3PriceActionSignalstoCompliment

ANYApproachtoANYMarket

Introduction:

ItisimportanttostartthisreportbybeingclearthatthesesignalsandtacticsforusingPrice
Actionaremeanttocomplimentatradingplanorstrategy.That'snottosaythattherearenot
peoplemakinglivingsjuststudyingcandlesticksandpriceactionhowever,Ihavefoundthata
largerviewandunderstandingofthemarketiscrucialformyownsuccess.Priceactionplaysa
largerolewithinthatoverallapproach,butIdonotsuggestfollowinganycandlesticksignal
blindly.

Thesecandleformationsandpatternscanliterallybeappliedtoanytimeframeandanymarket
becausetheyareuniversalpatternswithrealmeaningratherthanabacktestedpattern.That
said,myfocusisusingthesepatternson5,15,30and60minutechartsandmypersonalmain
focusiswithinthecurrencymarket.

Forthoseofyoureadingthisreporttradingothermarkets,Ihopeyouwillprovideyourfeedback
andexperienceinthosemarketsbesidestheForex.

Signal1:TailingTops

Asthenamesuggests,thismethodhastodowithwhat'scommonlyreferredtoastopping
actionwherethemarketbeginstocreatewicksortailsafterafastmoveintheupward
direction.

ThisisToppingAction:

Thisisatelltalesignthatthemarketisbeingrejectedatwhateverpricethesewicksareshooting
through.Especiallywhenthereisaconsiderablerunup(manybullishcandles)priortothe
toppingaction.

Astrongbullishrunfollowedbywicksmeansthatthemarkethadnotroublemovinghigherbut
wassuddenlyrejectedinthisarea.Thattellsusthatthisparticularareahassomeauthorityas
itspushingdownastrongbullishrun.

**Hereiswhatisimportanttounderstand,andwhatmosttradersfailtorealize:

Justbecauseyouhavecorrectlyanalyzedthatpriceisbeingreject,does NOTnecessarilymean
itisgoingtomovesignificantlyintheoppositedirection.Itmayoritmaynot.Therejectionisonly
onepieceofthepuzzlejustonepieceofevidence.

That'swhy,whenyoulearnthesestrategieswheretheentiremethodistoshorteverypinbaror
buyeverytailbar,youcanbeassuredthattheywillnotworkwithanytypeofconsistency.

Sometimesthemarketwillrunuptoapinbaranddothis:

Thisiswherepriceranintoastonewallandwascompletelyrejectedintheoppositedirection
thepinbar,inthiscase,wasasignalthatpricehadnomorebullishmomentumleftandwas
readytoaveragebackoutbymovingdownquickly.

ItsexamplesjustlikethisthatthePinBarSpecialistswillpointtowhenteachingyouabasic
pinbarstrategy.AndwhileIagreethatthiscandlestickcanbeagreatindicationofapotential
reversal(whichiswhyIamwritingthisreport),itiscertainlyandunfortunatelynotthissimple.

WhatthePinBarexpertsarentshowingyouaretheseexamples:

ToppingactioncanbeagreatsignalIFitispairedwithotherinformationhowever,theideathat
youshouldhittheSELLbuttonanytimeyouseeapinbarisaverylimitedapproachtotrading
thatwontlikelyreturnconsistentresults.Forinstance,ifthemarketisinadowntrendandit
ralliestoaresistancezoneandshowstoppingaction,thatcanbeagreatopportunitytojumpon
thissignal.

Here,youcanseeabearishtrendwithsomeaggressivebullishmovement.Thestrongbullish
runbeginstoTopOutatakeylevelofresistance.Inthiscase,wearentjustseeingapinbar
insteadweareidentifyingmarketrejectionatacriticallevel.Andindeed,thepricemoveddown
asitrespectedastronglevelofresistance.

