HOW TO IDENTIFY STRONG OR WEAK STRUCTURES IN PRICE

Value areas or battle zones – These are consolidations in price. Imbalance pockets is what I call them.  They come in all shapes and sizes and can give vital information which will greatly contribute to your trading decisions. There are three things that happens at a pocket which when visited contributes to a bounce from that same level. This video on the Nikkei covers these pockets and what to expect as price comes into them.

a) The folks who bought it and took profit made money. Guess what they think when price comes back? I made money buying this level last time lets try again. That is one lot of buy orders flooding the market at this level contributing to the bounce up.  Some of these buyers may not have taken profit and will exit at breakeven as price comes to their buy area again. This are sell stops remember so will not contribute to a bounce.

b) The folks who sold it here without a stop got a lot of pain as they saw their accounts in drawdown as price went farther and farther away from them, when price came back to their sell area they quit the trade for around breakeven or took a small loss and were relieved that it wasn’t a catastrophic loss.  Those buy exits will contribute to the bounce.

c) The professionals who have a quota to get on and they think this is a key area to build longs on this market will have got on at the pocket but unable to fulfil their quota get long again as price pulls back to their value area.  Buy orders contribute to the bounce. Now these guys wont trade at every pocket but they will at the extreme of price. Remember what I said about forks UML and LML the swing extremes?. Well, if you get a pocket at these areas you can be pretty sure the big boys will be playing there.

The purpose of identifying strong or weak pockets is to understand the proper use of stop placement, entry points and targets  Think in term of building blocks. What would you use for a foundation for a house? A big fat block or brick right.. so look for that to hide a stop behind or to lean on for your friends.

Think of these areas as battle zones. The buyers and sellers had a good old tussle back and forth, which ever way price went off in, was the side that won the battle. If price comes back to that area again you can be sure the winners will defend it on the first visit.

Also remember that the longer price accumulates in an area the more attention it gets from traders and they take positions there, there is a high volume of traders in these areas.

There is a third way of thinking of these areas and that is as energy coils – price building energy that needs to be released.

An important point to remember with all this is that once a pocket dumps ie. Price falls off it and visits it a second time, you need to assess if the ‘test’ will find new traders to bounce price again, or whether the pocket has ‘released’ all the trapped traders and price is likely to glide past it. This skill comes with some practice as you need to identify the strength of a swing, how median lines get respected and how price dumped off the pocket the first time – and how strong the pocket actually is. When you look at a pocket talk to yourself about what happened and how strong it is.  Avoid jumping your direction into looking for a trade, just read the story of what happened in that pocket and the test of it. You will get better with practice.

BEING HUMAN SUCKS

The Trading trader and why life is tough

As any trading trader will attest to (both new, or experienced) – trading is without doubt one of the most challenging, and often frustrating pursuits, that a person will ever undertake. The reason for this is largely because it goes against almost all of the natural, in-built programming/education, that we human’s possess.  After reading this hopefully you’ll understand exactly why it’s so difficult to make progress in this industry as a trading trader, and exactly why it’s a bit of a bind to be human!

Here’s why:

1) Humans don’t like losing, and we’re often taught and conditioned from an early age that losing is bad, and definitely something to be avoided.

2) Humans strive/prefer to be ‘right’, rather than ‘wrong’.

3) Humans are taught to work, not to sit around and do nothing all day.

4) Humans are used to using their intelligence and education to achieve things and do things correctly.

5) Humans usually like to ‘follow the crowd’, rather than go against it and be labelled as ‘different’ or ‘the odd one out’.

6) Humans understand the importance of making money (to be able to do things such as supporting ourselves and our loved ones), and therefore, most humans want to make as much of it as they can.

The above, list whilst not exhaustive,is a list of some of the basic human characteristics that can hinder us as traders. Some traits are gained via education and conditioning, whilst others are literally coded into our DNA.  Regardless of how they become part of us though, each one can have a serious effect on a person’s ability to achieve success in this industry.

Check out this excellent article on investopedia on the importance of trader psychology and a short video on trader psychology done by yours truly.

So coming back to the 6 points above, here’s how all of this relates to trading:

1) Due to the issue of not wanting to ‘lose’, many traders will choose NOT to close a position and cut a loss short, because by doing so, the loss is actually realised and booked to the account. Instead, they let it get bigger and bigger in the ‘hope’ that it will eventually come good.

2) As soon as a tiny bit of profit is seen on an open position, many traders will snatch at it, rather than letting profits run by letting a trade run through to completion/target. Why? Because by taking the profit (no matter how small), the trader has proven themselves ‘right’.

3) Instead of waiting patiently for the highest-probability trading conditions… even if it takes all day… many traders will instead choose to jump in and out of any-old setup, because sat doing nothing is not considered ‘work’.

4) The markets are a great leveller – they couldn’t care less about ‘intelligence’, IQ score, or what letters you happen to have after your name… indeed, many of those things can actually be a hindrance, rather than a help. Instead, markets reward emotional intelligence only.

5) When trading, ‘following the crowd’ is often the worst thing you can do. Instead, learning to understand exactly where and when you should be doing the exact opposite to what the charts say you ‘should’ be doing, is one of the master keys to trading professionally and successfully. (think of break out traders)

6) Instead of using the well-known rule of risking a very LOW percentage of an account on any one trade, many traders will instead choose to risk a percentage figure that is quite simply ridiculous. A trader might have an account of just £5000, but then choose to put £1000 (or often more) at risk each and every time they trade. Their reasoning is simple – “What use is there in using a pathetically low percentage figure and making an equally pathetic gain? That’s no use to anyone – I just want to make some damn money!”

So as you can see, our natural human programming/conditioning actually ends up producing behaviours that are literally the exact opposite of what a trader should be doing! As soon as a position is initiated, every part of the psyche starts to resist and rebel, and the result is almost always the same… a complete demolition of the trader’s bottom-line.

And that, in a nutshell, is why most people struggle, and usually fail, to master the art of trading. It takes a LOT of patience, effort and determination, and literally thousands of hours of screentime.

Hopefully you now understand why being human is definitely a bit of a nuisance for us traders!

THE MINI MEDIAN LINE (MML)

In the Alan Andrews course there is a fork which is seldom talked about.  The only place I was able to find any reference to it was in a book by the late Gordon DeRoos who was a student of Alan Andrews.

Alan suffered from violent swings at the extreme of a swing and in modern day trading this is where novice traders lose their stops as price often increases in volatility at these extremes of price as the battle for trend continuation or trend reversal is often fought.

The genius that he was came up with the idea of using a MML for entry at these extremes, he is cited as calling the humble MML his favourite fork.  From your studies you no doubt know there are various Andrew Pitchforks such as the Schiff, Modified Schiff, standard and extreme forks.  The MML will be a very useful fork to add to your trading arsenal.

