples, shall we?

So, let’s see GBP/JPY, where it shows what I call a power move, a very strong momentum coming into a level:

No doubt this took a while for it to reverse, but eventually, it did reverse towards the downside:

You can also see that strong power moves into a level here as well:

Notice that the candles are all bullish in one direction into resistance and then the market reverses!

Let me share with you a few more examples…

In XAG/USD, we’re looking at a power move down into this support and then formed a price rejection:

This is also a strong power move, but there wasn’t any price rejection into any key market structure:

But you can see that the price went up and reverses relatively quickly!

Another example is this one over here, a strong bearish momentum or a power move into this area of support:

Then you have a relatively quick reversal towards the upside.

So, what you want to see is this type of price action structure…

Big, bold, momentum move.

Let me share with you another example.

This one is the 5 YEAR T-NOTE FUTURES (ZF1!) with a power move into resistance:

Trust me…

Some traders are new.

They are unaware.

They buy the Breakout and think, “Oh man, the market is going to the moon let’s buy the breakout!”

And then bam! It reversed at the next candle, which did a strong reversal.

They got caught on the wrong side and then what happens?

The market goes lower hitting their stop loss and the market pretty much has a swift decline over here:

This is what I mean by a power move, this is a very good textbook example.

You have a price rejection in the form of a dark cloud cover, and the market that went down pretty swiftly.

With that said…

Let’s have a look at SOYBEAN MEAL FUTURES (ZM1!), an example that you don’t want to trade where there isn’t a power move:

Clearly, this area over here isn’t a power move…

You can compare to what I’ve just shared with you, look at this move into this area of support:

Do you want to trade this?

I sure as hell wouldn’t want to trade this.

And the biggest reason why is that if you do get a valid price rejection like a hammer…

You can go long, right?

And shortly afterwards as the price goes higher, this over here is where potential selling pressure would lie:

Which is going to push down the price lower, as sellers look to short the market.

And this is bad for you as a trader who is long right now.

You are against the trend, plus you don’t have a power move into market structure, plus you have a swing high which is nearby.

Which could turn the tide of your long open trade.

This is why I emphasize a lot to look for power moves into market structure.

That is really important.

Another example in soybean meal with a strong power move into market structure and then a reversal:

Notice the range of the candles, large, big and bold.

Okay?

Hopefully, you understand this whenever you trade reversals at support or resistance.

This information over here is what you probably will not find elsewhere.

Moving on…

When do you trade breakouts at support and resistance

This is actually pretty much the opposite of what you’ve just learned earlier.

So, you know that the price is likely to reverse at support and resistance when you have a power move into market structure and a price rejection.

When you are looking at it from a breakout standpoint, you don’t want to see a power move into market structure.

What you want to look for is price action that shows:

  • Higher lows into resistance looking somewhat like an ascending triangle.
  • Lower highs into support somewhat like a descending triangle.
  • A build-up supported by a moving average.

If all this is foreign to you, don’t worry…

Let me share with you a few examples.

Let me just cover each one from a theory aspect.

Higher lows into resistance looks something like this:

Typically, you can see the price looks somewhat like an ascending triangle.

This is significant because it’s telling me that the buyers are willing to buy at higher prices.

Lower highs into to support are just the same thing, telling me that the sellers are in control, willing to sell at these low prices:

And on top of it, from a price action standpoint, it is telling you that the buyers are also getting weaker.

Because this is a condition where buyers barely pushed the price higher.

The subsequent times it only moved smaller and smaller.

Same for the ascending triangle where sellers pushed the price down by a little and then pushing the price down lesser and lesser.

You can see that the price action is actually quite interesting, right?

Where one side is getting stronger and stronger and the other one is getting weaker and weaker.

And build-up supported by a moving average.

What this means is that aside from ascending and descending triangle, there’s another variation is what I call a build-up:

The price could just come to a key level of resistance or support, and it just consolidates.

If you pull up a moving average like the 20 or the 50-period moving average, you notice that the price supports it pretty nicely!

It’s like the market is really respecting the moving average and getting ready to break out.

This moving average support can be applied to higher lows and lower highs into support as well which I’ll share that later.

But these are the key concepts that I want to share with you that alerts you that the market is about to break out of either support or resistance.

Let’s have a look at a few examples…

This one over here is the USD/CNH, a pretty a good example where you have this ascending triangle, higher lows coming into the market structure:

If you look at it, buyers are willing to buy it at these higher prices.

And if you look at the sellers in terms of their strength, they’re getting weaker, they’re getting feeble!

The first time they managed to push the price down by this much, and then it got weaker and weaker:

This is a sign of strength that the market could possibly Breakout higher.

You don’t want to be shorting at resistance because, number one, you don’t have a power move into the resistance structure.

And number two, if you were to go short into resistance, this level over here is where buyers could potentially come in:

Before the price could even move, you’re going to face an opposing pressure that could turn the tide against you.

From a risk to reward standpoint, it doesn’t even make sense as well.

This is why I said that if you want to trade reversals, you better look for a power move in the market structure and this type of higher lows into it.

Similarly, if you pull out your 50 MA…

The price is somewhat being supported by the 50 MA over here:

This is one example over here for the USD/CHN.

Let me just share with you a few more examples before we conclude today’s session.

In USD/INR, we have what we call a typical build-up formed at resistance:

Notice, right?

This one is a bit different from the ascending triangle, but the concept is the same.

You have this build-up formed at resistance telling you that buyers are willing to buy at higher prices.

They are willing to buy in front of resistance!

And the MA part where I mentioned earlier, is that if you look at it, the price is somewhat being supported by the 20 MA already:

This tells you that the 20 MA is actually supporting up the price higher, getting ready to break out.

Okay, let’s have a look at another example which is USD/CAD.

You might be wondering, “Hey Rayner, you seem to be really good at identifying all these cherry-picked charts.”

Yeah, it’s because I actually traded all of these setups, it’s all in my head.

That’s why it’s all very fresh.

USD/CAD has a very beautiful example of a build-up:

Notice that it is in the area of resistance…

You have this build-up forming and notice how nice the moving average supports the price higher.

So, when you see this price action, please!

Don’t short the markets…

This is a signal that the market wants to Breakout higher, this is a sign of strength!

Don’t just blindly shout, “Oh, prices at resistance, right? Textbooks say short!”

It’s going to be painful, alright?

Trust me, don’t do that.

Now that you’re more proficient in price action trading, you notice that there is a build-up forming at resistance.

The 20 MA is supporting the action, telling you that the market is likely to breakout higher.

In this case, obviously it did breakout:

Cherry picked by me, traded by me.

Another one is EUR/CAD forming a series of lower highs coming to support:

Let me ask you…

Do you want to be buying at this point?

Do you want to buy into this area of support?

I hope not, right?

Because after what I’ve just said, lower highs into support is usually a sign of weakness.

If you ask me, the market is likely to breakdown lower.

Can a market breakout higher?

Of course!

The market can do anything, but we’re dealing with probabilities here my friend!

So, from the looks of it, the market is showing a sign of weakness and there’s a good chance it would breakdown lower.

If you look at it from a price action analysis standpoint, notice that the buyers pushed prices higher, made a pretty strong move, then it got weaker and weaker:

Whereas the sellers, they’re willing to sell at lower prices:

From the looks of it…

There’s a good chance it will breakdown.

This is what I mean by lower highs coming into support. Okay?

Moving on, let’s do a quick recap.

Recap

We have covered a lot in today’s video, and we have just talked about one concept.

Which is support, and resistance:

  • How to draw support resistance. Zoom out, draw the most obvious levels, and adjust.
  • Support and Resistance Reversal. Look for strong power move into Market Structure. Large-bodied candles. Time away
  • Support and Resistance Breakout. Higher Lows into Resistance. Lower Highs into Support.
  • Price Action Trading Secrets

I’m sure you’ve seen traders trade with a “naked” chart.

And you wonder to yourself:

“How do they do it?”

Well, the answer is price action trading.

And that’s what you’ll discover in today’s training so you can also trade with a naked price chart to better time your entries and exits — without relying on any indicators.

Let’s get started…

What is price action trading and how does it work?

The first thing that I want to say is that when you’re trading price action you need a framework.

What is the framework?

For example, you have a 3000 square feet land and you want to build a house for your family.

How would you go about it?

I’m pretty sure that you wouldn’t just randomly put random stuff on that piece of land, would you?

What you’ll do is that you will probably hire someone to plan it for you.

To have a blueprint in your hands that says…

“Hey, this is the house, this is where the house will be. This is where the toilet will be. This is where your garden will be. This is how many levels the house will likely have. This is where your bedroom will be.”

You want to have a blueprint in your hand to map out where the things should be at.

Only then, when you follow the blueprint would you have a house that actually makes sense.

Are you with me?

This is the same for price action trading.

You need to have a blueprint.

A frame of reference that you can compare against and then form an educated trading decision.

What is this framework or blueprint that I’m talking about?

This is something called the four stages of the market.

I first came across it by traders like Stan Weinstein, Richard Wyckoff, and earlier veteran traders.

This is a concept that I learned from them.

And if you have already heard of it or learned of it before…

I still encourage you to watch it because I’m going to tackle it from a different light that you might not have understood before.

As I’ve mentioned, there are four stages of the market:

  • Accumulation stage
  • Advancing stage
  • Distribution stage
  • Declining stage

Let me explain…

An accumulation stage looks somewhat like a range.

And prior to this range, the market is actually in a downtrend:

The market breaks out of the range then goes into an advancing stage:

And the market doesn’t go up forever.

Traders will take profit.

Short sellers will come in.

And the market then slowly goes into a distribution stage like this:

Then after the market is in an equilibrium…

The market would eventually reverse lower into a declining stage:

This is where the sellers have to control and push the price down lower.

And the market doesn’t go down forever.

Eventually, you find the level of equilibrium before the buyers take control and push the price back up higher once again.

So, it goes into an accumulation stage and then it makes an advancing stage once again.

You can see that this is the cycle that the market typically goes through.

Some of you might be thinking, “Hey Rayner, all this looks simple in hindsight. For example, this is a distribution stage but who is to say that the market can’t break out higher?”

And I do agree.

The market can break out higher!

But what you have in front of you is a frame of reference.

Something that you can measure against!

So, let me give you a few examples of how I’m going to use this framework to plan my trading decisions with zero indicators.

How to find price action setups

If you look at this daily timeframe chart of palladium:

Let me ask you…

What is this stage of the market?

Chances are you’ll say it’s in an uptrend, an advancing stage.

If you can classify this as an advancing stage…

What is the one thing that you shouldn’t be doing?

You shouldn’t be shorting this market!

This means that you won’t think of selling this market.

You won’t think of shorting.

You will only find buying opportunities whenever you see a chart like this.

Where can you buy on this chart?

If you ask me, you can use the plain old vanilla support and resistance.

Now, I know that this market is in an advancing stage.

So if the market comes down lower retesting this previous resistance that could ask as support and gives me a bullish reversal pattern…

Say, a hammer or engulfing pattern…

I know that this is a possible level that I can look to buy since it’s in an uptrend or is in an advancing stage!

Can you see what I’m trying to bring across?

Classify the stage the market is in and then plan your trading decisions by using support and resistance (or even trendlines if you want to).

For example, if I were to draw a trendline, I would draw it somewhere here:

If the market retests this trendline, I know it has the confluence of this area of support as well.

And if you want to use indicators, that is fine as well.

Using indicators are not bad.

Indicators are only bad if you use them solely to rely on them for entries and exits.

But now that you understand the context of the market, you can use the 50-period moving average:

You can see that the market is respecting the 50 MA pretty nicely.

So, these are all possible trading opportunities for you to get long in this advancing stage.

Let’s move on to another example…

Price action analysis: Bitcoin

Recently we have a massive collapse on Bitcoin:

When you look at this chart, let me ask you…

Based on the four stages of the market you have learned earlier, what stage is Bitcoin in right now?

I hope you said a declining stage, which is another word for a downtrend.

Why is that?

Because it’s quite obvious.

You can see a series of lower highs and lower lows:

In a downtrend, what is the one thing that you don’t want to be doing?

You don’t want to be buying in a downtrend unless you are an investor or Warren Buffett.

But if you are a trader, you don’t want to be buying in a downtrend.

What do you want to do instead?

Well, you want to be shorting!

Now, you know what you should be doing.

You should be shorting Bitcoin right now.

The next question is, where do you want to short?

Again, this is where just simple technical analysis could come into play.

You can use trendline or support and resistance:

What I’ll do now is that I will wait for the price to possibly retrace back towards this area of value:

Alternatively, what could also happen is that Bitcoin would form somewhat like a flag pattern:

At this point, let’s say the market has formed a tight consolidation and since this is still in a declining stage…

I could still go short and have my stop loss just above the swing high over here:

You can see that once you have classified a stage of the market that it’s in.

Then, you can formulate proper trading decisions that are according to the price action of the markets.

Now, let me go into something a little bit more complex from here.

Price action analysis: Soybean

This is the chart of soybean:

If you look at this, what stage of the market is this in?

This is where things get a little tricky because it might be in the accumulation stage.

It might also be in a declining stage.

But for me, I would classify this as an accumulation stage.

Usually, in an accumulation stage where the market goes into a range…

The 200 MA will start to flatten out and eventually move within this accumulation stage area:

This has not happened yet but it could possibly happen if you give it another few more weeks.

This is a signal too that this market is potentially in an accumulation stage!

If you know that this is possibly an accumulation stage because you also have a prior downtrend, what is the decision that you want to make?

What is the framework?

You can be buying!

Because you know that if the price breaks above the accumulation stage, the market could possibly move into an uptrend:

Where do you buy in such a market condition?

You can look to buy on the retest of this area of support if there will be a false break setup:

I don’t go into precise entries and exits because that is outside the scope of today’s video.

Today’s video is just really training you to read the price action of the market.

Another possibility is that if the market forms a buildup…

What you can do is look to buy the breakout of resistance and just have your stop-loss just a distance below this swing low over here

If the market breaks out, you can look to get on board the start of this new trend.

This is another technique that you can use to trade if the market breaks out of this accumulation stage.

And finally, another thing that you can do is let the market show its hand.

