Tag Archives: Environment

Reviewing Key Price Action Sequences

A great way to learn to read price action is to review your historical price charts, with a focus on the price action at key structural locations.

Find and review anything which fits these categories.

  • tests of significant levels
  • breaks of significant levels
  • traps
  • transitions between trends and ranges
  • transitions from volatility contraction to expansion
  • and in fact anything else that stands out on the chart

 

Each day, identify a key price sequence.

Study it and learn.

It only takes a minute.

Let's look at an example in which Crude Oil breaks higher in Monday's session, into layered levels of range resistance, before falling back into the range.

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Wait for the Fakeout

A common complaint I hear from traders is "the broker ran my stop!"

Here's the thing though… it's usually not your broker.

It's your failure to properly recognise the real nature of price movement.

The nature of the markets is one of tests, retests and probes of prior levels.

If you've developed a belief about the markets that does not allow for this you can't complain when your belief is found deficient!

This is the reality.

Expect price to test liquidity beyond a price level.

And adjust your plan to allow for this.

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Taking Profits – Adjust to Suit the Environment

Reader Question:

I've got a question related to taking profits. I'm having some great success with entries (finally) but am always torn between taking profit at 1:1, 2:1 (which I've found to be more common lately) or holding out until the next S&R.

I know you take 1 profit off the table at 1:1, move your stop to B/E & hold out for larger gains. From your experience was there any other methodology or have you found yours to be the most profitable?

I'm trying to read the price action after entry and it doesn't give too many clues, other than in hindsight.

Response:

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Pullback Specialist

There's no greater source of motivation for me (and hopefully for you as well) as seeing someone achieve great progress along their journey to becoming a trader. Well done, Bijan! Excellent work!

Reader Email:

Hi Lance,

A while back I was thinking to my self that the people that make the most money are the one's that specialize in their profession whether it's a doctor, lawyer, dentist, or any other career. So I decided instead of being a jack of all trades, to actually specialize in PB / CPB setups.

This has forced me to look deeper into the nuances of every pullback setup. This deeper analysis has proved to me that its not about the setup, rather its about reading the thought process of other traders. Reading about this in your newsletters and especially in YTC Price Action Trader is fantastic, but to actually follow your advice and do this LIVE bar by bar in real time has been the key factor for me.

Although I continue to trade TST & BOF setups, I love being a specialist in PB & CPB setup.

Just in case you'd like to see my thought process, I've sent you a few of my recent trades as examples.

Btw, these charts are all from stock symbol "SPY" 3min, 1min, & sometimes 1min, 30 seconds time frames.

Cheers

Bijan.

Chart Images: (NB. Click on the images to open a larger copy in your browser)

pullback specialist

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Expectations for the Pre-Holiday Session

For intraday traders… the following outlines my expectations for trading the last session before a long weekend.

  • I always expect a narrow-range, low volatility and low liquidity market. I monitor it with an expectation of having no trades, UNLESS the market can prove that it wants to make a strong directional move. Only then will I trade. And as soon as I suspect that directional move is over I will stop.

Here's some email Q&A:

Hi Lance,

Would you go short here…or is there any obvious reason why this is a no-go??

greets, G

Reply:

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Avoiding Lower Probability Environments

Late last year I released a popular series of two articles which dealt with the topic of "Winning through Losing Better". You can see them here if you missed them: Part One, Part Two.

I was reminded this week of a comment from Part Two. Here's the relevant text from the article:

Search for market environments which cause you to underperform.

For example:

  • If you don't trade well in ranging environments then you may be better sticking to trending environments only. If your database of losing trades shows difficulty in a ranging environment, find the clues that can alert you to this type of environment, and then learn to stand aside as early as possible.

 

I've mentioned previously that one easy way to do this is to avoid holiday sessions (see here). While they may on occasion offer great opportunity, more often than not they will be lower liquidity, narrow range markets.

The same concept often applies to those sessions that precede potentially volatile and significant news events. Wednesday offered us one example. With the FOMC Statement being released at 1415 ET, most of the day leading up to that time will typically offer a more challenging environment. Again, like the holiday sessions there is no guarantee. Some days can move. But as a general concept these sessions are more often than not lower liquidity and lower than average range markets.

Options:

  • Anticipate a rangebound market and plan trading accordingly (for example, aiming to fade the failed moves at the edge of the range, or through reducing position sizes).
  • Anticipate a rangebound market and sim trade only, in order to improve skills within these more challenging environments.
  • Anticipate a rangebound market and stand aside, but monitor the session with the intention of trading if a directional move does occur.
  • Stand aside till the FOMC release with intention to only trade after the news event has occurred.  (Not a good option in my UTC+10 timezone!)
  • Take a day off. Enjoy life. (Or in my timezone… catch up on some well deserved sleep!)

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Fast Trend Shallow Pullback

Expectations should change with a change in environment. In a slow, wide-swinging trend, your better off waiting for a deep pullback. Don't be too quick to enter. But in a fast trend, if you hesitate you may just miss the entry.

Here's two fast-trend shallow pullback entry examples. There's no waiting for a 38.2% retracement here!

The shallow pullbacks are evidence of demand balancing supply; likely a mix of new longs hoping to catch a reversal and shorts covering for a profit. But on balance we are probably safe to say that there is not a lot of support (pun intended) for a potential reversal rally, otherwise we would see orderflow driving price higher.

So we watch our lower timeframe for signs of potential failure of the long "lower timeframe" trades. Their failure point is our entry short, in the hope that the orderflow from this trigger will drive price far enough to again break to new lows and trigger more shorts, reigniting the trend for another strong leg down.

As always our trade concept remains the same… find the loser and trade against their position!

And in a fast trend, the loser is almost always the guy trying to fade the trend.

fast trend 1

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Defining the Market Environment

Have you considered how you should classify the market environment? If not, it's well worth doing so. The nature of the current market environment will determine the game plan that you bring to your trading session.

There are numerous ways to classify it.

  • Trending vs Ranging! 
  • Accumulation, Mark-Up, Distribution, Mark-Down!
  • Trending Volatile, Trending Non-Volatile, Ranging Volatile, Ranging Non-Volatile! (example below)
  • At Major S/R; In-between Major S/R!

 

There are of course others as well. It's not so important which you choose. Rather that you've defined the different ways you see the market and considered:

  • How you'll trade that environment; and
  • How you'll identify the end of that environment and the transition to a new environment.

 

market environment - trending non-volatile

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