His pencil drawings take some effort to decipher and thanks to Tim Morges’ work there has been immense light shone on them and how to use these techniques in conjunction with proper understanding for price flow and price action.  You see, most traders rely too heavily on one or the other, but in truth, both are as important in equal measure ie the ability to draw lines off proper structures, and the ability to read who is in control and what the likely flow of price is.

The MML fork is unique in that we use the close of price to pull from and pull from alternate pivots.  If you use candles you take from green red green for a down swing and red green red for an upswing, pulling the ABC points of your fork from the bar closes – not the wick extremes.

The rule is that we wait for price to do two things before trading these MML forks.

1. Price must make progress down the C leg

2. Price must break the C leg or its sliding parallel line

The magnificent advantage of using the MML where you think price will turn, is that it saves you top or bottom picking the market. The MML will protect you losing a stop more times than it will offer an entry.

The MML is invalidated if price closes beyond the B leg extreme.  There are times I forgive it a bit of an extension.  Your reading ability of the bars will assist you here.

The number of bars between the BC legs are important.  Stick with 2-10 bars and you should do just fine.

The MML shows that your friends (traders who want to go in your direction) have shown up as price needs to move along the BC leg of the fork then the trend continues for a bit then your friends show up yet again to break a trendline – ie your C line or its sliding parallel.  This is asking a lot of price before you commit your risk capital.

For stop placement you can either use the extreme of the MML or where price moved off the C point.  You need to use common sense here and need to adhere to good RvR rules for your win rate percentage.

WHY DAILY CHARTS ARE EASIER TO READ THAN INTRA-DAY CHARTS

Why daily charts are easier to read than intra-day charts

In the beginning of price analysis, the only information traders had to work with were EOD (end of day) data.  You got the opening price the closing price, the high and low for the day and that was it.  Japanese candlestick analysis came into common use in the mid 1700s so you see people have been at this game for some time.  

Now remember these techniques are based on daily charts – not intraday, as these were all that were available at that time.  So, candlesticks work best on daily timeframes.  Steven Nison will admit to this fact but will not make it common knowledge as he will not sell so many books or courses – they were developed from daily time frames and work best on daily time frames.  Tim Morge told us that Dr Alan Andrews was given access to intraday data and he threw it in the bin and had no time for it.   The daily bar includes all those four important factors which intraday bars fail to give us, that is the open/high/low and close.  There is a lot you will see me talk about in my videos when reading the story of price on a chart.  Such as price clumping, building energy, rejection acceptance – value areas and the likes.  When it comes to intraday trading you need to take things into consideration which will not apply to a daily chart.  Quiet trading times is usually shown as a flat lining of price action, where it shows as a horizontal small range, this could be down to lunchtime in the dominant time zone the market is traded, it will not mean that price is building up energy, or that traders have some indecision during this time, after which you would expect price to perform a trend change or an impulse move.  But when seen on a daily time frame, you can read it as likely being this, unless it is during a major holiday.

Daily timeframes will give more information about what the larger institutional traders are doing and you will see clues to this on that time frame.  This will be harder to spot on a lower time frame, and it is usually seen as major lines and structures getting bashed through on those lower time frames.  This is because the larger time frame is in control and annihilates any support or resistance areas you may have identified on the lower time frames.  You see, the institutional traders are not looking at these intraday charts to make decisions, they will look off the daily or larger and place their orders accordingly.   

So be aware of this when you do your analysis.  This is where being aware of the relative swing lengths you are trading is so crucial.  You see, it is futile to expect to jump on a large move on the daily or weekly chart off a one minute chart.  It is likely you may catch a blip of that move and likely will get a stop taken or be at breakeven at best, so really to believe you can catch a larger swing off a small timeframe is a nonsense.  You may get lucky and manage it with a profit stop which ends up being the point of ignition for that larger swing you figured was due on the daily or weekly timeframes, but it is just exactly that – LUCK.  You don’t trade on luck, you trade on proper analysis and good risk management.  Never pray that price moves in your direction, at best pray that you will accept whatever the market will give you.  Just remember as in life good days give happiness, bad days give experience, worse days give lessons, and best days give memories.

A basic glossary and foundational understandings.

1.     Why price moves

2.     Risk management

3.     Bankroll Management

4.     Record Keeping

5.     Psychology of Trading

6.          Trading rules

7.     Andrews fork MS WL SP sine wave

8.     ACR R1 R2 R3 A1 etc

9.     Trend lines. How to draw proper ones.

10.   Proper stop – insurance, tells you sth if taken out

11.           Pockets and what makes a good one

12.   DUD UDU pockets – location

13.   Market profile LVN HVN

14.   Follow the trend

15.   NVPOC DVPOC

16.   VWAP

17.   Which TF is best?

18.   Blow off reversal

19.   Balance points and target lines

20.   Three types of trade

21.   Common mistakes

22.   Why do washes occur?

23.   Triangulation for reversal timings

24.   Channel surfing for entries and exits inside/outside lines

25.   Spike and ledge

26.   Mirrors

27.   Context

28.   Simulation trading and the value of it

29.   The measured move

30.   Press, bar splits, clumping, coiling

31.   Pivot counts EPs SEPs

32.   Centre Lines 0-4, 0-2, 0-3

33.   Forks as a trend barrier – pendulum pullback

34.   F1 F2 CLs

35.   The MML and how to avoid top/low picking

36.   Timing expectation for targets based on volatility

37.   The Inverse

38.   IML forks

39.   How to read the IB

40.   How to work out where market orders are sitting

42.   How to identify strong structure

43.   Horizontal MPLs and ACRs

44.   Cumulative Delta

45.   Trendline Fans

46.   5 PET trade

47.   Mountains

48.   Trading Tools

49.   A Strategy

SWINGS

• The purest definition of swing trading is a technical approach to identifying short term trading opportunities in the direction of the most recent trend. 

[1] Why Does Price Move?

Price action is the movement of a security's price. 

A security is a tradeable financial asset of any kind. 

For us the security will most likely be equity securities such as stocks and shares, or derivatives such as futures and options or CFDs. 

Almost every aspiring trader learns ‘from an early age’ that financial markets move based on supply and demand. Because if more people are wanting to buy a particular asset than those wanting to sell that asset, then the asset will become more valuable. The same works the other way around too. But S&D is not enough to answer the question of why does price move.

So we need to peel back another layer of the onion by understanding some of the primary drivers of price action. 

Primary Drivers 

First of all let’s look at the stock market, and more specifically a company’s share price. 

The driving force for the movement of a company’s share price, is their earnings. If a company is making money and posting good results with a good balance sheet and prospects, then their value will go up, especially if you combine that with a good management team. 

Another example is in the forex market, where the driving force for the price of a currency is the underlying country’s interest rate and monetary policy. If a central bank increases interest rates, then capital will flow to that country to benefit from the higher savings rates, making the country’s currency more valuable. Interest rate and monetary policy clues are some of the reasons why traders place so much importance on the various news releases.

So we are aware that market prices move because of buying and selling, but not many people understand how buying and selling moves market prices. 