Let the market break out and then wait for the pullback to form:

Which could be like a bull flag pattern.

All right, so let’s move into something now a little bit more complex, shall we?

Price action analysis: S&P 500

Let’s look at the S&P:

Now, if you look at the chart, it’s actually somewhat similar to soybean.

This market previously has been in an uptrend, advancing stage.

But right now what’s possibly happening is that this market is going into a range:

And if we pull out the 200 MA tool and recall what I’ve just mentioned to you a while ago…

Notice that this is happening on the S&P 500:

Now I won’t confirm that this market is in a distribution stage!

Because really what could happen is that the market simply just breaks above the highs and continue the uptrend:

That is possible.

We are all dealing with probabilities whenever we are trading, not a certainty.

However, you also know that if this is a potential distribution stage, then you should look for shorting opportunities.

Now the question is where?

Again, just plot the support and resistance levels:

If you are bearish and you think that this market is topping already given the fundamentals and economy and etc.

Look for shorting opportunities!

First scenario…

Price comes into support.

Forms a buildup, and breaks down.

If all of the above happens, reference the high as your stop loss in anticipation of a decline.

Second scenario…

The market comes up higher and gets rejected lower.

If that happens you can just look to short on the false break.

You can see that the false breaks somewhat gives you confirmation that the market isn’t going to head higher any time soon.

This is why the price got rejected and it closed back within the range.

However, if this price pattern didn’t occur…

Alternatively, if you want to short again, you can wait for the breakdown and then the pullback:

Price action analysis: NZDCHF

Similar as to what we’ve seen earlier on Bitcoin.

If you look at the chart of NZD/CHF along with its support and resistance:

One thing to share is that the four stages of the market appear on different timeframes.

The only difference is that the magnitude of the move is different.

The higher timeframe move naturally lasts longer.

If you look at a 4-hour timeframe:

This market is actually forming a head and shoulders pattern.

It is a potential distribution stage where we have this prior uptrend then the market goes into a range:

Now, how do we know that this could possibly be a distribution stage?

Remember the clue I said earlier, multiple timeframes.

If you look at a daily timeframe:

You’ll notice that this market is actually coming into an area of resistance on the daily timeframe!

This tells you that if the market were to consolidate and break down…

This has a pretty high probability of the market actually now heading down lower and then moving into a declining stage!

I know I’ve covered a lot in this price action training so let’s do a super quick recap…

Price action trading recap:

  • You need a framework when trading price action and one way is to understand the 4 stages of the market
  • An Accumulation stage is when the market goes into a range (in a downtrend). If it breaks down, the downtrend is likely to continue. But if it breaks out higher, it’s a start of the Advancing stage.
  • An Advancing stage is when the market is in an uptrend — you want to look for buying opportunities.
  • A Distribution stage is when the market goes into a range (in an uptrend). If it breaks out higher, the uptrend is likely to continue. But if it breaks down, it’s the start of a declining stage.
  • A Declining stage is when the market is in a downtrend — you want to look for shorting opportunities
  • Once you identify the market condition, you can use the appropriate price action setup to trade it
  • Price Action Trading Hacks

Here’s the thing…

Whenever you hear someone talk about price action trading, you know it’s always just scratching the surface level.

They talk about stuff like Support and Resistance, Hammer, and etc.

You know, just the basic amateur surface level stuff.

But as you dive deeper into price action trading…

You realize that there’s a whole world – a whole new aspect to it.

For example…

How do you tell whether the support level will break or not?

How do you identify low-risk high-reward trading setups?

How do you know where other traders put their stop loss so you don’t put them at the same place and not get stopped out together?

That’s why price action trading is more than just support and resistance and some basic candlestick patterns.

And I want to share more with you right now.

Let’s get started…

Price Action Trading tip #1: Don’t Put Your Stop loss Where Everyone Else is Putting Theirs

The first price action trading hack is you don’t want to put your stop loss at a level where everyone else is putting theirs.

Where is everyone else putting their stop loss?

If you’ve studied textbooks and courses…

They tell you to put your stop loss just above resistance that looks something like this…

Because that’s what the textbook says!

Then, what happens?

You can see the market retraces slightly lower and hit those cluster of stops above and then continue lower.

Here’s what I mean…

Another example…

Price comes into an area of support and traders see a bullish engulfing pattern here…

You may be thinking, “the market is going higher, time to buy! buy! buy!”

Since traders have the fear of missing a move…

They don’t want to wait, they buy first.

Now…

Where do they put their stop loss?

“Hey, I think the textbook says put below support!”

What happens next?

The market swings down lower…

Hits your stop loss…

Then rallies up higher…

Can you see the point I’m trying to bring?

Whenever you put your stop loss…

The golden rule is:

  • You want to set your stop loss at a level where if the price reaches it, will invalidate your trading idea
  • Your stop loss has to be a distance away from market structure This is the first price action trading hack that I have for you.

Next…

Price Action Trading tip #2: Trade Breakouts with Buildup

Whenever you trade breakouts, you want to trade it with a buildup.

But first…

Let me share with you how not to trade breakouts first.

How not to trade breakouts

Let’s say the market is in a range like this and breaks above resistance:

You don’t want to be buying the breakout at this point in time.

Why?

A couple of reasons:

1. The market has moved quite a distance within a short period of time

The market needs to breathe.

The market could possibly pull back or even retrace all together.

If you don’t believe me…

Go to the track right now and sprint 100-meter.

Tell me, on the 100-meter mark…

Do you still feel like you can sprint another 100 meters or take a breather?

So, it’s the same in trading.

When the market moves too fast or too soon, it needs to take a breather as well.

2. Buying breakouts with buildup give you a better risk-to-reward

If you were to buy on this break out, then where is the logical place to put your stop loss?

Maybe somewhere here?

From a risk-to-reward standpoint, your stop loss is this wide.

This means the market has to move a lot just for you to breakeven.

Now if you recall…

Whenever you trade breakouts you want to trade it with a buildup.

So what is a buildup?

What is a buildup

A buildup is when the market makes a very tight consolidation like this…

Can you see the difference?

With a buildup, you can actually reference its low to set your stop loss (and no longer have to reference the original area of support)…

From a risk-to-reward standpoint, your stop loss is now tighter.

So the market doesn’t have to move too much in your favor for you to breakeven.

Also, a buildup is a sign of strength.

Whenever you see the market come into a key level of resistance and hovers around it…

There are buyers willing to buy at higher prices!

One example is Bitcoin:

If you’ve read the price action, the clues are already there.

There is no guarantee, but you can see there is an area of support at 6,000…

A pretty nice descending triangle, and if you think about it…

This is the buildup I mentioned earlier…

A nice tight buildup consolidation.

Because if the price were to break down, where do you set your stop loss?

You don’t have to set it at the very highs anymore since you can just reference from this

swing high over here…

Makes sense?

Now…

You don’t want to be shorting at this point over here…

Why?

Because the market has moved too fast.

You have no logical place to put your stop loss.

Again, if you use the original level as your stop loss, the nearest one would be at this swing high…

Which is very far away, and from a risk-to-reward standpoint, it’s not very attractive.

Price Action Trading tip #3: How to Trade Reversals

If you want to trade reversals…

You want to see the “too fast, too soon” move to occur.

Because if the market moves too fast, there’s a good chance the market could reverse.

Let me illustrate…

You want to see a strong power move coming to a level.

This is where the body of the candles are large and strong.

You don’t want to see a buildup if you are trading reversals, because you’re not trading the breakout.

Now…

There are no guarantees, it’s all about probabilities.

But these are the stuff that has worked for me.

In this example…

here is a pretty strong power move into a market structure at the area of resistance.

Notice the boldness of the candle.

There is no build-up over here, it’s just a strong power move.

So, whenever you get such moves…

All that’s left to do is to wait for a price rejection, a reversal candlestick pattern to take the trade towards the opposite direction.

In this example, you can see a strong power move towards support and made a bullish engulfing pattern…

The market did rally, breaking to the upside.

This is what I mean by a clean move into the market structure.

Price Action Trading tip #4: Trade at The Area of Value

The next price action trading tip I have for you is that whenever you look at a chart…

You want to ask yourself where is the area of value.

What do I mean by area of value?

Whenever you go to the supermarket, you buy apples when it’s $3 or $2.

You don’t buy apples when it’s $10.

No, you’re going to buy value and is the same for trading, you want to trade from an area of value.

So, how do you define value?

Identifying an Area of Value

There are numerous ways you can define value:

  • Support and Resistance
  • Trendline Channel
  • Moving Average
  • Etc.

Basically, areas on your chart where the market mean reverts to.

For simplicity sake, here’s a 50-period Moving Average on palladium…

Notice that this market tends to mean revert towards the 50 MA…

From a price action trading perspective, you don’t want to be buying when the market is at the highs.

Here’s what I mean…

Recall, on a risk-to-reward standpoint, your logical stop loss has to go way below the Moving Average.

So, I prefer for the price to go to an area of value towards the Moving Average.

This means that I could have a tight stop loss.

Another example is USD/JPY:

As I’ve said, the Moving Average is just one way to define the area of value.

When the trade is choppy, a Moving Average won’t really cut it, so this is where the trendline

might help as shown in the example.

In this case, we have an upward trend line that has been tested 4 times, which also serves as an area of value…

If you were to go long, your stop loss could be somewhere here…

Again, from a risk-to-reward standpoint, buying close to the area of value is usually one of

the better ways to be entering your trade.

Finally…

Another price action trading hack than I want to share with you is a term I call the first pullback.

Price Action Trading Tip #5: First Pullback

Recall, you don’t want to be buying breakouts without a buildup.

But then some of you might be thinking…

“But Rayner! I don’t want to miss the move, how can I do it?”

“What if the market doesn’t retrace back towards the area of support?”

“What if the market doesn’t retrace back to previous resistance and turn into support?”

“Am I going to miss the move?”

Well not quite…

Because this is where you can look for the first pullback.

The first pullback

The first pullback is literally the first pullback out of the range:

In this case, it looks something like a bull flag pattern and you can look to get long if it breaks the highs.

The beauty of this is that when you wait for the first pullback…

You can reference this swing low as your stop loss…

Again, can you see that the concepts are basically building one concept on top of another?

Now, if you did not wait for a pullback, there is no logical place to put your stop loss.

Also, there are other traders who missed the breakout move as well, so buyers are piled up together and push the next wave further.

So, when the market breaks out and makes the first pullback, to me, that is usually the best time to be entering a trade.

Obviously, these are all cherry-picked charts to illustrate my point.

Only an idiot teacher will pick a chart that goes against their point.

Again, what I am going to look for is a long-term range.

You can see the price is in an area of Support…

Then, the market broke down and made the first pullback…

This is a sign that there could still be a strong move down lower or another leg of the move, in case you missed the breakout.

The entry is not really important but the concept of the first pullback is what really matters.

Another example is the USD/INR which is largely in a range and shows a breakout with a buildup…

If you didn’t trade the breakout with a buildup, don’t worry.

What you don’t want to be doing is buying at the highs over here…

Why?

Because the price is now so far away from the market structure and the stop loss would be wide.

Also, when the price advances too fast and too soon, chances are the market tends to reverse.

So, wait for the first pullback which occurred over here…

We’ve covered a lot today so let’s do a quick summary…

Summary

Here’s what you’ve learned:

  • Set your stops away from Market Structure
  • Trade breakouts with a buildup
  • If you want to trade reversals, look for a “clean” move into a level
  • Identify your area of value
  • The first pullback is the best pullback
  • How to Identify and Follow the Trend

I’m sure you’ve heard of the saying, “the trend is your friend.”

But it’s not quite simple saying that the trend is your friend.

Maybe you look at the daily timeframe, the market is in an uptrend.

But when you go down to the 5-minute timeframe, the market is in a downtrend!

Should you be buying?

Or should you be selling?

That’s the first issue.

Another thing is that maybe you think the market is in an uptrend, and then it was followed by a strong reversal candle to the downside collapsing lower.

You go short thinking that the uptrend is over.

Before you know…

The market reverses again and the uptrend continues and you get stopped out of your trade.

I would say that these are the few common problems traders face.

That’s what we’ll tackle in today’s lesson on how to actually identify and follow the trend.

Sounds good?

Then let’s get started.

How to Identify and Follow the Trend (My Secret Technique)

There are a few things that I uncover:

  • Trend is relative
  • Market structure
  • Swing points and last line of defense

Let me explain…

Trend is relative

Here’s the thing…

There’s really no such thing as a “trend.”

This isn’t some matrix or inception trying to confuse the heck out of you, but really…

The trend is relative.

It all depends on the timeframe you’re looking at.

For example, you can see that EUR/USD is in a downtrend on the daily timeframe…

But the 5-minute timeframe in EUR/USD is in an uptrend…

You may think that there is a discrepancy but there really isn’t any.

Because it all boils down to the timeframe that you are looking at!

So the first lesson that I want to put up to you is whenever you want to define or follow the trend…

You must first define the timeframe that you want to trade on.

If you are entering trades off the daily timeframe, then identify the trend on the daily timeframe and ignore the trends on other timeframes.

If you’re a short-term trader and trade off the 5-minute timeframe, then pay attention to the trends on the 5-minute timeframe.

Pay attention to the timeframe that’s relevant to you.

Second thing…

Market structure

Before we talk about how to actually identify trends…

You must understand that the market moves in cycles just like spring, autumn, summer, and winter.

And just like in trading, there are four stages of the market:

  • Accumulation
  • Advancing
  • Distribution
  • Declining

Let me explain to you the four stages of the market…

Accumulation

The accumulation stage is where the market is in a range.

And if the price breaks out of the accumulation stage, this is where we move to the advancing stage.

Advancing

This is otherwise known as an uptrend.

And as you know…

A trend doesn’t last forever.

Eventually, the buyers will get exhausted and the sellers will come in.

Distribution

What happens is that the market goes into an equilibrium.

Eventually, the sellers will take control.

The price will break down and we’ll move on into a downtrend, otherwise known as a declining stage.

Declining

The market doesn’t go down forever as well.

Eventually, buyers would come in and start buying, then, we move on to what we call the accumulation stage again.

Here’s an illustration that summarizes the 4 stages of the market…

Now you might be thinking, “Why are you sharing this with me?”