Asteeppullbackintheoppositedirectionofthetrendisaninstantsignthattherecouldbean
opportunityonthehorizon.Whenyoupairthatwiththistoppingactionrightatakeyresistance
level,THENyouhaveatradeworthtaking.

So,itisnotthatthetoppingactionisatradingstrategyinitself,butapowerfulPriceActionsignal
thatcanbepairedwithanalysisandwithinastrategytogiveyouanedgeinyourtrading.

**Note:TailingActionistheexactoppositeoftoppingandcanbeusedinthesameway.When
themarketisinanuptrendandreversesintoanareaofsupportwithtailingaction,itactsasa
buysignal.

Signal2:TheEngulfingCandlestick

Anengulfingcandlestickisacandlethatcompletelycoversanderasesitspreviouscandleas
shownintheimageabove.

Inthisexample,theGreenbullishcandleistheEngulfingCandlestickbecauseitcompletely
erasesthepreviouscandleandnegatesthemovementthathappenedintheprevioustime
segment(whetheritbe5M,15M,60M,4HR,D1,etc)

TwoKeyRequirementsforEngulfingCandlesticks:


Rule#1
Whenwetalk aboutanengulfingbarpattern,theruleisthatthefirstcandletheonebeing
engulfedisa healthysizedcandle .Inotherwords,ifaverysmallbearishcandleformsand
thenasmall,butslightlylarger,bullishcandleformsthattechnicallyengulfsthetinycandlewe
donotcare.Thesesmallcandleswouldn'trequireatonofmoneytocreatethemand,therefore,
wedon'tnoteitasanimportantmove.

TheimportanceoftheEngulfingPatternisthatitwouldrequiresubstantialmoneytomakethe
movesthathaveoccurred.Inotherwords,itisnotbyaccidentthatthemarketsuddenlyreversed
onadime.Theforexmarket,specifically,takesBILLIONSofdollarsofvolumetoturnthemarket
aroundinshortorderlikeyouseeabove.It'swhenastrongbearishcandleisinstantlyrejected
anderasedorviceversathatwepayattentiontothissignal.

Rule#2
Theotherruleisthatthepatterntocreatetheengulfingbarshouldbecreatedwith fullbodied
candles .Acandlethatismadeupofawickandcoveredupdoesn'tshowthetypepowerwe
wanttoseeinthispattern.Awickortailsignifiesthatthemarketisalreadybackandforth.Thatit
hasalreadyshownsignsofpoppingupandfallingbackdownagainquicklysoacandlegoingin
theoppositedirectionofwhicheverdirectionthewickycandlehappenedtoclosehasmuchless
impactthanalarge,fullbodiedcandle(typicallyindicatingmomentuminthatdirection)being
instantlyreverseduponanderasedbyanevenlargerfullbodiedcandle.

Thispatternindicatesareversalindirectionofsubstantialsize.Theideaisthatitwouldrequire
banks,hedgefundsand/orotherinstitutionsputtingtheirmoneytoworkinordertocreatethis
typeofimmediateturnonadimekindofreversaltherefore,itindicatesahigherlikelihoodthat
thenewmovementwillbesustained.

Again,thispriceactionpatternonitsownwillnotlikelybeaprofitabletradingstrategy.Whenyou
combinetheEngulfingCandlestickwithotherelements,however,itcanbeapowerfulpieceof
evidenceastowherethemarketisgoing.

Fibonacciwith
EngulfingCandle:


AmoveBackintotheRiver(20,40simplemovingaveragetrend)



























Thesearejusttwoexamplesofhowtocombineanengulfingcandlestickwithotherinformation
toimproveyouraccuracyandhighlightlargeopportunitiesespeciallywithintrendingmarket
conditions.

Again,thispatterncanbefoundinanymarketonanytimeframe.Wetypicallyliketoseethison
atleasta15Mchart(evenmorepreferablyon60Mandhigher)becauseitimprovesthe
likelihoodthatinstitutionalmoneywasinvolvedinthechangeofdirection.