Zoom / Retest

Most of the time the movements of price can seem completely random. But the truth is that price does exhibit specific patterns and behaviours. There is one particular behaviour that price action exhibits more than any other and that is zoom / retest.  If you study price movements for long enough, you begin to see regular patterns repeat themselves over and over again. Similar patterns occur on every market that has plenty of people trading it. Zoom

There is one common belief shared among most experienced traders, which is that everything we need to know is in the price action. 

Technical and chart-pattern analysis attempts to find order in the sometimes seemingly random movement of price. Swings (highs to lows and lows to highs), tests of resistance and consolidation are some examples of price action.

Auction Market Theory

Imagine you are running a market stall and you are selling your homemade cupcakes. You make a batch of the cakes in your kitchen, and all your friends love them. So because of the feedback, you decide to sell them. 

You start selling them for £1 each, and you sell out immediately. The next day you come back, and you sell them for £2 each, and you sell out instantly. Day 3 you decide to sell them for £3 each, and you only sell half the stock. Day 4 you sell some more at £2.50, and you comfortably turn over your stock. It’s at this point that you have found the price where both you and buyers are happy. 

When you were looking for the best price to sell to sell the cakes, you would have found an unfair-low (unfair to you as a seller) and an unfair-high (unfairly high for buyers). This process of finding value would be called 'price discovery.'

So in markets, we see unfair-lows and unfair-highs. An unfair-low is not fair for the sellers, and an unfair-high is not fair for the buyers. Somewhere in the middle, there is an opposite and equal response where buyers and sellers are happy to do business again. The middle ground here is a 'balanced area.' 

Price will rotate back and forth from one balanced area to another, and when prices are no longer in a 'balanced area,' the market is imbalanced. The rotation exists because people are willing to change the level at which they buy and sell.

Zero-Sum Game

Trading is a zero-sum game. A zero-sum game means that one person’s gain is another person’s loss. So the net change in wealth is zero. 

As traders we are competing with someone on the other side of the table. So for every piece of analysis we make and every trading decision we take, there is someone taking the opposite side. Chess, poker and gambling are other examples of zero-sum games and the similarities to trading are high. They are games of strategy, they are competitive and they require us to know as much as possible about our opponent, in order to have an edge. There difference between trading and these three games, is that we do not know who our opponent is in trading. So how can we possibly have an edge against an invisible opponent? This opens up the concept of game theory.

Game theory can be a very complex subject, we do not intend to discuss the detail or the intricacies. We will leave that to you for further advanced reading. 

Imagine traders are like warriors fighting out in the market. Each trader is trying to anticipate the moves of the other trader, so he can attack them at their weakest. You try to anticipate me and I try to anticipate you. It gets to a stage where you know what I am about to do. Then I know that you know what I am about to do. Then you begin to suspect that I know that you know what I am about to do. So I suspect that you know that I know that you know what I am about to do. And so on. But instead of literally fighting with each other, it’s all about where orders are placed (including entries and stop loss orders). These orders can be big enough to move a market.

This can go on and on and involve multiple parties, so the combinations and permutations are quite complex. But the most important thing to take from this

As traders, part of our job is to try to anticipate the movements of other traders. If we can build some skill in doing this, we begin to build an edge over those who can not do that.

Conclusion

Prices move because of the interaction between buyers and sellers, combined with the psychology of multiple trading strategies competing against each other.

Anticipating the likely reactions at particular value areas and understanding the difference between value area and price discovery is a key light-bulb moment for traders looking to improve their understanding of price action movements.

Game theory exists in trading because of human psychology. Price action 

[2] Risk Management

'Risk' is a threatening situation involving exposure to danger, harm or loss. Throughout our lives, we will encounter many types of risk. As traders, we are working in a 'risk' business, and one of the most critical parts of our job is to understand those risks and manage them appropriately. 

As traders, we are running a business. Our business is buying & selling and we are putting our hard earned money on the line every day. The threat of losing our capital is stressful enough, so we do not need to introduce additional stress. 

Risk management shares an overlap with the Psychology of Trading, which is an enormous module. We would say that the psychology of trading is something we will rarely master, but the decision to want to gain some control over the adverse effects will benefit you. The decision to study and learn how to ‘achieve control’ over our trading psychology is life-long commitment and a highly recommended discipline.

Trading risk comes in many forms, and when it comes to our trading, we need to evaluate the risks which influence every aspect of our activity. In this module, we will discuss three types of trading risk. The 'risk' fromxs byb you, the 'risk' from the market and the 'risk' from a trade. 

1.   Assess the risks which come from you.

a)          How are you feeling physically?

b)          How are you feeling emotionally?

c)          How are you feeling mentally?

d)    How are you trading today, are you tilted?

e)    Have you had a good trading week or a bad one?

If you can understand what is going on outside of trading in your life which is distracting you, then you have an advantage.

Every trader is different, and every trader will react to these various feelings in different ways. However, experience shows that when we trade with additional personal stress, we are more likely to make poor decisions. 

Physical risks are things like being kept up all night by the baby, or the neighbours arguing or sickness. Perhaps you are injured from sport or recently had an accident and need some recovery time. Maybe you have a cold or flu or an ear infection, and you’re just not yourself. These are just a few examples of the types of physical risk that can jeopardise your decision making. 

They may seem harmless enough, but when you need to make a quick decision, you can quickly create a mistake under these circumstances, because you lose concentration. 

2.   Assess the risks which come from the market.

Once you have evaluated your 'personal risk,' you move onto the 'risk' which comes from the market.

a)          What is the market doing?

b)          What market-cycle are we in?  Trending or consolidating and which swing are we seeing?

c)          What can we glean from the TPO?

d)          How fast is the market moving?

e)          Is there any significant news due out today which may influence my trades?

f)           What time of day is it?

3.   Assess the risks which come from the trade.

Once you complete this second phase, we can move to our next stage which is assessing the trade specific risk. Now we can evaluate the strength of the tools we are using. Let’s use the Andrew Fork as an example (these questions can be adjusted and applied to each tool you use)

a)      Have I used the right pivots?

b)      Does the center line cut through price nicely?

c)      Have I considered the flow of price?

d)      Have I thought about a modified Schiff or a standard Schiff alternative?

e)      Do I need to use a sliding parallel (SP)

f)       Are warning lines applicable?

What do your records tell you about these types of trades?

How profitable are they usually?

Is my reward to risk and win rate able to accept that trade?

Conclusion

Having an awareness of our personal feelings and emotions is the first step to understanding how to control our 'personal risk.' When we have a high amount of 'personal risk,' the best option is often to just walk away. Don’t allow the market to take money from your pocket by making a poor decision.

The same goes for the market risk and the trade risk. If you identify risk and understand the impact on your decision making, you will be better prepared to avoid making a crucial mistake in your trading.

When we start trading, we begin as ‘unconsciously incompetent’ at analysing risk. Unconsciously incompetent means that you ‘don’t know what you don’t know.' Therefore it’s impossible to prevent problems because you don’t know there are any. After reading this module or studying the subject of risk management in trading, you become ‘consciously incompetent.' Consciously incompetent means you are aware of what you don't know. 