The reason why I share this with you is that if you can identify a potential accumulation stage and price breaks above the highs…

This could possibly be the start of a new uptrend, and you want to be buying!

Likewise, if you notice that the market forms a distribution stage and price breaks below the area of support…

This could potentially be the start of a new downtrend and you want to be selling!

Don’t worry…

I’ll share with you a few examples later, but this is the market structure that you have to be aware of.

The markets don’t just move randomly, it has an ebb and flow to it.

The price doesn’t move 100% all the time in that manner, but generally, you can apply this framework to whichever markets that you’re trading.

Moving on…

Swing points and last line of defense

Now, we are talking about how to actually identify trends.

When I identify trends, it’s very important to pay attention to the swing points.

What do I mean by swing points?

You know that a trend doesn’t just go in one straight line.

It moves up like this…

Now, what I’m referring to are these levels of swing highs and lows.

Swing points are important as they serve as a frame of reference to what the stage of the market is in.

Let’s say the market is in an uptrend and then forms a swing low…

This is what I call the last line of defense.

Because if prices were to break and close below this “so-called” area of support…

We can conclude that this market might potentially move into a declining stage (downtrend)…

This is what I call the last line of defense.

Because if prices were to break and close below this “so-called” area of support…

We can conclude that this market might potentially move into a declining stage (downtrend)…

This is a point in time of your chart where the price would change or confirm the dynamic of the trend in the market.

Let me walk you through a few examples to what you’ve just learned so far…

In EUR/USD Daily timeframe, I would take it as my trading time frame and I only want to identify the trend on this time frame…

So, where are the obvious swing points?

Over here…

How do I define those swing points?

It’s the levels that stick out the most obvious in your face, those are the swing points you want to refer to.

As you can see, there are minor swing points on the chart…

But these are swing points that you don’t you want to pay attention to because they are not major swing points.

This needs a little bit of practice, but whenever you glance at a chart always pick the swing points where your eyes can quickly identify.

So now…

What is the trend?

You can see that the swing points are pointing in one direction, making lower highs…

If you are a trader trading the daily timeframe and you see this chart, you want to be looking for selling opportunities.

Let me ask you…

At what point is the last line of defense on EUR/USD?

If you ask me, this is the last line of defense (resistance) over here…

So, if the price comes up and breaks out of it, this is where I would shift my bias from being a seller to a buyer.

Because again, you’ve seen earlier the 4 stages of the market.

After a downtrend or a declining stage, the market could move into a potential accumulation stage.

And EUR/USD looks like a potential accumulation stage…

This is how you use the concepts that I’ve just shared with you earlier!

Identify the major swing points and the last line of defense.

And on top of it…

You’re aware of the 4 stages of the market (market structure).

Now…

One thing I want to point out is that whenever you do your analysis, you want to have the same number of bars on your chart.

If not, your analysis will go haywire.

For example, this is the chart of XAUUSD…

But if I zoom out my chart…

The whole analysis will change!

Because the landscape of the market that you’re looking at has increased.

And your swing point or your last line of defense will change as well.

So my suggestion is stick to one time frame and to stick to the same number of candles that you’re looking at on your chart.

Now, in XAU/USD, where are the major swing points?

It’s over here…

You can see that major swing points are all pointing in the same direction…

It’s in an uptrend.

So if you want to follow the trend, look to buy.

But now the question is…

Where is the last line of defense?

If you ask me this last line of defense.

If the market were to break below the area of support…

I would say that the market is in a distribution stage and the market is now moving onto a declining stage, a downtrend.

I want to be looking for selling opportunities.

But if that doesn’t happen, my bias is still to be a buyer in this existing uptrend.

Can you see how all this makes sense right now?

We look for major swing points.

We look at the last line of defense.

And we understand the four stages of the market.

Now, let’s look at an example right that’s a little bit more subjective.

Because when you are trading, the market is never as easy as 1 2 3.

Sometimes the market could be in a transition and the charts look messy and you are pretty much unsure what you should do.

So I’m going to share with you my thought process to what I would usually do.

An example is the GBP/CAD which is generally an uptrend that shows major swing lows…

However, the price is at this area of resistance…

Yes, the market is in an uptrend.

But you don’t necessarily want to be a buyer at this point in time because there is an area of resistance coming up straight ahead.

So, how would I deal with this?

What I usually like to do is to let the price break the market structure before I make a decision!

If I would go long, I would prefer to either buy at this area over here…

Or let the price break out first, do a retest, and look for trading opportunities…

This way, I don’t have any “obstacles” in my way, because the obstacle is already destroyed.

You can see that the price action may not be very clean like this example.

The last example is the S&P 500 weekly timeframe, which shows its last line of defense…

The price did break and close below it, but before I know it…

It made a very strong reversal back towards the upside.

So you can see that this framework is not foolproof.

The market makes a false break out regularly and you have to be prepared for it.

But it does not mean that this is a concept you can’t use.

Because if the market does a false break out and went back towards the area of support…

Your bias can be shifted towards the upside again.

After all, you realize that it is a false breakdown and the trend is still intact.

I hope you can see how this last line of defense can help you switch between knowing when to buy and knowing when to sell.

One more thing is that if the charts don’t make sense to you no matter how you analyze…

My suggestion is to stay out of the markets.

There’s no point forcing yourself to put on a trade in a market that you don’t understand.

With that said…

Here’s a quick summary with what you’ve learned today…

Summary

  • The trend is relative, it depends on the timeframe you are looking at
  • Identify the market structure, whether the market is in distribution, accumulation, declining, or advancing stage
  • Identify the obvious swing points and the last line of defense
  • If the price breaks the last line of defense, then it’s likely to move onto the next stage of the market.
  • How To Draw Trendlines Like A Pro

In today’s lesson, you’ll learn how to draw Trendlines like a pro.

Now some of you might be wondering…

“But Rayner, why should I draw Trendlines?”

“What’s the point of it?”

“What’s the use?”

Why draw Trendlines

Here are a couple of reasons why:

  1. To adapt to context of the market
  2. To identify the long-term trend
  3. To better time your entries and exits

Let me explain…

1. To adapt to the context of the market

Sometimes the market may not respect the support/resistance that you’ve drawn.

It tends to respect Trendlines better.

So this is where the context of the market plays a part.

Because there are times when support/resistance are not as useful compared to Trendlines.

You’ll find that Trendlines are more accurate, given the context of the market that you’re trading.

It’s better to know how to draw both Trendlines and support/resistance.

2. To identify the long-term trend

This is quite a no-brainer.

If you know that a long-term trend is up, you want to be a buyer.

Because it would naturally increase the probability of your trades working out.

So a Trendline helps you to identify both a long-term uptrend and a long-term downtrend.

3. To better time your entries and exits

If you identify the market respecting a long-term uptrend…

It makes sense to be buying as close to the Trendlines as possible.

This offers you a much more favourable risk to reward.

Because if you buy near the Trendlines your stop loss is much tighter.

But if you buy far from the Trendlines, your stop loss needs to be much larger.

And when the pullback comes, chances are you’re going to be stopped out.

So buying near the Trendlines offers much more favourable risk to reward on your trades.

Now the question is:

How do you draw Trendlines?

But first, let’s talk about…

How NOT to draw Trendlines

This is how NOT to draw Trendlines:

What is wrong with this?

Well, the reason being…

That there are just way too many Trendlines on this chart!

Which Trendlines should you pay attention to?

There’s just way too many and it gives you analysis paralysis.

So it doesn’t make sense to be drawing your Trendlines like this.

Instead, if you follow this simple framework that I’m about to share with you…

Trust me, your charts will look much cleaner.

How to draw Trendlines

Here’s how you do it:

  1. Define your timeframe
  2. Zoom out (300 bars)
  3. Draw Trendlines that connect at least 2 major swing points
  4. Adjust to get as many touches as possible

1. Define your timeframe

For example, if you’re trading the daily timeframe then it makes sense to draw it on a daily timeframe.

It doesn’t make sense to be drawing a Trendline on the 15-mins, 30-mins or 1-hour timeframe.

Because it’s irrelevant to your trading needs.

Your trading needs are on a daily timeframe.

That’s your entry timeframe – you want to be drawing it on the daily timeframe.

If you want to draw a little bit more lines…

You can refer to the weekly timeframe, just one timeframe higher.

But you don’t want to go down to a lower timeframe to draw your Trendlines.

Always define your timeframe first.

Then draw your Trendlines based on the timeframe that you’ve defined for yourself.

2. Zoom out (300 bars)

You want to zoom out your charts.

Because when you look at a chart, it’s very easy to get caught up in the current price action now.

But if you take a step a step back, you’ll see that the price action is much more obvious.

So if you zoom out your charts, you’ll see the big picture and know where you are in the grand scheme of things.

Zooming out can be subjective, but my advice is to have at least 300 bars on your chart.

It also depends on the screen you’re trading from.

A trader on the 20-inch screen and a trader on a 50-inch screen will zoom out differently.

To be objective here, I would say at least 300 bars on your chart.

3. Draw Trendlines that connect at least 2 major swing points

You want to draw Trendlines that connect at least two major swing points.

And the way I do it is to connect the two major swing points.

This means that I tend to not really pay much attention to minor swing points compared to the major swing points.

Because the Trendlines with major swing points are the ones that define the significant long-term trends.

Those are the ones that you want to be paying attention to because they’re obvious and they’re significant.

For the minor ones, they’ll be more obvious if you are trading the lower timeframe.

But on the timeframe that you’re trading on, you can treat those minor swing points as secondary.

4. Adjust to get as many touches as possible

This is like making your Trendlines “curve-fit” the price data that you have.

You’ll adjust it to get as many touches as possible.

It can touch the body or the wick of the candles.

I’ll walk you through a few examples, so you’ll see how this works.

Example #1 (USD/CAD):

Let’s assume that I’m going to define my timeframe as the daily timeframe.

Remember to zoom out your chart.

I typically zoom out 5 times (roll the mouse wheel backwards by 5 clicks).

Now you can clearly see that the information presented to you is much more different.

It’s clearer because you’re looking at it from a bird’s-eye view.

So next thing you’ll do is to draw your Trendlines.

Remember, you want to connect the major swing points.

Major swing points are levels or areas on your chart that stand out straight in your face.

(If you have to hesitate, then it’s not in your face.)

I’m not interested in the minor swing points like these:

You only want to focus on – the major swing points.

I’ll draw in a way that best fits the current market context.

If you remembered, I said I’ll adjust my Trendlines to get the most number of touches.

So I’ll adjust the Trendline slightly higher, to get this:

You’ll see that there are five touches now.

And this is how I would go about drawing the Trendline for the USD/CAD pair.

A tip to share with you is this:

You can use just click on this Trendline and copy-paste to get another Trendline.

Push it up slightly higher and you’ll notice that you can now draw your Trendlines as a zone.

Now you can treat it as an area instead of just a line.

You can also copy-paste again and connect the swing highs.

Now you’ll have a trend channel:

For the trend channel, it’s the same thing.

I want to get as many touches as possible.

Remember you can treat this the upper channel as an area as well.

Now, if you zoom out a little bit you can see where the area of value on your chart is.

The lower portion of the Trendline is an area of value.

And when the price reaches the upper trend channel, those are price points that you don’t want to be buying.

As the market could possibly reverse from the upward trend channel.

So this is how you draw a Trendline.

Example #2 (AUD/USD):

You might have drawn your Trendline like this:

But if you started off like this, you’ll miss out on touching 5 of the swing points.

So the thing is:

You don’t have to get so fixated by drawing from the absolute highs or lows.

You can shift the Trendline lower and get as many touches as possible:

By shifting the Trendline, I get a better fit now.

I get 7 touches, including the retest at the lower end of the Trendline.

You’ll realize that the retest is more accurate as well.

But at this point, I’m not going to leave this Trendline here.

Because it’s clearly invalidated.

I’ll redraw the Trendline, but I want to show you how I adjust it as the price evolves.

So here’s the new Trendline that I’ll draw:

And if I stretch it further back in time, I can touch more points.

And that will 4 touches.

You can even copy and paste the Trendline to get a trend channel:

Now you can see where the area of value to trade is.

The upper Trendline is where you’ll be looking for selling opportunities.

But at the lower Trendline, you don’t want to be shorting.

Because there’s a good chance that price can spike up higher.

That’s why Trendlines are useful to help you identify:

  • The long-term trend
  • Predict market turning points
  • Better time your entries, etc.

So this is the beauty and the power of Trendlines.

And I hope this gives you an insight into drawing Trendlines and getting good trading results from it.

With that said, here’s a quick summary…

Summary

  • Define your timeframe
  • Zoom out (300 bars)
  • Draw Trendlines that connect at least 2 major swing points
  • Adjust to get as many touches as possible
  • Tip: “Copy-paste” Trendline to draw as a zone
  • How To Buy High And Sell Higher

Hey hey, what’s up my friend!

So here’s the thing:

Many traders think that to make money in the markets, you need to buy low and sell high.

Well, that’s true.

But…

It’s not the only way to make money.

Because you can also buy high and sell higher.

Here’s what you’ll discover in today’s lesson:

  • The secret to buying high and selling higher (with low risk)
  • The reason why most traders buy high and lose money – and how you can avoid it
  • The ONE thing I always look for before buying at “high” prices

(If this one thing isn’t present, I’ll almost always skip the trade.)

Sounds good?

Then let’s get started.

Don’t make this trading mistake…

Let me share with you a mistake that traders make whenever they buy high.

Take for example this chart of Bitcoin:

Traders will look at this chart and they’ll say…

“Oh man Bitcoin it’s so bullish, I need to get on board this move.”

“Because if I don’t buy now, I’ll miss the move up higher.”

“Look at how bullish the market is, with its strong bullish momentum and large range candles.”

“I need to be buying now!”

That’s what a lot of traders will do.

They’ll buy at this high price at around $8,200 level.

And after entering the buy trade, then they think to themselves…

“Okay maybe I need a stop loss, where should I put my stop-loss?”

Intuitively, they know they need to set their stop loss at a logical level.

Since this is an uptrend, their stop loss should be below the previous swing low.

And they’ll think to themselves…

“But if I were to set my stop loss at $4,800, my stop loss is going to be too wide.”