TheEngulfingCandlecanbeaperfectbonustoanystrategy.Someofourtradersusethissignal
asafinalpieceofevidenceforreversalentrieswhileotherstakeadvantageinexactlythe
oppositewayandutilizetheEngulfingCandlestickasatrendcontinuationsignal.


Attheendoftheday,thecandlestickpatternisonlyonepieceofthepuzzle.Asyouunderstand
howtheseengulfingcandlesworkwithinthemarketasawhole(whichcomesthroughpractice)it
canbeapowerfulaidinyourstrategy.

Signal3:Bear/BullFlag

AFlagisacommonpatternthatmostanalystsuse.However,identifyingaflagandtradinga
flageffectivelycanbetwoverydifferentthings.

Beforewediscusshowtotradeaflageffectively,let'sdefineit:

Aflagisachanneltypemovementwithatleasttwotoplevelsandtwobottomlevelsthatmoves
intheoppositedirectionofthepreviousmovement.

Soabullflaglookslikethis:

(YoucanseewheretheFlaggetsitsname)

Andabearflaglookslikethis:

Again,thekeythingswearelookingforhereare:

1. Astrongimpulse(fast/momentumtypemove)inacleardirectionand
2. Aslower,moreconsistentretracementintheformofacountertrendchanneland
3. Atleasttwotopsandtwobottomsthatcanbeusedtodefinetheflag


Sowhatdoesaflagmean?

Intheory,aflagisacontinuationsignal.

Itsignifiesthatthereisalikelihoodthataftertheconsolidation,themarketwillcontinuetogoin
thedirectionoftheimpulsepriortotheflagmovement.Theideaisthatthestrongimpulseprior
totheflaggingconsolidationisthetruemomentuminthemarket,andthatthislazymovement
issimplythemarketrestingandbouncingbackandforthtocollectmoreorderssothatitcan
continuewiththetrueimpulseofthemarket.Andthisdoesworkoutmanytimes.

But,likemostthingsintrading,tradingaflagisnotaseasyatitsounds.

Thereare tonsofeducatorswhosuggestthattradingapatternisanentirestrategyonitsown.
Ivepersonallyneverfoundthemarkettobethatsimple,soletmecontinuewithmyoveralltrend
inthisreportandtellyouthatIdonotbelieveyoushouldtradethesesignalsbythemselves.

Herearethe3reasonsthatIdonotrecommendfollowingflagpatternsblindly:

1. Theydon'talwayscontinueinthepriordirection
2. Eveniftheydocontinue,youmightgetafakeoutfirst
3. Youneverknowwhentheconsolidationisgoingtoend

Becauseofthosethreeaspects,itisveryeasytogettrickedintojumpinginthewrongdirection
altogether,orsimplypullingthetriggertooearlyandgettingtakenoutjusttowatchitcontinueas
yoususpected.

Sohowdoyoutradethesepatternseffectively?

LikeIhavecontinuallysaidthroughoutthereport,youmustusethispatternasanelementtoa
largerapproachtothemarket.Themosteffectivewaytodothisistotakeintoaccounttwokey
aspectsthatwillaidtheaccuracyandlegitimacyofaflagpattern.

KEY#1
Understandthetrendbeyondjustthemostrecentimpulse.It'seasytoseeasharpbearishmove
followedbyaprettyflagandimmediatelyjumponthefirstthatlookslikeitcouldbeabreakto
thedownside.But,ifyouknowtheoveralltrendisactuallybullish,thenyouwillknowthesharp
movementmightjustbeasqueezeorsharpretracementandtheFlagmayjustbeaslowstart
toanewBullishleg.And,ofcourse,ifthatisthecaseyoucertainlywouldntwanttobesellingit.