The goal now is to prevent the risks and learn how to avoid the mistakes by understanding the potential problems. By restricting the 'risks,' you then become ‘consciously competent’ at managing risk.

[3] Bankroll Management

The Background

I used to play a lot of poker online and one of the keys to success in poker is understanding bankroll management. Poker has a lot in common with trading. It’s a great game of skill and statistics and the more you learn, the more you realise just how much there is to learn. 

Bare with me for a moment because I am going to attempt to draw a parallel between poker and trading. Some knowledge of basic texas hold-em poker will help, but it is not essential to understand what I about to write.

Bankroll management in poker is about ensuring that you have enough money in your account to absorb ‘variance’. Variance is also known as a bad beat, it’s term that is used to describe the losses you incur when you play well, but get unlucky. For example, assume that two players are dealt their two hole cards and decide to go ‘all-in’ before the flop. They put all their money in the middle and the winner takes it all. Our Hero has AA (a pair of Aces) and our Villain has 72 (a seven and a two). You would most often back the Hero in this spot. The probability of our Hero winning is 86.93%, drawing is 0.42% and losing is 12.65% (*based on the simulation of millions of hands using an algorithm) . So approximately seven wins from eight hands but there is a loss/draw for the other one. This loss would be classed as variance. It’s often called a bad beat. Variance happens, it’s basic probability. So, to get back to the original point, bankroll management is essential because you need to be able to afford to absorb these bad beats. 

Now trading is very similar. We use our skill to enter into high probability setups and we let the trade run. Once the trade is running, external factors out of our control will influence the trade and we can be stopped out. We may have executed the textbook trade setup, got the perfect entry, but still lost. This is ‘variance’ in trading. It will happen again and again. At times, we may lose many trades consecutively, perhaps 10-15 in a row. Don’t get me wrong, that would be terrible, but it’s possible. 

We only have a set amount of money in our account to trade with. So that money needs to be able to absorb this ‘variance’, absorb the losses so we can continue to trade effectively. How do we do that? With strict rules!

The Rules

This is pretty much the holy grail right here. We are not telling you to buy our system or our strategy or our software, use whatever you want. But if you stick to these rules you will be more successful than most people who don’t.

Consider this your trading bankroll mantra!

• Minimum of 3:1 reward to risk on any trade

• Maximum of 1.5% of your account risked on any trade

• Walk away after three consecutive losers in a day

• Record every trade you make and keep a track of your win rate

Winners should be bigger than your losers. 

Cut your losers short and let your winners run. You have heard that saying right? Well, it’s completely true, but easier said than done. If you commit to using a minimum of 3:1 reward on every trade you ever make AND hold the trade to completion, you will improve your profitability (assuming your trading strategy is ok).

Let’s assume that you are risking 1% for every trade and you are getting 3:1 reward to risk on every trade. This means that for every winner, you will earn 3% increase in your bankroll and every loser will lose 1% from the bankroll. It means you can lose three trades for every one winner - you can lose 3 out of 4 trades - but still break even. Another way of writing that is; you require a win rate of 25% to breakeven.

Another way of putting it is: in order to break even over 4 trades, you will need to win 1 and lose 3. This means you need a 25% success rate to break even.

Win Rate Guide

3:1 = 1 win in every 3 trades. So winrate needs to be > 25%

4:1 = 1 win in every 4 trades. So winrate needs to be >20%

5:1 = 1 win in every  5 trades. So winrate needs to be >16.6%

6:1 = 1 win in every 6 trades. So winrate needs to be >14.2%

7:1 = 1 win in every 7 trades. So winrate needs to be >12.5%

8:1 = 1 win in every 8 trades. So winrate needs to be >11.1%

9:1 = 1 win in every 9  trades. So winrate needs to be >10%

The 1% Rule

Technically it’s the 1.5% rule, but let’s go with 1% for now. 

This rule means that every trade you take, will place a maximum of 1% risk to your account. For example, if a trade hits the stop loss, then you will lose 1% of your account. That means if the trade hits your stop loss, you take a 1% loss to your account. It doesn’t matter whether the trade is targeting a small move of 20 points, or a swing trade of 200. You calculate your position size based on the maximum of 1% per loss.

So if you are trading a £25k account, then 1% risk is £250 per trade. If your stop loss is 10 points, then the position size will £25 per point. If your stop loss is 50 points, then the position size will be £5 per point.

They are two very different trades in terms of the size of the stop loss, however the losses would have the same impact to the account = 1% loss of the account.

Combining the 3:1 Rule and the 1% Rule

It’s actually very easy to explain this:

For every losing trade, you lose 1% of your account.

For every winning trade, you win 3% of your account.

Doing things this way means that it doesn’t matter if your trade is a short term or a long term trade. The percentages are the important part.

COMMON MISTAKE

Compounding the lot size after a loser is a sure way of busting an account. For example, if you were trading £250 per trade and you lose a trade, then you decide to double down and place £500 per trade and you lose that one, so you double down again and risk £1,000 per trade and you lose that and you keep following that pattern. I believe it’s called a martingale system to do this. The idea is, eventually you’ll hit your winner and it will return you back to breakeven again, because you can’t be wrong forever can you? This may be true, you will eventually get one right. But you could see a consecutive 10-15 losers in a row, or more, before that happens. So unless you are a Billionaire, and your broker has no upper limit (which most do), this isn’t possible. So the strategy has a negative expected value. You will eventually lose. Don’t do it.

Conclusion

Your job as a trader is ensure that you keep enough money in your account at all times to cover the inevitable losses. Sometimes the losses are your fault, but sometimes they are not, this is ‘variance’. We have to retain enough money on our account to absorb ‘variance’ in trading. 

If you understand the need for the rules and stick to them, you will be on the path to becoming a more disciplined and profitable trader. You will allow the trades to breathe, you will accept a loss and get less stressed. Life will be better, when you understand bankroll management. 

[4] Record Keeping

It’s very important to stay flexible with your record keeping, because your style of trading will change, therefore this should change with you. It is a work in progress, always.

The idea of record keeping is that you can take the emotion out of a trade. You plan the trade, you provide the justification for the trade, you provide your analysis for the trade and the levels. Then when a trade is open, you have already planned it. So if price action starts to move quickly, you don’t need to act on it, because it’s already taken into consideration.

1.      Context & Plan

Write a few words or sentences to describe why the trade is valid and why it was taken. You write it in a way that is specific and easy to refer back to. Include the plan for managing the trade.

2.      Outcome and Learning

What happened to the trade? What deviations from the plan were made? What was learned? Were any mistake made, if so, what? This section includes observations. Include screenshots as well.

Edgewonk

From Rolf - Yes, I know you are scared. Surprised? You know it, too. You know exactly why you are not using a journal. “Later, later”, you tell yourself. “When I have a proper strategy” or “when I am profitable.” Funny! In Germany, we say that’s like shooting yourself from behind through the kneecap into your eyes.