They can’t swallow that kind of loss.

So where would they put their stop loss?

Since they can’t accommodate such a huge stop loss, they’ll randomly put a stop loss to feel safer.

If the market goes against them, they can contain the damage.

And that’s what happened.

The market often goes against them and they get spiked out of the trade.

And then the market continues to rally.

Then they’ll say:

“The market is rigged, why does this always happen to me?”

“The market is unfair.”

“The brokers are out against me.”

But no.

They are the ones who are rigging the game against themselves.

So the biggest mistake that traders make is – they are chasing the markets when the market is bullish.

When it’s high, they just want to buy due to the fear of missing out.

And after they buy then they wonder where they should put the stop loss.

By that time, then they’ll realize that a logical place to put their stop loss is too far away.

So they’ll put a random stop loss on their chart.

And they’ll get stopped out on the reversal before the market continues higher.

This is the mistake that I want you to avoid.

Yes, you can buy high.

But you don’t want to buy high at any random point in your chart.

Because when the pullback comes, you’ll often get stopped out.

So this is a mistake that many traders make.

Don’t buy high for the sake of buying high – don’t chase the markets.

Let me share with you what you should do instead…

Wait for a buildup to form

What is a buildup?

A buildup is a:

  • Tight consolidation (squeeze) on your chart
  • Flag Pattern
  • Ascending or Descending Triangle

Let me illustrate.

Tight consolidation (squeeze) on your chart

Let’s say the market is in a range.

Then this nice tight consolidation is what I call a buildup.

A buildup can occur:

  • At the highs of resistance
  • After the prices breakout
  • Ascending or Descending Triangle

There are different variations to it.

But the key aspect is this:

A buildup is a nice tight consolidation.

I’ll explain why I look for a buildup later on.

A buildup can also be in the form of a flag pattern and even ascending or descending triangle.

Flag pattern

A flag pattern will look something like this:

Let’s say the market breaks out of the range and a flag pattern will be forming a buildup.

Usually, the range of the candles is relatively small in a buildup.

You’ll notice the range of the candles is nice and tight.

The tighter it is, the better.

You don’t want to see those type of strong reversal moves lower with large momentum candles.

That’s not what I call a buildup.

A buildup is usually nice and tight.

Ascending triangle

It can also be in the form with of ascending triangle.

You can see that there’s a series of higher lows coming into this area of resistance,

This is another variation of a buildup because the range of the candle is getting tighter and tighter.

(Descending triangle is just the opposite of the ascending triangle.)

Next…

Why you should wait for a buildup

Here’s why:

  1. It improves your winning rate
  2. Higher R multiples on your trade

I’ll explain…

Example #1: Bitcoin

1. It improves your winning rate

If you look at this buildup:

You can see that over here is a nice tight consolidation.

And if you analyze the price action of this, what is the market telling you?

At resistance, sellers should come in and push the price lower.

But the fact that the price is forming a buildup at resistance it means that:

  1. The selling pressure is not strong that’s why the price can still stay at resistance
  2. Buying pressure is coming in that’s why they’re willing to buy at a higher price

Whether it’s the first or second case, it doesn’t matter.

What matters is that this is a sign of strength.

If the price breaks out of the highs, the market is likely to continue higher!

Why is it when the price is at resistance that traders would go short?

So where would they put their stop loss?

It will be above the highs.

So when the price trades above these highs, this cluster of stop loss (in essence buy stop orders) will be triggered.

This will be the “fuel” to push the price higher.

This is why I look for a buildup whenever I trade a breakout or whenever I look to buy high.

2. Higher R multiples on your trade

I’ll explain.

If you look at this over here:

Notice that the price is making a series of higher lows into this area of resistance.

And in the rightmost edge, the candles really got really tight.

Compare that to the previous trade where traders are chasing the market:

Notice the difference in price action and volatility of the market.

This one is more volatile with large body candles and strong momentum.

Whereas for the one with a buildup, market volatility is low, the range of the candles is small.

You want to trade breakouts and buying higher in a low-volatility environment.

At this point, you’re also buying high near the resistance.

You want to be trading this type of trading setup because:

  1. It’s a sign of strength – buyers are willing to come in and about to push the price higher
  2. Your stop-loss is now at a logical level

You can just set your stop loss possibly below the swing low:

Can you see the difference in stop loss?

If you buy at $4,200 and place your stop loss at $3,700, that’s about a $500 stop loss.

Compared to this one over here where you’re chasing the market:

Let’s say you buy at the breakout of the highs at $8,400 and place your stop loss at $6,000 level.

That’s a stop loss of $2,400.

If you buy when the volatility of the market is huge, a logical stop loss will minimally be about $2,400.

Whereas the one with a buildup, the stop loss is just about $500.

What’s the implication of this?

So when you trade breakouts with a buildup, your R multiple is more favourable to you.

Because if you think about this, for every $500 the price moves in your favour, that’s a profit of 1R.

In other words, a 1 to 1 risk to reward ratio.

If the market moves $5,000 in your favour, that’s a risk-reward ratio of 1 to 10.

On the other hand, when you buy after volatility has expanded and your stop loss is $2,400…

A $5,000 move by the market is only a risk to reward ratio of slightly more than 1:2.

So if your stop loss is huge, you’ll need the market to move in your favour more, before you earn a 1 to 1 risk to reward ratio.

This is the difference between trading with a buildup and just blindly chasing the markets.

So trading with buildup:

  1. Improves your winning rate
  2. Improves your R multiple on your trade

Let me share with you another example.

Example #2: Brent Crude Oil

You can see that Brent Crude Oil has a buildup over here with a series of higher lows:

If you analyzed this closely, there’s a series of higher lows coming into these highs as well.

Somewhat like an ascending triangle.

This is a nice tight buildup.

So you want to be buying the breakout of the highs.

This is much better than just chasing the markets blindly where you don’t have a reference point to set your stop loss.

Example #3: GBP/JPY

This one here is the GBP/JPY:

At this point, let me ask you:

Will you want to be shorting in this market?

I hope you said no.

Why is that?

If you’re going to be selling right now, where is a logical place to put your stop loss?

Well, technically this in a downtrend and it’s making a series of lower highs and lower lows.

So if you want to set your stop loss, it should be slightly above the previous swing high.

This will be the size of your stop loss.

And as you’ve seen earlier:

The larger your stop loss, the more the market has to move in your favour to earn a 1 to 1 risk to reward ratio.

Do you want to do that?

Nah.

So…

Wait for a buildup to form.

If market forms as buildup and then breaks down lower:

You’ll have a more logical level for your stop loss at the previous swing high.

Your stop loss will be much tighter and is a more favourable risk to reward for your trade.

The market doesn’t need to move a lot for you to earn a 1 to 1 risk to reward ratio.

So this is what I mean by waiting for a buildup to form.

You’ll have a logical level on your chart to set your stop loss nice and tight.

Back to the GBP/JPY example, if you see somewhat of a bear flag pattern over here:

It means that the buyers are unable to push the price up higher.

The sellers are willing to sell at these lower prices to contain the prices.

This is clearly a sign of weakness as buyers are unable to push the price higher.

So when you wait for a buildup to form…

You’re “confirming” that sellers are still in control and you’ll look to short the market on the breakdown.

Moving on…

Trade exits

So how do you exit your trade?

Usually, when you’re buying high and selling higher, the market has already spoken.

It’s in an uptrend.

If in a downtrend in this example, you’ll want to ride the move for all it’s worth.

You can trail your stop loss according to:

  1. Market structure
  2. Moving average

Let me explain.

1. Market structure

Let’s use the GBP/JPY Example.

You can see that the market is now in a series of lower highs and lower lows.

One very simple technique to trail your stop loss is based on market structure.

In a downtrend, the market tends to make lower highs and lower lows.

What you can do is set your stop loss above this previous swing high:

And then let the market continue to work for you.

If it retraces only to come back down lower, you can reference the swing highs to set your stop loss:

So this is what I mean by using the market structure.

2. Moving average

Moving average acts as a dynamic support resistance in a trending market.

The 20MA on the GBP/JPY acts as a dynamic resistance where the price tends to bounce off the moving average.

If it comes back and tests for the third time, it could bounce off from it again.

So you can use this moving average to set your stop loss a distance away from it.

These two techniques will help you to ride the downtrend lower.

In the Bitcoin example…

You can trail your stop loss below the swing lows to ride the uptrend:

You can also use the 20MA to trail your stop loss:

So these are the things that I want to share with you when it comes to buying high and selling higher.

Now let’s do a quick recap…

Recap

  • Don’t “chase” breakouts – you won’t have a logical place to set your stop loss
  • Trade breakouts with a buildup – to get a reference level for your stop loss
  • Trail your stop loss to ride the trend – using moving average and market structure
  • Best Forex Trading Entries

Hey, Hey, what’s up my friend? I know you’re watching this video because you want to better time your entries. Perhaps you are the type of trader that always seems right to be entering the trades too late.

By the time you entered the trade, the market does a reversal or pullback and you get stopped out of the trade.

Maybe you’re the type of trader that somehow you’re always entering your trades too early. You get the direction, but the funny thing is that you’re too early.

You get stopped up before the market continues to move in your favor.

So if you happen to fall in any of these two categories, don’t worry, because, in today’s video, I’ll share with you a few of my secret techniques.

To help you better time your entries with deadly accuracy.

So here are a few things that you will discover.

  • Trade from an area of value- not away from it
  • Get help from the higher timeframe, here’s how…
  • Don’t chase big moves, do this instead

We’ve talked about why you must or why you should trade from an area of value, not away from it.

How to get help from the higher timeframe and why you don’t want to be chasing big moves in the market, but you should do this instead.

1. Trade from an area of value- not away from it

This means that you want to avoid taking trades from an area of value.

Let me explain what I mean by this concept…

This is the 30-year treasury bond futures chart on the daily timeframe that tends to respect the 50-period moving average:

You can see that based on this chart, the area of value is about or around the 50 days moving average. So somewhere about here.

If you recall earlier, I said that you don’t want to be trading far from an area of value.

Why is that?

Let me explain why…

If you look at this, if you were to be entering your trades right now, let’s say you buy somewhere here and you know that the area of value is somewhere here:

What happens is that this market tends to pull back towards the 50 periods moving average.

So if you were to buy somewhere here, and if your stop loss let’s say it is below this swing low or here.

It’s not going to save you because when the pullback comes, there’s a good chance it’s going to retest back this 50-period moving average and then continue higher.

So if you put your stop loss right anywhere in this area, chances are you’re going to get stopped up.

So this is why I say that you don’t want to be trading away from an area of value, but you want to be trading near an area of value.

Because now let’s imagine this. Let’s say you are patient.

You let the price come to you, you trade from an area of value.

And the area of values over here, let’s say the market retest lower:

And it maybe had a price rejection closing up slightly higher.

So now if you trade from this area, your stop loss can go somewhere about here, right at distance below the 50 periods moving average, and now you’re trading near the tail end of the pullback where the pullback is.

And that offers you a much more favourable risk to reward because the market is now getting ready to make the mix link up higher.

So remember, you don’t want to be trading away from an area of value.

You want to be trading near the area of value. You will have a tighter stop loss. And it offers you a much more favourable risk to reward on your trade.

One more thing to add is that for those of you who look at this chart and say

‘’Oh man Rayner look at this chart it is so bullish man, I can’t wait to get about the move’’

And if you were to enter over here,

Logically, your stop loss should at least be below this 50-period moving average. It’s going to be somewhere here.

And if you were to enter there, you can see that your stop loss size of it, it’s going to be pretty large.

And you can see that entering your trades far from an area of value. It doesn’t offer you an attractive risk-reward compared to a trader who is patient who let the price comes to them.

Let’s say the price comes down lower to them, let’s say they enter somewhere here, their stop loss at this level, now their stop loss is much tighter.

They can afford to put on larger position sizes and still keep their risk constant.

In other words, they’re trading from an area of value. It offers them a more attractive risk to reward. That’s the concept or my secret number one.

2. Get help from the higher timeframe.

So what do I mean by this concept, let me just illustrate that over here.

Let’s say you look at a chart on maybe the 4HR time frame.

And the price is in this range over here near this lows at this point, and here on the lower timeframe.

So this area will be more significant. If it coincides with a higher timeframe level, if it coincides with a higher timeframe market structure, like support.

So if let’s say this is on the 4HR time frame, you know that this level over here is going to be more significant.

If on the daily time frame it looks something like this. You’ve seen an uptrend and it comes back and retest this level of previous resistance.

So now this lower time frame support is leaning against a higher timeframe market structure and that improves the odds of your entry.

So let me give you an example. If you look at this 4HR time frame at this point.

You might look at this and say, this is nothing significant.

The price is now in adjusting or forming a range over here.

Nothing special.

Well, remember what I said, if the price is leaning against a higher time frame structure, that level becomes even more significant.

So you can see that over here…

This area over here is leaning against a daily timeframe level at this point over here.

This previous resistance, resistance, resistance is now acting as support.

So we can see that the consolidation that you saw earlier on the 4H timeframe, this portion over here.

It’s leaning against a higher timeframe, previous resistance, and support. And that’s a significant level.

And if you were to have your trades usually leaning against such a higher time frame structure, you will find that the probability of your trades, your entries will be improved.

So in this case, the market did break out, it retested this area of resistance before collapsing.

But that’s beside the point. The key thing I’m trying to share is paying attention to where the market structure is at on the higher time frame. If it’s leaning against the higher time frame, all the better.

So let me give you another example, because this concept it’s important again, the 30-year Treasury bond.

Let’s look at the daily timeframe and let’s look at the lower time frame. Let’s look at the eight-hour time frame.

You’ll notice that here, the price at this point retest at this area of support on the eight-hour time frame.

One thing to note is that if you look at the higher timeframe by the daily time frame, you know that that area coincides with a higher time frame structure.

Which is the retest of the 50MA over here.

So what you saw earlier there, that retest on the eight-hour time frame was this part over here.

So if you look back, historically, this market tends to respect the 50MA, I tested Once, twice, plus on the lower time frame and eight-hour time frame.

It’s in an area of support.