Theruleofthumbistogotoatleasttwotimeframesabovetheoneyouarelookingat.So,ifyou
seeaflagpatternona15mchart,youshouldgodothoroughanalysisofthe30mand60mchart
soyouknowwheretheoverallmomentumandtrendisreallyheadingandyoudon'tgetsucked
intoabadtrade.

ThisisoneofthemostcommonmistakesIseeinretailtraders.Icallitgettingstuckona
timeframe.Andpartoftheproblemisthatmanytradingeducatorsteachyouastrategyfora
specifictimeframe.Inreality,tradingatimeframedoesntmakeawholelotofsenseafterall,
timeframesarejustarbitraryunitsoftimetobreakoffcandlesandstartprintinganewone.You
needtotradethemarket,notatimeframe.Andunderstandingthetrendsinthesurrounding
timeframesisagreatfirststeptoalargerandmoreaccurateunderstandingoftradingthemarket
andnotgettingsuckedintoa15Mpatternthatisnotsupportedbytheoverallmarketdirection.

Byknowingwhatisgoingonwiththeothertimeframes,youwillhaveaMUCHmoreeducated
viewofwhatishappeningonyour15mchartandyou'llbeabletofilteroutbadtrades.Whenthe
trendsdolineup,you'llbeabletoexecutetradeswithconfidenceandamuchhigherprobability.

KEY#2
Knowingwherethekeylevelsareaboveorbelowtheflagpatternyouarelookingat.For
instance,ifyouspotaBullFlagandyouknowthetrendisbullish,youmaybereadytotakea
BUYtrade.But,youalsoneedtoknowwherethenextkeylevelofresistanceisabovetheflag.

Thisisasimplethingthatalmostallamateurtradersmessup.Theyseeagreatpattern,execute
alongatthebreak,thetradegoesintheirfavorforafewpipsandthensuddenlyreverses.They
can'tunderstandwhatwentwrong

Often,it'sthattheydidn'trealizethemarketwascomingintoasignificantzonethatpricewas
likelytobounceoff.Thisisacriticalelementtotradingcontinuationpatternsthatmosttraders
overlook.

Thenextpageshowsahypotheticalexampleofthissituationthatisextremelycommonamongst
traderswhoattempttoutilizetheflagoranyothercontinuationmethodwithoutfirstbeingaware
ofpossiblerejectionzones.


(Arrowspointingoutpriorrejectionattheyellowlevelandforecastingbreakofflag)

WhensettingupabuytradeonthebreakofaBullFlag,youshouldfirstscourthemarketforkey
levelsofSupportandResistance.Then,youshouldplaceyourtargetBELOWtheclosestlevel
sothatthemarkethasthehighestprobabilityoftakingyououtwithprofit.

Thisway,youareplayingbythemarket'srules.Mostoften,whenthemarketbreaksalevel(like
abullflag,forinstance),itisheadingtothenextlevel.Byidentifyingthatlevelandusingitasa
target,youaremakingiteasyonthemarkettogetyououtofthetradewithaprofit.

WhenyouusethemarketsownlevelsandplaceyourTPthere,yourprofittargetcanbea
magnetforpriceinsteadofbeingverydifficulttohit.

Byunderstandingthesetwokeys:whichdirectionthetrendisheadingANDwhatkeylevelit
mighttouchonnext,tradingtheflagcontinuationbecomesamuchmoreeffectivesignal.

Conclusion:

Inconclusion,priceactionsetupsareaphenomenalwaytoenhanceyourtrading.Usingthemon
theirownisverydifficult,butwhenyoucombinethemwithother,sensiblemethodstotradingthe
market,thesepriceactionsignalscanbetheperfectadditiontoyourarsenaltohelpboostyour
probabilityonanygiventrade,withanygivenstrategyandinanygivenmarket.

IcertainlyhopeyouveenjoyedthisreportfromLearntoTradeforProfit!Ifyouhaveany
commentsoffeedback,pleasefeelfreetopassthemalongto
JCrawford@learntotradeforprofit.com

ThanksagainforReading!