You are hiding. Hiding from the truth. You are hiding from the truth of your trading. You are scared and you make up excuses. And then the never-ending procrastination starts. “I will start my journal tomorrow! I just need a few winning trades first.”

[5] Psychology of trading

You don’t want to commit to a single strategy because you are scared that you might fail. It is easier to blame the strategy than yourself. You don’t want to give it everything you got because you are scared that you still might fail, even if you threw everything you have at this monster called trading.

And you don’t want to see in black and white that you are losing money, that you have a negative expectancy, that you are SUPPOSED to lose a certain amount of money on each trade you put on because your way of trading doesn’t work.

No, no, no. You don’t want to see that. It is so much easier to go from system to system to system and blame everything and everyone else, just not yourself after busting another account.

The statement from your broker is not a big deal – minus 300$? Just a bad run of trades. You can still turn this around if you just bet a bit bigger on the next trade. You know exactly what I am talking about.

Yes, you! Don’t hide behind the anonymity of your screen. I am talking to you. You deserve to lose money because you are nothing more than a little scaredy-cat that doesn’t want to hear anything about the reality of trading.

A bit too harsh? I am so sorry. Go back to losing money then. Or quit trading. 

What, you are still here? Alright then. Maybe you are still here because you are angry at me. Or at yourself. Or you just want to know whether I have a holy grail for you? Nah..I don’t.

I have something much better, though. You have the chance to achieve something you will be proud of, your family will be proud of, your friends will be proud of, and tons of people will admire you for it.

You can pull off something which the vast majority of people will never be able to pull off. And the best of it all is you will have done it all by yourself. Without cheating, training wheels off. Yes, you can do it! All you have to do is…well, you know what you have to do. I don’t have to tell you.

But knowing what to do and doing it are two completely different pairs of shoes. So pull your head out of the sand and defeat your fears. Because if you don’t defeat your fears, they will actually become reality.

You fear to be a failure will become a reality if you don’t start treating your trading like a business and start journaling. It is time to take responsibility for your actions NOW, grow up! Because the most you will ever learn about your trading is by studying your trading.

If you stick to one strategy, tweak it, grow with it as a trader, and make it better and better step by step, then you will have a real good chance of becoming the next profitable trader out there. If you don’t do that, well, then just stop trading. Please.

You already know that you are unprofitable, what are you so afraid of? Every mistake you make is a gold nugget which you can learn from. But if you don’t learn from the mistakes you make, you are not only a failed, miserable trader but also a failure in every other aspect of life. And there is no learning by doing in trading. You can only learn from your mistakes by using a journal.

So start one today, I don’t care whether you have a “strategy” or not, once you start using Edgewonk and are forced to really think in depth about your strategy, that is when you will also create a framework for that strategy and step by step your trading will become more and more structured.

Don’t wait until you magically find a strategy, that will NEVER happen. Instead, develop a strategy with the help of Edgewonk and finally stop failing on an epic scale. I wish you great success, but only if you follow the advice I just offered to you. If you don’t follow my advice, I wish you good luck, because you will need it.

[6] Trading Rules

Always know your goal

It pays to be responsible in your trading. What I mean by that is that whenever you make a trading decision, you need to be able to come back to each one and remember the reason that you made the decision. You need to be clear with the language you use to describe the trading decision. 

If you want to make a trade, ask yourself: what’s my goal?

Being detached from the trade is essential. You need to allow fluctuations and movements in the trade, the trade needs to breathe. The only way you will allow the trade to breathe and not micro-manage it, is to be detached from it. If you do your analysis properly and understand the success rates of the setups that you are taking, then you should know that over time, you will win.

You have to analyse your trades.

Believing wholly in a setup will make you blind

Whenever we learn a particular strategy or particular setup, we squeeze everything into that box. Our job is trying to learn setups that have high probability success and then we squeeze everything into that setup to make it fit. We try to force the issue. But if you try to fit all the price action into your model or setup, you can miss the price action.

[7] Andrews Forks

ABC points

Warning lines

MLH – Median line Parallel

You’re looking to capture frequency in the market. This means that the price action will react in someway to the lines that have been drawn. Perhaps a bounce, a switchback, a zoom etc.

Watch for price action behaviour around the corners of newly formed forks. See if price respects the lines. If it does, then you can be more confident about trading a bounce from it.

Check how price is distributed around the B/C line, is some is on the left and some is on the right of it, but overall it likely balanced, then that’s nice.

If you have a bullish fork, the C point should be above the A point (not below)

Once you have a valid fork and price responds to the C and retraces back to the ML, one of three things will happen:

1 – Price will bounce and move to the previous MLH

2 – Price will breakthrough the ML, then switchback, then head to the next MLH

3 – Price will hug the ML and follow it

[8] Action Centre Reaction

 As above so below is a common theme in many things in our physical world.

When applied to the market we look for horizontal or diagonal levels which get marked by a break into a new area. These we can mark out with a parallel drawing tool. Alan Andrews didn’t have the luxury of charting packages with all the bells and whistles we can enjoy and he started the process by pulling a single line through price.  He told his students they need a good eye to do this properly. Price should switchback and cut through the line in a pleasing way for this centreline to be valid and to have strength.

He would then pull a line parallel to his centreline to some price extreme and then extend a new line  equidistant to the opposite side of his centreline giving him action and reaction lines. As price headed to the line which price hadn’t touched yet, then a reaction would be expected and appropriate action could be taken.

This is the law of as above so below. As in heaven so - on earth. We have a tree and then the roots. The yin and the yang there are many parallels to this phenomenon in nature .

The attributes of a good centre line are switchbacks, some good support and resistance off the line and price respecting the line.

[9] Trend Lines

A trend line is a diagonal or horizontal line which touches two or more pivots.

Often a trend line will see price switchback it and bounce off it.

Very often these trend lines become median lines.

You can use a trend line to trade off. The trend line break entry is a very powerful entry when you get a trade on a test of a broken one.

[10] Proper Stops

A proper stop is one which is one placed behind market structure or a pocket. You want to trade with your friends.  Your friends are those who have previous traded in your direction. This can be identified by putting a stop behind a POI or an area where traders achieved in the past (achieved is defined by taking out an extreme pivot)

[11] Pockets & What Makes A Good One

Pockets dump and pockets partially dump

You have to be careful when pockets get their first test, but price barely enters the pocket. This can weaken the significance of the pocket. This is because the pocket is suggesting that we have trapped traders looking to dump their position when price re tests that pocket. As price approaches it, those traders may dump it early. If they do that, and price reacts, then the second test of that pocket may mean the pocket is weakened. 

 Each pocket does have its particular characteristic and needs to be evaluated as such. For example  a key pocket getting a third visit after a minor bounce, may be used if the pocket looks like a whale trader may have taken a position and price moved away, they would load up to get their quota on multiple visits before price moves away in their intended direction.