So you can see that multiple factors coming together. An area of support on the lower timeframe is coinciding with higher timeframe support on the market structure.

It could be a trend line, It could be a moving average, It could be support, resistance, whatever.

But as long as there are no areas or levels on the chart, which coincide in between multiple timeframes, that level is enhanced.

That’s secret number two I want to share with you. You can get help from the higher time frame, to improve your trade entries.

Because this time around the attention is not just on the lower timeframe traders, but on the higher timeframe traders as well.

They also paying attention to their level, and that could induce enough buying pressure in your favor.

3. Don’t chase big moves, do this instead

Don’t chase big moves in the market, do this instead. So here’s the thing.

When you look at a chart,

For example, eight years ago when I was trading, I’ll look at a chart, and say;

‘’Men!!, look at that bullish momentum, price is so strong, it’s about to rally higher, let me enter the trade, I don’t want to miss the move, let me buy!!!’’

So let me give you an example of, what I’m referring to.

We can see the price now on the daily timeframe. It hasn’t broken out, this is so bullish:

Men!!!, Rayner, it’s time to buy….

And if you recall right, I shared with you earlier that you wouldn’t want to be trading far from an area of value, you want to be trading near it.

So again, we can see that we are bringing back the same concept you’ve learned earlier.

And if you think about this, if you were to buy right now at this price, let’s say 1410 price, where is the area of value?

From the looks of this chart, the area of value right now is possibly a previous resistance now support…

This means that the price could retest back to this area. Previous resistance and support and then continue back up higher that’s a good possibility that could happen.

In other words, If you want to set your stop-loss, it is not going to make sense to be putting your stops anyway here, or here.

Because when the pullback comes you will get stopped up. So the logical place will set your stops right, is at least right below this market structure over here.

Maybe possibly some way here, right below this market structure.

And you can see right now that if you were to have your stop loss and this so-called proper location with your entry over here, your risk to reward is pretty poor.

So we can see that, if you were to enter with a very lousy stop loss, you’re going to get stopped out. If you enter your trade right now with a proper stop loss, your risk to reward is very poor.

So what do you do?

You let the market come to you, don’t do anything. Let the market show its head, let it form a new market structure where you can reference and set a proper stop loss.

So this is what I mean by don’t chase breakouts do this instead. So what you can do is again, let the market show its heads.

What I usually like to do is to let the market form new market structure, new swing high and swing lows.

Now you have a market structure that you can refer to. You can now reference these lows to set your stop loss.

And another tip that I have for you is that when the market breaks on when it’s trending, you want to pay attention to which moving average it’s respecting.

And usually, in a strong trend, it tends to respect the 20-period moving average. So if we just pull out a 20MA, notice that the price seems to be finding support at the 20MA.

You can now have options. You can either use the swing low to set your stop loss, or you can use the 20 periods moving average.

So now when you trade you can still look to buy the highs of this, but your stop loss can now just go below this swing low or below this swing low:

Your stop loss is now much tighter, offering you a much better risk to reward. And if the price were to do a pullback.

You know that this 20 period moving average will serve to support to hold up these higher prices, compared to previously where it wasn’t acting as a support.

That price would just retest back this market structure and you get stopped up.

So you can see that if you let the price shows it head trading becomes simpler. So the key thing that if the price makes a huge move or big body candles.

It’s usually too late to enter, It’s wiser to take a step back, let the market unfold itself, and then plan your decisions accordingly afterward.

Don’t chase breakouts, you can look for a pullback or wait for a new market structure to fall. That’s the first thing.

Another thing that you can do that besides chasing breakout is that, look for a build-up to form. So let me explain to you what is a build-up.

You look at this portion here. This is chasing the market.

When the market is so bullish, candles are big and usually, this is the worst time to buy because as I mentioned.

Poor stop loss placement and chances are you’re going to get stopped upon a pullback.

Whenever I look at this chart. I think I look at it right as a form of energy being released.

And when energy is released, it’s usually a poor time to enter because all the energy is already out, nothing left in the move.

And when I enter my trades, I want to enter where energy is stored. Potential energy where you know, it’s getting squeezed, getting tightness where energy is being stopped and about to be released

You don’t want to enter your trades when its energy has already released itself.

You want to enter when energy is being stored. So how do you tell when energy is being stored?

And this is where I mentioned, you want to look for a build-up.

A build-up is essentially a tight consolidation. I like to look for build-up at market structure build-up at support and build up forming its resistance.

Let me show you what is a build up:

There is this area of resistance over here and there’s this tight build up over here. Notice that this price action is so different from the energy days released earlier.

This one with the energies is being stored. It’s being constricted, it’s being constrained.

It’s like ‘’let me out!!!’’.

We can see that this is the containing pattern that you want to look for. A build-up, a tight consolidation, low volatility, whatever you call it.

Just pay attention to this, this is where you want to get interested in buying the breakup.

This is where you know there is a potential for the move to move. And one more tip that I have for you is.

Whenever prices are forming a build-up, the 20MA before the breakup, the 20MA will start supporting the price. It would act as a support.

Where the price would tend to bounce off the 20MA, and you notice that phenomenon right over here where the price has to start respecting the 20MA:

This Is the resistance. This is the build-up that’s formed, and when you trade the breakout, do you want to trade break out away from build-up?

And this is the build-up that form…

You can have a buy stop order above this high or with our candle close above the highs, whichever you prefer.

Usually, if I see a tight built up, I just have buy stops orders above it. Go out test it and validate it yourself and see whether it’s true.

This is a powerful concept, let me just explain this once again with another example, because this is important. If you look at this, look left.

This over here, what is this?

Whenever I look at this chart, to me that is energy being released. And you don’t want to enter it when energy has been released because the power, the energy, everything is gone.

Really. It’s out. There’s nothing left.

You want to enter your trades where energy is being constrained, and you notice over here this price action is so different compared to the one you’ve seen earlier.

This is where energy is being stored, getting constricted, getting tight. It’s getting ready to breakout.

And again, a quick tip is the 20MA, usually, the price tends to respect it before the breakout, if it tends to respect it all the more that is like a big plus, you want to be paying attention to the breakout.

Don’t chase big moves, do this instead. Trade the first pullback when a market breaks out. There’s a good chance it might make a pullback.

And you can reference the swing high and swing low too, to set your stop loss. Or you can look for a build-up before the price breakout.

That’s another thing that you should do. Don’t chase big moves into the market because it’s usually probably too late to enter.

Recap

  • Trade from an area of value, not away from it
  • Lean against the higher timeframe market structure
  • Don’t chase big moves
  • Trade breakouts with build-up or wait for the pullback
  • Do You Make These Support and Resistance Mistakes?

Hey, Hey, what’s up my friend? So let me ask you a question. Have you ever seen the price come into support and you think this is a strong level of support is going to hold?

So you buy

The next thing the price merge through support then you’ve got stopped out.

How about the price came into an area of support and it made a huge rally away from it, huge bullish move.

But the problem is you got stopped out of your trade before you can even take part in the big move.

So has any of those happened to you before? if it’s a yes then today’s training is for you.

Because I’m going to share with you what are some of the most common mistakes traders makes when trading support and resistance and how you can avoid it.

But first, if you’re watching this video for the first time, hit the thumbs up button and subscribe to my YouTube channel,

This way, whenever I publish a new training, you’ll always be updated.

Let’s get started.

The first thing for us. The more times support is tested, the stronger it becomes.

‘’The more times it’s tested, the stronger it is’’

The Truth:

  • More times it’s tested within a short period, the weaker it is
  • Higher lows into resistance (sign if strength)
  • Lower highs into support (a sign of weakness)

Have you heard of that scene before from textbooks or forums? You see stuff like the more time support is tested the stronger it becomes.

Well, that’s not true.

The truth Is that the more time support gets tested, within a short period, the weaker it becomes.

Let me explain why.

So let me just give you an illustration.

So let’s say this is an area of support and the price goes up, comes down, and you test it multiple times.

So we can see that support is an area where potential buying pressure would come in. Let’s say there is a certain limit order to buy at support, maybe from a hedge fund and institution.

Let’s say it’s worth up $100 million worth of buy orders.

The first time it comes up; it fills up 50 million.

Then rallies it comes back down and it fills up the remaining 30 million, rallies come back up, fill up 10 million, comes back down, fills up the remaining 10 million then eventually there is no one left to buying.

The price breaks down, so we can see that the more times price retest support within a short period.

The more of this buy limit orders get filled. Once all these buy orders get filled, who’s left to buy me?

I don’t want to be buying. So that’s where you get right, the more times price retest support within a short period, the likelihood it will break down.

So this looks something like a descending triangle.

And the opposite is the ascending triangle.

Let me just share with you an example, so over here you can see Bitcoin that illustrate these concepts pretty well.

So you can see that there is support around the 6,000 level. Price came into support rarely once came back down a couple of times and it breaks down.

So just by looking at this price action. You know that this market is getting weak.

You just look at the so-called swing of the rally right the first time is pretty strong, a big bullish candle, second time still strong, but not quite as strong as the first time.

And the fourth time is really weak. All the small range of candles.

So this is a sign to you that the buyers have difficulty pushing the price up higher. And this to me is a sign of weakness, not a sign of strength.

So whenever you see the more time support is being tested within a short period. That’s a sign of weakness.

Moving on…

You can see another example over here:

This is the opposite, you can see that over here, this is resistance, price approach resistance, sold off approach resistance several times and then sold off a little bit.

So now you have a series of higher lows into resistance.

So is this a sign of strength or weakness?

This is a sign of strain. It shows you the buyers are willing to buy at these higher prices and the sellers have difficulty pushing the price lower.

The sellers push the price pretty strongly towards the downside here as well. Then after which the subsequent selling pressure from the sellers got weaker and weaker.

To me, it’s a sign of strength from the buyers they are willing to buy at these higher prices that would lead to a breakup.

Let’s see another example. Bitcoin, you can see a series of lower highs coming to support.

This to me is a sign of weakness right there. The market is about to break down lower.

So let me just see if I can find an example to illustrate this concept, this concept is important.

So now the one over here is not as clean as the Bitcoin example, but still, you can see a series of lower highs coming into support.

Again, it’s a sign of weakness. The market is weakened, is likely to break down.

So the key thing here is again, higher lows into resistance is a sign of strength and lower highs into support as a sign of weakness.

Setting stops below support

  • Easy to get stop hunted
  • Set your stops a distance away from SR to avoid stop hunting

So here’s the thing, when you set your stops, let’s say just below support or above resistance, it makes it easy for you to get stop hunted.

What do I mean by that? So let me ask you this question.

Let’s say that the market is in a range and it comes into support before it rallies off, it spikes down lower, then it goes up higher.

So when you buy at support on the brief rally over here, you set your stops below this low or you get stopped up by this spike down lower.

Has it happened to you? Or how about this? The market could be trending. Let’s say the market is trending.

Then market breaks below let’s say market goes down, then it breaks below this swing low. So we thought there’s a break-off swing low, there’s a breakdown, you go short.

And where do you put your stop loss?

Well, you put your stop loss just above this swing high. And what does the market do?

It comes up to the swing high and then collapses lower, and then you get stopped up again.

This is the mistake to avoid, you don’t want to be putting your stop loss just below support or above resistance.

You want to set it in a distance away from support resistance to avoid this type of stop hunting that goes on.

So let me just give you an example…

So if you look at his chart, NZDJPY here.

You can see over here, the price looks bearish.

The market looks bearish, breakdown of this swing low.  This is a trend continuation trade, you have a series of lower highs and lower lows.

The market is in a downtrend, let me go short, where do you put your stop loss?

You put your stop loss just above this swing high after all this is where the highs shouldn’t get invalidated because if the price breaks above the swing high or the downtrend are over.

So that’s why you put your stop loss at this swing high…

Then what happens?

The market somehow knows what you’re doing. Hits your stop loss above these highs, swings it a second time, we can see swings at it twice before it finally reversed towards the downside.

You can see this phenomenon happening again right now, price hitting down lower, then it swings up, pick up the highs, comes back down, possibly hitting down lower finally.

So we can see that traders that set their stops just above resistance are going to get stopped out.

This is important because you don’t set your stops right just below support or above resistance.

Let me give you another example.

This is the lowest on oil, price came down towards these lows, spiked through the lows before it rallies up higher again.

So here’s what happened, price on this oil, It came down below these lows of support before it did a false break and rally up higher again.

Traders who set their stop loss below this low got stopped up over here. And then this phenomenon happens again.

Traders again who set their stops above these highs, the price went up higher, start to reverse, have their stop loss above this high, maybe even above this high.

The market spiked up all the way and then reverse. Again, setting your stops above these highs would likely have got you off the trades before the market could even move in your favor.

How do you set your stop-loss?

So now the question is, how do you set your stop loss in such a way that you know it prevents this type of stop hunting from happening to you?

Here’s my suggestion, let me just give you an example.

Let’s go NZDJPY.

The prices at this area of resistance, you know that you don’t want to just set your stops above the highs you might get stopped out on a spike.

What I’m going do is use the ATR indicator to help you add a buffer to your stop loss.

I typically go with a 20-period ATR and I use the SMA.

Not that it makes much of a difference it’s just my preference. And you can see them right now, one ATR is worth about 60 pips.

So what you want to do is to find out what’s the highest over here, and you add on 60 pips.

Let’s say the high is currently $70. Your stop loss would be at 70.60 cents. That is your stop loss or you give it a one ATR buffer over here.

That’s how you would go about setting your stop loss or if there’s a case your stop-loss would now be somewhere about here.

This means that even if the price will spike up higher and come back down, you will still likely be in the trade because your stops are now away from support resistance.

It’s away from this market structure where it’s prone to stop hunting.

Buying chop move into support

  • Too many obstacles in your way which reduce your profit potential

Another mistake that traders make is that they buy a chopping move into support.

What do I mean by this?

Here’s the thing, whenever you trade support and resistance you want to be buying when there are little obstacles in your way.

For example, if you look at this price goes up, comes down, comes back low to support this is the type of price action that you ought to be buying when there is just one nice, clean move into support.

This to me is ideal because the nearest obstacle in your way is possible at this area of resistance over here. So your profit potential is pretty decent.

From here to here, let’s call it your profit target.

Now there are times where you don’t get a nice clean move into support.

Sometimes you might have something like this, which is very common. Sometimes you might get something like this price forms a choppy move into support.

Now if you were to be buying this support, where is the nearest obstacle?

Ask yourself.

If you look at this chart, the nearest obstacle is knowing the possibilities to be at this swing high over here. So this greatly reduces your profit potential.

Now your profit potential is only this portion here because all these lower highs are in your way where potential selling pressure could be looking around.

Let me just give you an example

Look at this chart of USDINR, this is an example of a setup that I don’t want to be buying.

You can see this is an area of support. If I were to be buying right now, the price will be coming shortly into this swing high over here.

And that is an obstacle in my way. I would very much prefer a nice clean move into support. So my profit potential is much more.

Another example you can see over here:

You don’t want to be buying at this high because over here is just this swing high where selling pressure.

It could be looking around to move the market against you or to push the price against you.

You don’t want to be buying right when the price is near obstacles when it’s just in front of resistance and you don’t want to be shorting just at the hit of support.

So how should you trade this?

The way I do it, I like to see a nice clean power move into a level.

For example, this is what I call a nice, clean power move:

The market just came down so strongly into a level, so I know that if I were to be buying on the reversal of this candle, the nearest obstacle in my way is this swing high over here.

So there’s a distance, right for the price that moves in my favor before you face that obstacle.

Another example, GBPUSD:

If you look at this and this reversal. The nearest obstacle in my ways at this swing low over here so there’s a distance where the price can move.

Where there isn’t any opposing pressure to cover it and push the price against me.

So this is what I mean by, I look for a clean move into a level.

Usually when there are a clean move and a power move into a level. The reversal is more swift.

That’s why I hate trading choppy move into a level as explained earlier. That’s the tactic that I have for you.

Don’t buy a choppy move into support or resistance. There are too many obstacles in your way.

It reduces your profit potential and there’s a lot of levels or areas in the chart where the opposing pressure could come in and twist the direction of the trade for you.

Treating SR as lines on your chart

Two types of traders:

  • FOMO
  • Cheapo

And finally, the fourth mistake is that traders treat support and resistance as lines on your chart.

And here’s the thing, support, and resistance they are not lines on your chart, even though you see I draw them as line, but I treat them as an area.

Why is that? And the reason is simple

There are mainly two groups of traders out there.

What do we call it?

FOMO Traders

Fear of missing out traders. For example, whenever the price briefly touches into support or just come into it area they quickly want to buy, they don’t want to miss the move.

This is the traders who have the fear of missing out, they buy as soon as possible when the price reaches support.

Cheapo Traders

These are the group of traders that want to get in at the best possible price at absolute lows of support and absolute highs of resistance.

That’s where they want to enter the trade. So when you have these two group of traders, that’s where you support becomes an area on your chart.

So when you merge these two groups of traders, support becomes an area on your chart. One way you can go about trading it as an area or your chart is to draw it as an area.

In this case, what I could do if I want to, is I could draw support and resistance areas on my chart. So I can use the rectangle tool. In this case, I can draw it like this.

This becomes an area, something like this.

This is how we can treat support and resistance as an area on your chart.

We just do for this lower one as well, so this means if the price when it comes down lower. And it touches here, you know that price is at an area of support.

You want to be alert to potential buying opportunities at the same time in the back of your head, you also know that this is an area the price could come in deeper into support.

Possibly even to these lows before it reverts. Now once you look at it as an area on your chart, not a line on your chart you have all this a plan at the back of your head knowing what to do.

If the market starts to show signs of reversal, just because you treat it as an area on your chat, not a line.

This is important if you’re always struggling to identify your support and resistance level treat it as an area, use the rectangle tool I just shared with you.

And I believe it will help you spot your support and resistance areas better.

Recap

  • The more times SR is tested within a short period, the weaker it becomes
  • Don’t set your stops just below support (or above resistance)
  • Don’t treat SR as lines on your chart- It’s an area
  • Swing Trading Secrets You’re Not Supposed To Know

In today’s training, it’s all about swing trading.

You’ll learn swing trading secrets – profitable trading strategies and techniques to profit in bull and bear markets.

What is swing trading?

Swing trading is about capturing just one move in the market.

What is one move?

Let’s say the market is in a range, and it swings up and down. As a swing trader, what you’re trying to do is to buy the lows of the range and sell at the highs of the range.

In essence, you’re just trying to capture this one swing.

Alternatively, the market could be trending and you can also capture swings in an uptrend.

For example:

You can look to buy the dips and sell the rally. In essence, you are just capturing one swing. So hopefully this gives you a good idea to what swing trading is about.

Best market conditions for swing trading

It’s best to trade the swing when the market is in a range or a weak trend. This is something that you should be familiar with.

What is a weak trend?

In an uptrend, you have a series of higher highs and higher lows. For a weak trend, it has a deeper pullback than usual.

If you use Fibonacci retracement, for example, you realize that the price usually retraces to a minimum of 61.8%. That’s the bare minimum for a weak trend.

If you overlay the 200-period moving average, the price tends to retest the 200-period moving average as well.

An example:

The market is in a downtrend, and it’s a weak one. Pay attention to the pullbacks, they’re pretty deep from the lows up to these highs.

So pull out a Fibonacci retracement tool and pull it from the swing high to swing low.

This retracement went up to about 61.8%. We can see that when the market is in a weak trend the retracement is pretty deep.

Alternatively, for those of you who are familiar with moving average, you can pull out your 200-period moving average.

You’ll notice that price tends to retest the 200-period moving average.

There are a couple of tips to share with you on how to identify a weak trend, but this isn’t the main point of today’s training.

Next…

How to time your entries for a swing trade?

There are a couple of entry techniques that you can use.

1. False break

Here’s an example…

The price came down into the lows. This is a significant level because if you look left, the market tested the level four times.

And it took out the lows of support by a few ticks and then rallies higher, breaks and closes above the previous day high.

This is what I call a false break set up. Where the market has a false breakdown.

This is an entry technique you can use in swing trading.

2. Break of structure

This is another technique you can use and it’s on the lower timeframe.

An example:

This market is in an area of support. The price broke above these highs, breaks out and then retests back this breakout level.

Now it’s a previous resistance turned support. Besides the false break, you can also look for a break of structure.

If you look at this move over here:

This looks like an ABCD pattern.

On the lower time frame, you will see that the chart will look like a downtrend with a series of lower lows and lower highs.

This entire move is the ABCD pattern that you saw earlier on the daily timeframe.

When we talk about the break of structure, what we are looking for, is for the market to invalidate this existing market structure.

This existing market structure is a series of lower highs and lower lows.

What we are looking for is a series of higher highs and higher lows, telling you that the buyers are coming in and ready to take the price up higher.

At this point, you have the resistance, and a series of higher lows and higher highs.

This tells you that now there is a break of structure.

It has invalidated this series of lower highs and lower lows, by forming a new break of the structure where you have a higher low and higher high.

This is another entry technique you can use and I call this the break of structure.

We don’t trade these entry techniques in isolation, we will combine this with several factors to identify the swing trading opportunities (I will get to that point later).

For now, we’ll go through it step by step, so at the end of this training, when I piece all the puzzles together, you would be like, “Ah, that is what Rayner is talking about.”

Moving on…

How do you exit your trades as a swing trader?

Recall, swing trading is all about capturing one swing in the markets. And logically, when you exit your trades, you want to exit your trades before opposing pressure comes in.

As a swing trader, you’re not trying to ride trends in the markets and endure the retracements that come along the way. As a swing trader, you’re just interested in capturing that one move in the market.

So you’ll want to exit your trade before the opposing pressure steps in.

Here’s a simple example:

If you buy the lows of support, where do you want to sell? Where will opposing pressure come in?

If you look at this right, clearly the opposing pressure will likely come in at resistance, where people are looking to sell at resistance and take profits at that level.

This is where opposing pressure will step in.

Alternatively, if we talk about a weak trend, we have a deep pullback comes in and makes another deep pullback, you buy near the lows of this pullback.

Where do you want to sell? Where will opposing pressure come in? Likely they would come in near these highs over here:

You want to be selling just before the highs, at this swing high over here. This is what I mean by identifying levels where opposing pressure will come in.

This is important, so let me walk you through a few simple exercises to train your eyes to this.

This is EUR/AUD on the daily timeframe:

Let’s imagine that you are short, you just sold off at these lows.

Where is a logical place to take profits? Where on the chart would opposing pressure tend to come in?

This is a level you want to be paying attention to possibly take profits.

You will notice that the market has respected that level several times. You can see that the 1.60 area is a significant level.

If you are short in the market, this is an area you are to exit the market and take your profit, by just capturing one swing in the market.

You are not trying to ride the entire move down.

This is how you exit your trade-in swing trading. In essence, you are just asking yourself, where would opposing pressure come in?

You want to exit your trade right before opposing pressure comes in.

How to set profit targets

One thing to share with you is that you don’t want to get greedy in setting profit targets.

In setting profit targets. I know what some traders will do is they will set their targets at the absolute lows over here trying to squeeze the market out of every pip.

That’s not a good idea. Why is that?

Remember, you’re dealing with areas on your chart. The market may not get to this low and reverse, it may just come to this area and then reverse it.

 

If you have your target right at these greedy levels, you will not exit with a winner, but as a loser, as the market will reverse and hit your stop loss.

Don’t be greedy with your targets or give the market some buffer to take you out of the trade. Don’t aim for the absolute highs or lows.

Best time to enter a trade

When is the best time to enter a trade?

Let’s have a look.

An example:

The market is in a weak trend. Let’s say you are looking to short this market in a downtrend and capture just one swing.

Your entry point, let’s say you use the market order. And where do you set your stop-loss?

Would you want to set your stop loss at these highs of resistance?

No, because you know that this is an area of resistance.

Also, if you pull out your 200MA, you would see that the market is finding resistance at 200 periods moving average.

This is an area of resistance and it doesn’t make sense to be setting your stop loss at this area of resistance.

Because the market would come up higher, hit your stop loss at resistance and the collapse lower.

To set a proper stop loss, you want to set it at a level where if the price rejects it, you will invalidate your trading setup.

One technique I can share with you is to use the ATR indicator and just add on 1 ATR towards the highs of resistance.

I usually use 20-period ATR and I go with SMA.

What you want to do is find out what’s the current ATR value. The current ATR values about 40 pips right now.

What you would do is to add 40 pips to the highest resistance. And set your stop loss at that price level.

Next, where do you want to exit your trade?

As you know, swing trading you want to exit your trade before the opposing pressure comes in. So you’ll shift your target to somewhere here:

IF you look at this potential trading setup, you’re in essence risking $1 to make $0.34.

How do I know that?

The red area is your risk and the green area is your potential reward.

If you look at this tool, it tells you the risk-reward ratio is 0.34. This is not a trade I want to be taking, I don’t want to be risking $1 to make potential $0.34 on the trade.

What should we do?

This is where patience is important. You want to let the market come to you. Let’s say instead of chasing the markets lower, we trade it from a favourable trade location.

 

We will be camping and waiting in this area of resistance. By being patient, we have dramatically turned the table.

Now we have a potential risk to reward of 2.22. This means that you risking $1 to potentially make $2.22. See the difference?

By trading from an area of value, you’re putting yourself in a more favourable risk to reward trade. This is powerful stuff. It doesn’t matter whether you’re a swing trader or a day trader.

This concept can be applied at the same rate, basically measuring your potential risk on the trade to your potential reward.

And the best time to be timing your entries is when you are near the area of value because that’s where your stops can go beyond that area slightly.

This is powerful stuff, don’t neglect this.

Bonus tip: How to manage your trades

There are a couple of ways you can manage your trades. In this case, let’s say you have your entry, stops, and target.

There are a couple of methods.

1. Set a fixed profit target

You set your entry, your stops and target, you let the market do what it needs to do.

But the downside of having a set a fixed target approach is that sometimes the market could reverse before hitting the target.

And if you have a set a fixed target approach, it’s all or nothing; it’s either it hits your target or hits your stop loss.

Sometimes if you are more active, you have more time to watch the markets, you don’t want to see your open profits get eroded just like that

One way you can go about it is that you can use an active trade management approach.

2. Active trade management – trailing stop loss

Yes, you have your entry stops in target, but at the same time, you are in a way protecting your open profits if the market moves in your favour.

For example:

Let’s say you are looking for a target at these lows. You can see that the market is showing signs of reversal.

But how much room should you give the trade to breathe? Because what if the price reverses up higher and then break out, then you get stopped out?

Is there a protective mechanism that you can use for your swing trading to protect your open profits?

One useful technique is to trail your stop loss using a higher timeframe.

In this case, assuming you went short on a daily timeframe, you can go up to the weekly timeframe, and exit your trade only if the price breaks and close above the previous week high.

You can see that the green candle has broken the previous week high, so this is where you can manually exit the trade.

At this point, you have protected your downside as the market hits your trailing stop loss. The reason why you want to go up one timeframe higher is to give it more breathing room.

You can do it on the same timeframe as your entry. But if you do that, you’ll often get out of the trade prematurely before the price even hits your target.

What I like to do is to trail it one timeframe higher and to see if the market hit the higher timeframe trailing stop loss first or the profit target I’ve set.

Recap

  • Range and weak trend markets are ideal for swing trading
  • Entry techniques: false break and break of structure
  • You want to exit your trade before opposing pressure steps in
  • Your risk to reward is improved when you enter near the area of value
  • Candlestick Patterns Cheat Sheet

In today’s training, you will learn how to read candlestick patterns like a professional trader.

This is my promise to you, even if you have no experience with candlestick patterns and you’re overwhelmed by the sheer number of patterns.

Don’t worry.

Because in today’s video, I will show you a simple method to read candlestick patterns like a pro without memorizing a single pattern.

Without getting confused by the sheer number of patterns and without getting overwhelmed.

It’s very simple if you just follow my simple procedure.

First and foremost…

The Basics

Candlestick patterns are a way to show prices on your chart. It’s not the only way, you have things like a bar chart, line chart, etc.

Candlestick patterns are one of the more popular approaches.

And when you are dealing with candlestick patterns you must be aware that there is a four-price point for every candle on the chart:

  • The opening price.
  • The high.
  • The low.
  • The close.