[12] DUD or DUDUD or UDU or UDUDU

This is also referred to as a slingshot. Three or more consecutive candles of opposite type and similar size.

Three candles together, of similar size, that fit inside a rectangle.

If a DUD or UDU is at the beginning of a POI, then you can often expect a reaction at that level on test.

These are often called pockets of significance. You could area that it is a swap area.

Once price has broken away and shot out of that area, draw an expanding rectangle around the candle bodies and wait for price to test it.

[13] Market Profile

Strategy:

You can buy the bottom of a value area and you can sell the top of a value area for price to return back to value.

Quite often, a low volume node will get a visit over the next few days

High volume node is an area where buyers and seller accept fair value and are happy to do business together.

[14] Follow The Trend

If you follow the trend you will have 10% additional probability on your side

Don’t go against the trend unless you have identified a very clear balance point and have other reasons.

[15] NVPOC DVPOC

If the VPOC is close to the top of a wide ranging day, it can suggest it is time to turn

[16] VWAP

If you get a fast move down and small period of consolidation, followed by another fast move down and a similar consolidation, AND price action is below deviation low, then that’s a good spot for a long. Especially if to the left, there is a pocket

You can target the previous level of consolidation, which will probability be near to vwap

[17] Which TF is best?

There is no ‘best’ timeframe to follow. Long term charts can give you the luxury of time to figure out what is happening and to plan your entry. Short term charts are much more stressful to trade and it depends on your personality for what works for you.

[18] Blow Off Reversal

Normally only a 1 to 1 setup

These are setups that you can not trade on their own. You would take into account the regular additional setups as well, it’s all context-based. You have to consider: LVN HVN, pivot levels, balance points S&R levels, dev hi and lo, vpoc, the day types etc. Once you’ve considered those, these can be very high probability setups.

1.      You have a fast move up (spike)

2.      You then have an inside bar

3.      Take an immediate break of the inside bar

The inside bar cannot pierce the previous candle.

The inside bar has to fall away from the previous candle.

They work on fast moves down as well. They work in conjunction with pockets and dev hi and dev lo. You can target vwap from them. But they won’t give 3:1 or better, they are predominantly scalping techniques.

[19] Balance Points

Often times, a gap will be a balance point

When you load up a blank chart you may well be able to figure out what’s going on with price. You can spot consolidation areas, coiling and the trends, but not much can often be seen. So it helps to start identifying balance areas.

FULCRUM

Look for the ‘Last Swing Broke’ – use a zig on a smaller time frame to find that last swing broke. Then find another swing to pull your ACR lines and see if you can catch price.

PIVOTS

Count your zig pivots P0 – P5

1-2 should be similar to 3-4.

2-3 should be longer than 0-1

4-5 should be the longest.

You can pull from 0 to 4 to get ACR lines.

You can pull from 0 to 3 to get ACR lines.

In any swing up or any swing down, there will be a balance point. The will often take various forms. But if you can spot them early on, then you can take advantage of them. There are three general categories of balance points. As price moves up, you should always be alert to looking for that.

These types of balance points can be found on any time frame and on any market. It really pays to watch the charts and spot these.

You can pull a line from a swing through the 50% of the balance point and look for the price to come back and test it. If it doesn’t it may be considered weakness and price will continue to move away from it.

Contrary Wave (Most common)

·        Zig Zag

·        Flag

·        Mirrored Trend

Gap/Momentum

·        Gap (Most common – gap is 50%)

·        Brief Overlap (Overlap is 50%)

·        Fast Move (Wide Range Bar – 50% of the WRB)

·        Momentum Change

Directional Change

·        Ninety degree

·        Flat Line

·        Trading Range

·        Channel Break

[20] Three Types of Trade

1.      PUSH trade (trend line retains press and pushes it)

For example fading inside a channel, that’s a push trade

It’s a momentum trade, so check the overall mood that price is in

2.      EXPAND (Pop through the trend line – then comes back to continue – wash?)

If you fade a channel, but price breaks the channel, it expands.

3.      REVERSE (Pop then test trend line and go)

[21] Common Mistakes

Following someone else (blindly)

Knowledge is powerful, but even if you have knowledge you still don’t know what things feel like when you are experiencing them. If you have all the knowledge, you still don’t know how you would react emotionally when it happens to you. You still have to roll around in the mud and experience it for yourself. The knowledge will help you learn, but the experience will stay with you forever.

Following someone else means you are following someone’s experience and knowledge. You may learn their knowledge, but you won’t learn their experience until you do it for yourself. So rather than just blindly follow and copy someone, understand WHY. Understand why they are doing that. Understand why they are trading those levels, understand why they went for that stop loss or that target. 

If you follow our signals, then you are following our belief. However, the best way to improve your own trading is to understand how to read price. Understand why we have that belief.

Continually trend the wrong way in a session

Don’t do this. If you have a bias for the day, let’s say you are bullish based on the IB, so you decide to take a long and get stopped out. Price flies down and starts to consolidate, so you buy. But price continues to break lower and you get stopped out. Then price consolidates again, so you buy. But price continues to break lower and you get stopped out. Then price consolidates again, so you buy. And this process repeats. You can very quickly start to get emotional about the trade.

If price goes against you

Exercise common sense when trading

See what is in front of your eyes. What direction is the market trading? Then follow it. Watch the swings. Did it break the previous swing? If it didn’t then we have a potential problem

Failure to Self-Improve

The beginning of a new month is always a good time to think about what you want to change or improve upon in your trading activity. Write out what you want from your trading activity and then write out what you need to do or change in order to achieve it.  weekends and month ends are great times for setting personal goals.. have a think of that whilst lying in bed this weekend.

Don’t Pick Highs and Lows

Trader swill often trade the extremes and call them. Look for the POIs and draw the pockets, because this is the clear evidence of where buyers and sellers existed before. When price moves away from a POI, it will often still regard that area as a swap zone.

Take Breaks

The mind will typically obsess over a problem until it finds a solution.

Sometimes our mind just won't let it go of a problem until it has a solution. So we work on the problem and work on it and keep going and going until it's solved. At this point, we breathe a sigh of relief and pat ourselves on the back for figuring it out. 

The issue is that the mind can only concentrate on a problem for so long before it becomes fatigued and tired. If we keep working through that fatigue then mistakes can creep into our decision making. 

'looking for a setup' is an example of a problem that we obsess over as traders.

[22] Why Do Washes Happen

Mark out your minor swings, then look at price action

Look for areas of quick moves as these can indicate wash and rinse pivots

Price will wash a previous high (or low), then come back to normal and price will test the previous level again. But if the swings do not continue in the original direction, then

[23] Triangulation for reversal timings

This is method to determine when a reversal will occur in the market. The degree of reversal will depend on the volatility of price action at the reversal time.

We choose two pivots and draw a horizontal trend line to catch them. You want to see a significant amount of ‘white’ between the  pivots, ie price bounces off between them.