The high is the highest price point of the candle at a particular time.

The low is the lowest price point of the candle at a particular time depending on which time frame you are trading on.

Whether it’s a daily, weekly, or monthly.

Let me explain

Candlestick patterns usually have two popular colours, the green, and the red bar.

Sometimes it might be white and black, depending on the settings that you use.

But more commonly it’s red and green.

This is a green candle. What a green candle means is that the price has closed higher for the period.

The opening price is always here for a green candle. This is the closing price.

This is where the price closes within the period.

Over here is high and low, we call it the wicks. Some people call it an upper shadow, some call it lower shadow. But let’s just call it the wicks to make things simple.

The upper wick signifies the high of the period and the lower wick signifies the low of the period.

You might be wondering:

“Hey Rayner, what is the period?”

Here’s the thing, the candlestick chart pattern can be shown on different timeframes.

The daily timeframe, weekly, monthly, 5 minutes, 15 minutes, 20 minutes, whatever you desire.

It can be shown in their respective timeframe.

Let’s say you are looking at this green candle on a daily timeframe.

What this means is that this is the opening price of the day and the closing price of the day.

The highest price it went to within the day is known as the high.

The lowest price point within the day the price traded is called the lows.

This is what we mean by the high of the day and the low of the day.

Likewise, for the red candlestick bar, a very important feature is that the green and red bar, their opening, and closing prices are at a different location.

When you see a red bar, it means that the price has closed lower for a day. For the price to close lower for the day, where must the open price be?

The open must be here right here, this point opening price.

And this is the closing price.

Likewise, this is the high and low of the period.

Let’s say you’re looking at this on the H1 timeframe.

This is the highest and lowest price within the last hour if this is an H1 candle.

So this is the basics of the candlestick patterns and how to read it.

Now here’s the thing…

There are so many patterns out there:

  • Three white Soldiers
  • Bullish Engulfing
  • Shooting star
  • Hammer
  • Harami
  • Doji

If you memorize all these patterns, it’s a matter of time before you get overwhelmed.

Memorizing patterns is not the way to trade the markets. This is a problem that I faced personally.

And I suppose many traders would encounter something similar too.

The solution to memorizing candlestick patterns

If you don’t want to memorize candlestick patterns and at the same time you want to know the meaning behind it.

My suggestion is this, ask yourself these two questions, because you would gain clarity that you have never said before like an X-ray vision.

The power of these questions will tell you who’s in control. Are the buyers, the sellers in control or nobody is in control?

Here’s how it works…

If you look at this right now.

This green candlestick pattern tells you that the price has closed higher for the period. It opened over here and it closed here.

There’s no lower wick, the opening price is also the low of the day.

Let’s say this is a daily candlestick pattern, then the opening price is also the low of the day. Notice that there is an upper wick.

One thing you would notice is that the price close near the highs of the range.

This includes the highs and all the way down to the lows. This is the entire range.

You notice that the price has closed near the highs of the range.

This tells you that the buyers are in control, and that’s why they can close the price right near the highs of the range.

Example

It’s still a green candle if the price is closed above the opening price.  The price has closed above the opening price.

But is the buyer in control or the buyer still in control?

Again, just use this question.

1. Where did the price close relative to the range?

Where is the range?
 

This is the entire range of the candle.

Now, where did the price close relative to the range?

This is the closing price.

Now we are seeing a different picture than the previous one.

Why is that?

Because now you realize that the price only closes marginally higher relative to range.

What does it tell you?

It tells you that at one point in time, the buyers were trading near these highs.

From this high right to this close, it means that sellers at one point in time have to come in and push the price lower to the close over here.

This tells you that in the background, there is a selling pressure and this is a sign of weakness.

Yes, the price did close higher within the period. But you can see that there is a strong price rejection and a strong selling pressure in the background.

This question tells you who’s in control. At this point, you look at this candle, it tells me the sellers are the ones in control.

2. What’s the size of the pattern relative to the earlier ones?

This question gives you the conviction behind the move.

Is it a smokescreen or is this for real?

Let me explain what this means.

If you look at this chart:

This is the retracement. But if you studied what I mentioned earlier, it tells you that the buyers are in control. The price closed near the highs.

But if you look at the range of this candle, the most recent candle over here relative to the earlier candle, you’ll notice that the range of this candle doesn’t signify much.

It’s not large compared to the earlier in terms of the range of the candles, In terms of size.

It’s pretty much the same. This tells me that there isn’t any strong by conviction behind this, this candlestick moves. There isn’t anything at all.

Compare that with this one over here:

Look at the size of this most recent candle relative to the earlier ones. This tells you now that there is a strong conviction behind the move.

Not only that the buyers are in control but there is also a strong conviction behind the move.

Can you see where I’m coming from?

When you look at this candle answering the second question It tells you the conviction behind the move whether it’s real or not.

This is what we are trying to understand over here.

Once you understand these two questions, you can read any candlestick patterns that you come across.

You just need to remember two questions:

  • Where did the price close relative to the range? This tells you who’s in control.
  • What’s the size of the pattern relative to the earlier ones?

Next…

Bonus: Combine candlestick patterns

One final bonus tip for you is that candlestick patterns are very versatile.

You can combine them across different timeframes and you can visualize what the pattern will be on the higher timeframe.

Does this make sense?

For example:

If you look at this pattern, let’s say on the H4 timeframe. You have this bearish bar over here on the H4 timeframe and the next candle, you have this bullish bar.

When you go up to the H8 timeframe. You will realize that the candlestick pattern will look like the hammer over here.

How do you get this picture of this hammer over here? Very simple.

You take the first candle, the opening price of the first candle, it will be the opening price of the hammer.

The closing price of this second candle, which is here, the closing price will be the closing price of the hammer.

And then the highs between this two-period will be shown on the H8 timeframe. The highs and the lows will be exactly the highs and the lows for the H8 timeframe.

Sometimes if you are looking at a chart, you don’t quite understand what’s going on, “Man! What’s going on? Who is in control? One candle is green and one is red!”

What you want to do is just combine these two candlestick patterns and you will have a clearer understanding of who’s in control.

Let me give you an example of a real chart:

You wonder because this is confusing. One moment the candle is green and the next moment the candle is red.

Should I be buying or selling, what’s going on?

Very simple.

Do what I just shared with you earlier.

You just take the opening price of this candle, the first candle over here.

You notice that the price of the second candle is closed marginally lower.

The opening price is here, the highs of the candle are here. The lows of the candle are here.

If you visualize this right, what does this give you?

It will give you something like this.

The price opened here, it closed marginally lower.

Let’s say we imagine that this is a lower close. Then you notice that the highs of the candle is here.

It’s a very long wick at the top showing you price rejection. And there’s one very tiny wick at the bottom here.

I’m guessing that the price action on the H8 timeframe would show me this price rejection.

Going to the H8 timeframe this tells you there is a price rejection of higher prices over here:

That’s how we combined candlestick patterns to make sense out of something that you are not quite sure of.

This bonus tip could help you along the way with the two questions that we have covered earlier.

Recap

  • Candlestick patterns show you the OHLC for a given time
  • Two questions that matter: Where did the price close relative to the range and what’s the size of the pattern relative to the earlier ones
  • You can combine candlestick patterns on the lower timeframe to form a higher timeframe candlestick pattern
  • Do You Make These Pullback Trading Mistakes

Hey, hey, what’s up my friend?

In today’s training, I want to share with you pullback trading.

I know many of you trade pullback and are making one of these mistakes. And that probably lead suffering a series of losses.

You’re trading pullbacks, but not getting the results that you want. Somehow your losses are always larger than your gains.

What is going on?

Well, that’s because you’re probably making one of these mistakes…

Mistake #1: You only wait at support and resistance

Let me give you an example.

This is a chart of AUD/CHF:

And you can see that this market is in a downtrend. It has lower highs and lower lows.

What many traders will plot support over here:

You can see that the price touched support a few times then it broke down. Now support is likely to become resistance in the red area.

Now, what’s the problem with this?

Well, if this is the only area that you’re looking to short the market, then you’re missing a lot of trading opportunities because the market might not retest this level.

It might just make a slight pullback and then continue lower.

And when that happens, you’re going to be only watching from the sidelines, because you’ve wasted the opportunity.

Why is that? Well, that’s because you only know how to identify one area of value and it’s support or resistance.

(But there’s more to it, which I’ll explain later.)

So this is the mistake that many traders make, they only wait at support and resistance. And that’s not how pullback trading is meant to be.

There are other areas of value to trade from (which I’ll share more later).

Let me give you an example.

Look at the chart of the 10-Year Treasury Note Futures:

And again, when traders look at this chart, they know it’s in an uptrend and since they are trend traders, they’re looking to buy. And where do they look to buy?

They only look at one specific area of value, which is support.

Now let me ask you, how many times did the price retest these areas of support?

You can see that for this market, you won’t have the opportunity to buy at support.

So this should really make you think that trading pullback is more than just support and resistance.

(I’ll share with you later what else you should be looking at.)

This is the first mistake many traders make, it’s that they wait only at support and resistance.

And by the time the price comes to support or resistance, that’s when the pullback ends and it becomes a reversal, and they get stopped out of the trade.

Next…

Mistake #2: You enter your trades too early

Imagine the market pulls back and you buy, but the market collapses lower.

What’s going on? Well, It’s because you buy or you enter your trades too early.

Let me give you an example. Let’s look at USD/CAD here:

Look at how bullish this market is. The market broke out of resistance, makes a pullback and candle on the right has closed higher for the day.

And at this point, traders who miss the trade are anxious to get in, thinking the pullback is coming to an end. Let me buy, buy, buy.

And when they buy at this price, they wonder why they get stopped out of the trade. I’ll explain to you why shortly.

But this is a mistake that traders make when they trade pullback – they enter their trades too early.

Another example is GBP/JPY:

The same thing, the market broke below this area of support with strong bearish momentum, did a slight pullback on the last two candles.

And for the last candle, it was actually trading near the lows over here, it was actually pretty bearish. Many traders got excited thinking, “Oh man, the pullback is coming to an end look at how red this candle is. Time to short!”

Then what happened?

Well, they entered their trades too early and they got stopped out again.

That’s the second mistake traders. They enter the trades too early when they are trading pullback.

And now this brings me to my next point. How should I trade pullback?

Pay attention to market structure

The key thing that you must know when you’re trading pullback is you must pay attention to the market structure.

Now I can’t give you a full lesson on market structure, so I’ll just talk about market structure in a trending market.

Here’s the thing…

Not all trends are created equal. Some markets are in strong trending behaviour, some are in a healthy trend, while some are in a weak trend.

Let me point out to you the subtle differences.

Strong trend: 

In a strong uptrend, the price tends to stay above the 20 MA.

In a strong downtrend, the price tends to stay below the 20 MA.

Healthy trend:

In a healthy uptrend, the price tends to pullback or retrace towards the 50-period moving average. The market also tends to retest previous resistance turned support.

(And for a downtrend it’s just the opposite.)

Weak trend:

 This is where the pullback is usually very steep and deep. It tends to retest the 200 MA or the previous support resistance area.

Let’s look at some examples illustrate these points that I just shared with you.

Once you understand market structure, trust me, you’ll never look at pullback trading the same way again.

Example #1 (AUD/CHF in strong trend):

Many traders are waiting at this previous support that could become resistance.

But no, if you understand market structure, you’ll know that’s not the only area of value to trade from.

Because you can also trade from other areas of value. For example, the 20 MA. Because if you look at this market, it is now in a strong downtrend.

It’s consistently below the 20 MA:

It has tested the 20 MA thrice. So at this point, I wouldn’t only be looking to sell at this area of resistance.

I will be looking at the 20 MA for trading opportunities. The market has given me clues that it has respected the 20 MA, and it will be a key area that I’ll be looking to trade the pullback.

And how can I trade the pullback? Let me give you a couple of ideas on how to trade the pullback.

Look for bearish price rejection at the 20 MA

This could be in the form of a shooting star, a bearish engulfing pattern.

For example:

Imagine the market breaks out higher, but it suddenly reverses to near the lows and closed lower for the day.

This is a form of price rejection, and that’s one way to time the market because this tells you that the buyers have difficulty pushing the price higher and the sellers came in to control and pushed the price near the lows of the day.

When that happens, you can look to sell on the next candle’s open. Your stop loss can go above this candle’s high:

So that’s one approach. Another approach that I like is what I call the break of structure technique.

Look for a break of structure

If you’ve gone down to a lower timeframe (for that same example), like the 2-hour timeframe, you can see that now the price is being controlled by the buyers.

How do I know that? Well, you see a series of higher lows and higher highs. So I don’t want to short the market just yet because the buyers are still in control.

But one thing that I do know is that on a higher timeframe, the daily timeframe, as we have seen earlier, the trend is towards the downside and the price is at an area of value, which is at the 20 MA.

What I can do is that on a 2-hour timeframe, I can use this timeframe as an entry trigger to short the market.

And the entry trigger could be as simple as a break of structure with the price making a series of lower highs and lower lows.

One possibility is that the market could head down lower, bounce up higher and then break below this area of support.

I will now have a series of lower highs and lower lows. This tells me that the sellers are about to come in to push the price lower.

So this can serve as an entry trigger to short this market and to time your pullback. Does it make sense? Hopefully, this one is clear for you to trade in a strong trending market.

What about a healthy trend?

Example #2 (in a healthy trend):

If traders were to wait at support, they probably wouldn’t find too many trades because the market didn’t retest those previous areas of support.

Now how can we trade this market? First and foremost, ask yourself what is the current market structure?

I know it’s in an uptrend but let’s get more specific. What type of uptrend is it? What is the current trending market structure?

If you just pull out the 50 MA, you realize that this market tends to respect the 50-period moving average.

The depth of the pullback is deeper and steeper than the previous example of AUD/CHF. It has tested the 50 MA four times. If you ask me, there’s a good chance this market could find buying pressure at this 50-period moving average.

I also mentioned earlier that for a healthy trend, you can also find trading opportunities at previous resistance and support.

Now if I want to trade this pullback, I will be looking to buy at this 1.96450 area.

For entry trigger, we can look for a bullish price rejection, like a hammer, or we can look for a break of structure on the lower timeframe, like the 2-hour or 4-hour timeframe to time our entry and to trade this pullback.

Does it make sense?

Here’s another one.

Example #3 (Gold in a weak trend):

Now if you look at the market structure of Gold, I will classify this as a weak trend because the historical pullback has been pretty steep.

Our area of value is not going to be the 20 MA nor the 50 MA. I’ll be looking for buying opportunities at this area of support.

And sometimes in a weak trend, the market also respects the 200 MA.

You can see it tested the 200 MA twice. So I’ll be looking for buying opportunities at the area of support and the 200 MA.

I won’t be using the 20 MA nor the 50 MA, because this market clearly doesn’t respect these two moving averages.

You have to understand the market structure, because once you do, then you’ll know which are the areas of value to look for trading opportunities.

Let me just walk you through a couple of entry triggers for this market when you’re trading the pullback.

Look for bullish price rejection

The first entry trigger that I mentioned earlier is that you can look for a bullish price rejection for an uptrend.

Let’s say the market heads down lower and then it forms a hammer.

This is a bullish signal that tells you the buyers are stepping in and are willing to push the price higher. The buyers are possibly in control.

This is what I call a false break, where the price breaks below this area of support only to close back, higher above support.

If that’s the case, you can go long on the next candle’s open, with stop loss below the low.

So that’s one way. The other way is to…

Look for a break of structure

You’ll go down to a lower timeframe and look for a break of structure.

Let’s say you go down to the 4-hour timeframe the market were to retrace down lower to this area of support that we saw on a daily timeframe.

When you look for a break of structure, you want the market to invalidate this market structure. You want to market to invalidate this series of lower highs and lower lows.

You’re looking for a series of higher highs and higher lows. There are many variations to it. It could be something like an inverse head and shoulders pattern, an ascending triangle pattern, etc.

It could be something like this:

It starts to consolidate at the neckline, which is the resistance. And if the price breaks out, you now have a series of higher highs and higher lows. That’s one variation of it, looking something like an inverse head and shoulders pattern.

Or it could also be like an ascending triangle pattern like this:

If the price breaks above this resistance, now you have a series of higher highs and higher lows. We can see that the concept is what really matters over here.

It’s not about the specific patterns or specific technical analysis.

Moving on…

Bonus tip

1. Market structure is always changing 

I know many of you, after studying these videos, you start finding out which are the strong trending markets, where are the healthy trends or the weak trends? And you start to find all these patterns in a market.

But trading is not that easy. In reality, when you’re trading this in real-time, market structure evolves over time.

For example, let’s look at Gold.

You can see at this point, Gold is in a strong uptrend. The price is above the 20 MA and holding above it consistently.

Then it broke below the 20 MA and started chopping up and down, breakout, and then came to where we are now.

So you can see that at one point in time, the market structure is in a strong uptrend then it evolved to a weak uptrend that we’ve seen earlier.

The key here as a professional trader is that you must always anticipate what the market could possibly do.

At this point in time…

If I’m trading this in real-time, I would tell myself that if the market were to break below the 20 MA and invalidate it, I would shift my thinking and say that this market is now no longer in a strong uptrend.

What are the other possibilities? Well, maybe it’s going to be moving into a healthy trend, maybe into a weak trend. Maybe it will start to range. And when that happens, where is the next area of value?

That’s my thought process and I’ll say, the next area of value could possibly be at this area of resistance, which could become support.

Or maybe the market will form a new structure as it swings up, then forms a new low and swings up once again.

Now we have a new price structure, which is actually the previous structure that we had over here.

You can see that these are the thought process that I’m going to have.

So the first key thing to take note for the bonus tip is that the market structure is always changing. You have to be prepared for it.

2. Identify multiple areas of value the market might react to

Let me give you an example.

We talked about AUD/CHF earlier:

Now if the price were to breakout of this 20 MA and invalidate it, where is the next area of value on this chart? That is the question is on my head now.

It doesn’t mean that this market is going to be in a strong trend forever just because it’s in a strong trend now. No, it could change into a healthy trend, or be moving into a weak trend.

If this 20MA gets invalidated, my next area of value would be over here:

I would start waiting at this area. That’s one possibility.

At the same time, I know that this market could possibly also form a new price structure for me to trade from.

Maybe the market could breakout from the 20 MA then reverse down lower. And then now this becomes a new price structure that I could trade from.

Maybe afterwards, it will come back up again, and this will be the new price structure that I should be paying attention to:

As a pullback trader, as a professional price action trader, you have to be anticipating all these, even before it occurs.

Because you can’t just be having one specific setup, one area of value, then pray and hope the market comes to that area. If it doesn’t come then it’s game over.

It doesn’t work that way.

You’ve got to think one or two steps ahead. And hopefully, by the end of today’s training, I have prepared you well for that. And again, focus on the concepts.

Don’t just focus on the specific techniques, patterns, or whatsoever. It’s the concepts that matter.

Don’t ask me questions like, “Oh, Rayner, can I use a 21 MA? Can I not use the 50 MA, can I use the 52MA instead?” That would really hurt my feelings.

Focus on the concepts, not the specific parameters whatsoever.

If you’re going to use the 20.5 MA or a 50.7 MA, go ahead. It doesn’t really make much of a difference. The concept is what matters.

Here’s a quick recap…

Recap

  • The market can pull back to support resistance, moving average, trendline, etc.
  • Don’t enter your pullback trades too early, let the price come to your area of value
  • Understand the market structure (strong, healthy or weak trend)
  • Identify multiple areas of value because the market is always changing – don’t be fixated on just one area

With that said, I have come towards the end of today’s training. I wish you good luck and good trading. Until next time.

  • Support and Resistance Cheat Sheet

Hey, hey, what’s up my friend? In today’s training, I want to share with you my support and resistance cheat sheet.

Supported resistance is one of the most popular concepts in technical analysis and there’s a lot of conflicting information out there about support and resistance.

That’s why I’ve created this lesson to share with you the cheat sheet with the most important concepts about support and resistance.

Once you’ve gone through this lesson, you’re pretty much ahead of 95% of traders out there.

Here’s what you’ll learn today:

  • How to tell when support resistance will break (so you don’t get caught on the wrong side of the move)
  • Why not all support resistance areas are created equal and how to identify the best ones that offer the greatest profit potential
  • How to find losing traders to push the price in your favour so you can take profits while they cut their losses
  • Support and resistance: How to find profitable trading opportunities overlooked by 90% of the traders

Without further ado, let’s kick things off.

How to tell when support resistance will break

 When you see a series of higher lows into resistance, you want to avoid selling at resistance.

The reason is simple. Let me give you an analogy. Let’s say in your hands now, you have this huge sledgehammer which is huge and strong. Right in front of you is a wooden door.

You take the sledgehammer and you smash against the door many times, over the next few minutes. Let me ask you, is the wooden door likely to hold or is it likely to break?

Well, common sense would tell you that the door is likely to break. And this concept is the same as what I’ve just shared with you.

When resistance is tested multiple times within a short period, chances are that area of resistance will break. It’s not 100% going to break, there’s no 100% in trading, but the odds of the resistance breaking is high.

And likewise, when you see a series of lower highs into support, chances are that the support is going to break.

That’s like a sledgehammer smashing against the door multiple times, chances are it’s going to break.

Let me share with you a few examples so that you can understand where I’m coming from.

Example #1 in EUR/AUD:

You have a series of lower highs coming into support. You don’t want to be buying at this area of support, because chances are, the price will break down.

Example #2 in Bitcoin:

Bitcoin was a market that traders were fascinated in the 2017, 2018 period. Look at that.

You see a series of lower highs into support over there. Do you want to be buying at that area of support? I hope not.

Because chances are, that area of support will breakdown because this is a sign that sellers are in control. They have managed to push the price lower with each subsequent push.

Example #3 in Bitcoin again:

Look at the higher lows into resistance, do you want to be selling at this area of resistance? I hope not because this is a sign that the buyers are in control.

This is where the sledgehammer has smashed the door multiple times and you want to avoid shorting at this area of resistance.

Hopefully, you understand the concepts here that I’m sharing. where I’m coming from.

How to find the best support resistance areas to trade

The key thing you want to find is a strong power move into support resistance. Now, what do I mean by power move?

A power move is simply a strong momentum into an area, let’s say for resistance, you want to see a strong, big bullish candle coming into resistance.

I know this sounds counter-intuitive:

“Why do you want to sell when there’s such strong bullish momentum into resistance?”

“Why do you want to buy when there’s such strong bearish momentum into support Rayner?”

I get it and I’ll explain to you shortly.

The reason is because, when you get a strong power move into an area, the first obstacle is usually far away.

And when the first obstacle is usually far away, it means you get a greater profit potential on your trade. Let me explain.

Example #1 USD/SGD:

If you look at this USD/SGD, pay attention to how the price approached the resistance (black line).

Pay attention to this section over here, what do you see?

You see strong bullish momentum into that area, that’s correct.

And at this point, many traders are thinking, “Rayner, the market is so bullish it’s time to buy, buy, buy!”

And when they buy, it’s a disaster. But that’s beside the point. Why do I want to see a strong power move into resistance?

Because when you have a strong power move into resistance, I mentioned earlier that your first obstacle level is usually far away.

What do I mean by first obstacle level? Let’s say you short at that resistance, at which point on your chart will buying pressure come in?

Well, if you ask me the first obstacle that the sellers would face, would probably be this area over here where this previous swing high turned support, around the $1.41 area.

So you can see that your profit target is pretty decent. If you went short at that resistance area, your profit potential is all the way down to the $1.41 level, which is quite a large distance compared to when you don’t have a strong power move into a level.

Let’s say you have a choppy move, like higher lows into resistance, your profit potential will dramatically be reduced.

Example #2 Bitcoin:

Let’s go back to the earlier example of Bitcoin, where you see a series of higher lows into resistance. Now let’s imagine that there’s a bearish candle at the right side.

At this point, if you were to be selling, then your nearest obstacle will be the nearest swing low (black dotted line).

Or if you’re connecting the lows using trendlines, then your first obstacle might even be over here:

You can see that there’s not much profit potential, because of this choppy price action coming into resistance.

That’s why you want to trade support resistance when there’s a strong power move into that area. This is where your profit potential is the greatest as your first obstacle is usually far away.

Example #3 USD/MXN:

You can see a pretty nice power move coming into the previous swing high. So ask yourself where is the first obstacle on this chart?

Well, buyers would probably come in to buy near this swing low:

So you can see that the profit potential is much better compared to the price action where price forms a series of higher lows into resistance.

Example #4 GBP/CAD:

You see a nice strong power move here into this swing high.

The first obstacle where buying pressure could come in could be at this previous resistance turned support:

So if you went short at resistance, your profit potential could be from there all the way down to that first obstacle. There’s a distance for the market to move, which results in a more favourable risk-to-reward on your trade.

I hope that makes sense. This is how you find the best support resistance areas to trade – you want to see a power move into support resistance.

Avoid trading very choppy stair-stepping moves into support resistance because that’s where those levels usually breakdown.

How to find losing traders to push the price in your favour (so you can take profit while they get stopped out)

Where do you find this group of losing traders?

The secret is this…

Let’s say you want to sell at resistance, you’ll want the price to take out the extreme levels, like the highs of resistance so that you can profit from trapped breakout traders.

I’ll explain how this works.

Example #1:

You can see that this market has taken out the extreme high of resistance. Why is this significant?

Because there will be a group of traders who are thinking, “The price has broken out of the extreme high, it’s bullish and it’s time to buy!”

And when you buy the breakout, where will you set your stop loss at? It will likely be below the lows of the candle which broke out.

Some traders might even be more conservative and place their stop loss much lower, below the area of support.

What’s happening now is that let’s say the market didn’t break out and instead it reverses lower, it will trigger these clusters of stop losses placed below the breakout.

In other words, when the breakout traders lose, they’ll have their stop losses hit, and that’s where the reversal trader like you who sold at resistance can profit from this group of breakout traders.

That’s why I mentioned that you want the price to take out the extreme levels because when it breaks out of the extreme highs or breaks down from the extreme lows, that will entice more traders to enter the trade.

That will be when we take advantage of these group of traders.

Let me share with you another example.

Example #2 S&P 500 E-mini futures on weekly timeframe:

This is an important level because it’s an extreme low, and many traders are thinking to go short if the price were to break below that level.

And yes, the price broke and even closed below that level. Then guess what? Price took out the extreme lows, but on the next week, it reverses higher near the highs of the previous week.

This is what we call a false break setup. And again, this is bullish.

Because for traders who are short on the lows, will likely have their stop loss anywhere above the highs of the bearish candle which closed below support.

Now, if the market rallies, it will hit this cluster of stop loss and fuel more buying pressure to push the market in your favour.

Because when traders go short, their stop losses are buy stop orders to get out of their short trade.

So if the price hits those stop losses, it will create more buying pressure. Make sense?

So that’s the third concept that I want to share with you, that is – how to you find losing traders to push the price in your favour.

And finally…

How to find support resistance trading opportunities that most traders overlook

It’s very simple.

If your entry is on a daily timeframe, then go up to a higher timeframe like the weekly timeframe, and look for a buildup, or otherwise known as a tight consolidation.

Because when the higher timeframe is forming a tight consolidation, chances are you will be able to find support resistance trading opportunities on the lower timeframe, like the daily timeframe.

Or, if you spot a tight consolidation on the daily timeframe, then on the 4-hour timeframe, you should be able to find support and resistance trading opportunities.

Example #1 NZD/CAD:

For the consolidation that you see on the daily timeframe, you can identify the support and resistance better on the lower timeframe, the 4-hour chart.

Now you have a more visible support resistance to trade form, you can now buy low and sell high.

This is a technique that you can use to find support and resistance trading opportunities.

With that said, let’s do a quick recap…

Recap

  • Avoid buying lower highs into support or shorting higher lows into resistance
  • If you want to trade reversals, look for a power move into support resistance
  • Let the price take out the extreme levels so you can profit from “trapped” breakout traders
  • Buildup on higher timeframe = opportunities on lower timeframe

With that said, I wish you good luck and good trading. I’ll talk to you soon.

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