You then draw a horizontal line off a pivot BETWEEN those two pivots and follow the line into the future. Where the lines touch you draw a vertical line and it is at that time you would expect price to reverse.  There are some issues with timings with gaps and weekends if they fall between the line cross and the reversal time. For every gap on the left of the last pivot you add to the left. So if trading daily bars and you have three days of gaps to the left of the last pivot to price point, then you need to add three days to the horizontal line. Similarly if you have gaps to the right of the last pivot to price, you deduct the same amount from the vertical line.

The following equation can be applied

[24] Channel surfing for entries and exits inside/outside lines

Often used when you don’t have a specific target

Often used to ride out the remaining part of a trade

[25] Spike and ledge

Sharp move followed by a small consolidation. A large move, ‘flag pole’ followed by price action that creates a horizontal ‘ledge’ after a mini retracement. Once that ledge is broken, you can take a straight 1:1 from it.

You can also re-enter again on a test of that ledge.

[26] Mirrors

It shows that sellers or buyers have proven themselves to be there at these prices.

What is the direction of the trend? If it’s bearish, then you want to see inverse mirrors (wicks), then see price fall away, then come back to that zone, there’s your short entry. If it’s bullish, you want to see mirrors (with tails), then see price rally, then come back to that zone, there’s your long entry.

If there is a double bottom, then that is interesting because it can be a pocket

Don’t trade straight from mirror sets, watch to see a reaction first, if it leaves behind a pocket, wait for a revisit and a sign it’s moving again.

[27] Context

 This is when you bring everything together and weigh up all the influencing factors in price.

We never trade anything alone.  All the tools we use are regarded as ‘trade confirmation tools’ and their combination is unique in each charting situation.  The context is the background information gleaned from using these tools effectively.  It takes many years to master this. Your progress in this will be measured in your winrate percentage.

[28] Simulation trading and the value of it

This is where you open a random chart and play back old data. You are able to speed up, slow down and pause playback, draw your lines, put on simulation trades and evaluate your performance.

This is a good practice in order to tune your trading brain to reading price action and to draw lines off appropriate pivots. However it doesn’t help your patience skills.

It’s a good practice to do this activity once a week to hone your skills or to practice a new strategy.

Just be aware it can give you a false sense of your ability as the emotion is not attributed to the activity.

[29] The measured move

This can assist you in determining a change in price and its behaviour.   On a down swing measure from the high to the first consolidation low.  Then take that measurement and measure low to low until you see no longer respecting the lines.  For an upswing measure from the extreme low to the first consolidation high, then use that to measure pivots high to high. The idea here is to catch frequency and be alerted as to when this changes.

Useful on a stairstepping market to determine an imminent  change.

 [30] Press, bar splits, clumping, coiling

Pressing is similar to an overhead trend line. For example if price has sold off quickly, with a zoom and a wrb, go back a few candles and look for where they “pressed them off” (MGeo 13-10 = great video for it).

-        Find the major swing

-        Follow it back to where price was pushed off the cliff

-         

[31] Pivot counts EPs and SEPs

 The general rule for pivot counts on a swing is ‘if you see them consider them. If not then dont bother’  EP is Expanding pivots. Often you can count the pivots as 0-5. A good trade is back to balance off a P5 on an EP.  SEP is skewed expanding pivots. The same counts apply and the pivots are ‘skewed’  

Sometimes price will increase in volatility at a swing extreme.  This can show as an EP or SEP. These increases in volatility is often a sign of both sides asserting for a price swing and you can get large moves off them. Think of them as battlezones and whoever wins likely will move price off for some distance. 

[32] Centre Lines 0-4, 0-2, 0-3

Price will exhibit certain characteristics over and over again around a center.

Curve fitting a centre line is fine.

Draw your centre lines and watch price reacting around it. Examine it. It will show you some familiar behaviour. You can take it apart and start looking at it.

You will start to understand the rhythm of price as the price starts to approach the median line.

Everything will have a centre.

[33] Forks as a trend barrier – pendulum pullback

If price hits the ml on a fork you have drawn and then passes a ml extreme, you can think of the centre ml as a trendline barrier. The rule of thumb with this is you want to have at least two forks which exemplify this before you can lean on it for a trade entry for a larger swing trade. 

The pendulum pullback refers to price swinging back to the ml but is unable to go further due to the trend direction. That point is usually the centre ML. The trend barrier reference means the centre ml acts to hold price as it goes off in its trend. It is just a minor pullback.

[34] F1 F2 CLs

These are identified by the last swing broke

F1CL – means there is oly one Fulcrum

F2CL means there are two

They can be used as part of an acr. Connect the two Fs to create your centre line.

Find your centre, it can be horizontal or vertical or in between. Then move the action line to a pivot on the left

[35] The MML and how to avoid top/low picking

 This is Dr Alan Andrews favourite fork, he used it to stay constantly in the markets and catch each turn as it occurred. We use them as an entry tool as he did. The pivot pulls are a little different in that we pull from alternate closes only  ie not the extreme of price.  Often price can be quite volatile prior to a change in direction and this method cancels out getting stopped on a whipsaw. 

For a downsloping MML (reverse for upsloping MMLs) the A point is pulled from a bull bar close pivot, the B is pulled from a bear bar pivot and the C is pulled from a bull bar close pivot. For 20m to 240m 5-10 bars between B and C. Daily charts 2-5 bars.  In order for the MML to be valid, we wait for price to break the C line after it has shown progress down it or towards the CL.  After the bar has closed outside the C line we enter on the open of the next bar, placing a stop at the extreme of the fork.

The fork is invalid if price progresses past the C extreme, however  you can forgive it a wick.

Often you will need to use a SP (sliding parallel) to capture price and you take the trade off a break of that SP line.

Remember we identify an area where price is likely to turn and use a MML as a trade entry tool.

[36] Timing expectation for targets based on volatility

 On your fork you have an A, B and C point. Halfway down the BC leg you will have a balance point.  Measure to the left to the A point from the balance point and extend the same amount into the future and this will give you the approximate timing of when price should hit the CL Median Line. (Imagine that sine wave).  Now this will only occur if volatility remains constant with the price action on the first measurement. If volatility increases then the target will come in early. If price action decreases, the target will be hit later.  Volatility is measured by the size of the minor swings and the bar lengths. 

[37] The Inverse

These occur in trends

This is basically an expansion play on balance points. If you pull a balance point target and price shoot through it, it could then go and target an extension.

So you pull a regular balance point and that indicates where you expect price to go to. An inverse can then present itself as dojis at the target area.

Watch for DOJIS

If you have a gap above a previous BP target, then this could indicate an inverse. So expand the original range of price another 100%

Always look out for inverses, once you have plotted a balance point and price continues to go past it.

[38] IML forks

When you dont have a clear 'A' point for a fork you can draw it in the air and pull it so the centre catches price. You can also pull it so price catches an extreme but this is less valuable. Each situation is unique and you need to evaluate each on its own merits. 

[39] Initial Balance

Small IB – expect a big range day

A lot of people will try a Huge IB – if it engulfs the previous day’s entire range, it can be a game changer.

[40] How to work out where market orders are sitting

 A lot of people will try to trade the extreme of the market. They will try to call the top or the bottom of the swing and it can get them in a lot of trouble. So the first thing you want to do is to try and identify what is a true level.

A true level is more often a zone rather than a level, and it can be identified by what Is often referred to as a point of ignition. So when you are highlighting a point of ignition, using an extended rectangle, try and capture the body of the candles.

A down up down pocket, or an up down up pocket is a good opportunity. 

So also ask yourself where our buyers or sellers  are picking it up again. So for example if there is a spike, then price retraces slightly, then moves again in the same direction as before, mark out that level. This is a level where prices have been picked up again.

You wouldn't put an order in at these marked out areas, but you may want to look for a balance point You wouldn't put an order in at these marked out areas, but you may want to look for a balance Point or some other area of confluence.

Often you will find the areas where buyers were situated, it becomes an area where sellers are situated. This means that an area has become a swap zone.

When you are in a trade, and you have found your entry, look left for a previous area of consolidation which could slow price action down as it reaches it.

[42] How to identify strong structure

 Supply/demand zones as many folks refer to them as come in all shapes and sizes. I call them imbalance pockets.  They can have various attributes and the discerning trader should be able to determine their strength based on how they have been built. As with all these things you cant just isolate a pocket and trade off it solely – context is always key to taking any position and it is never just one thing we take action on.

A good pocket is one which has a fast move up to it and a fast move off it with a prolonged consolidation too. This indicates that there was time for plenty of traders to position themselves short and long a breakout and place stops at the extremes. 

We can use this information for stop placements and entries.

[43] Horizontal MPLs and ACRs

 MPL stands for multi pivot levels.  This can be a horizontal or diagonal line which has price using it as support and resistance. We say price switchbacks it.  If price switchbacks it multiple times then its validity is strengthened and we can use it as a centreline for ACRs.

An ACR is three parallel lines Action Centre and Reaction.  We identify the Centreline by having the qualities of a MPL. We pull the Action line to a pivot extreme and this projects a line into the future which if price hits it, gives us an expectation for a possible reaction as in a reversal, a switchback or a zoom through.

[44] Cumulative Delta

Watch for divergence between price action and the cumulative divergence line.

The tools can help you understand whether there are resting orders in the market.

If price is making a lower high but delta is making higher high, then we have divergence. Basically we have an increase in buy orders, but the buying activity is not making new highs, because it is being absorbed by limit orders.

If price is making a new high but the study is still low, then you can expect price to head higher

 I find hidden divergence is more reliable than regular divergence for use in cumulative delta.

hidden divergence

study makes new high

but price chart stays lower

Or

 study makes a new low

but the price chart stays higher

regular divergence is

when price makes a new high but study stays lower

 or

price makes a new low but study stays higher

With regular divergence CD often just rectifies the divergence in the next move, whereas hidden divergence has price continuing for a while which can be used as a trade confirmation tool. 

[45] Trendline Fans

Alan Andrew’s work

Find a point of ignition (POI), let’s say for example a major low. As price reacts and reverses away from that low, it will likely create higher lows. Connect a line from the POI through the higher lows and repeat for the first three higher lows. It will create a trendline fan.

The general expectation is that once the third or fourth trend line is broken, the market can move with some speed.

[46] Five Point Expanding Triangles

A 5PET is a 5-Point Expanding Triangle.

A 5PET is part of Elliott wave theory and it is the complete opposite of a contracting triangle, which is a common terrible pattern. This pattern is must less common, but much higher probability.

There are two sides to this type of pattern, you have the five points, and you have the expanding triangle. Let's look at both of these options individually.

First of all let's look at the five points with a diagram as it would be much easier to demonstrate. In this diagram the first point is a zero. Then each alternate high or low is marked with a point from 1 to 5.

Look for dojis and balance points inside the longest wave to confirm that the move is coming to end at what you believe is the end of the wave. Because then you trade it back to balance.

Try pulling a volume profile selection around the area of the 5PET to find the POC. That could also be a target area.

Even if you have broken below a fork area, a 5PET can still be valid.

Second is the expanding part. This is the opposite to a contracting triangle, and in this particular case, the last wave of the triangle is the largest. The best types of triangles to follow this theory are those that have symmetry so when you connect the points using a trend line, they are clean lines.

It is known as a five-point expanding triangle, you start with zero and alternate 12345 with each point higher than the last high or lower than the last low. The triangle needs to see symmetry with the highs and lows using train lines.

TheThese patterns require at least four points to identify, therefore the best opportunity is to take a short from point 5.

You can aim for a 50% retracement of the last wave, or another technical reason such as a point of control from the previous day, or an extension from a balance point. Trade it down to the mid point of the triangle.

[47] Mountain

If you get a spike, then a consolidation, then a break higher then price tests previous consolidation, then breaks higher again, then consolidation, then breaks higher, then tests previous consolidation etc, you are having a MOUNTAIN

You don’t want a mountain to fill, meaning price breaks past the previous consolidation

DRAW A MODIFIED SCHIFF on mountains

[48] Trading Tools

Forex Heat Map

You can use a heat map to show you where the strongest of weakest pairs are trading at any moment in time. It will allow you to focus your research on those pairs to see whether or not they have moved in to an area of interest, or whether they have created an area of interest.

You can start to put pairs on your watchlist. This heatmap will help you identify pairs that should go on the watchlist.

[49] A Strategy

It takes sharp perception and keen skills to recognise a good pitch.

Who is in charge?

1. wrb

2. mirror bars

3. are swings hi + lo getting taken out

where to enter?

1. at a pocket.

2. on a test of a POI

3. be prepared to get washed and to reenter if setup is still valid.

4. when price is at an extreme

When to exit?

1. when you see a CIB

2. when there is evidence of a change of who is in charge.

3. at a price extreme

Order of importance.

1.  identify who is in control

2. get freq lines in

3. identify what specifically you want to see to enter a trade.

If we miss a trade remember that

Loss of opportunity is preferable to loss of capital.

FRAMEWORK

Sometimes you get overwhelmed with all the technical tools. There are so many choices out there that you can focus in on. You can really become blinkered into using a microscopic level of analysis and get bogged down in the bar level analysis, watching price action really closely. However, the big picture will often be the best place to stand back, take a quick break from the detail, take a birds-eye view.

So when you get a bit stressed out and tied up in the analysis, at any time you can fall back on your simple framework.

The framework will involve major swings and gaps.

We will make mistakes, we will get it wrong, we will blank out and miss things, we will jump in at the wrong time, it will happen again and again and again. So approach your trading lightly, with a bit of a sense of humour and a curiosity.  It is ok to be fooled by the market, relax a little bit. Observe it and learn from it.

Wide Range Bars

Map the swings, where are we?

Look left at all the WRB and POIs