Simple Price Action System

http://img502.imageshack.us/img502/3405/supportafterthumbnail.png

false break out. broke the support but came back and continued uptrend. thats why i wait for retest or 2nd chance to avoid these false break outs

http://img198.imageshack.us/img198/2222/supportresistancezonest.png

SR Zones instead of lines

http://img607.imageshack.us/img607/765/supportresistanceexampl.png

major, minor SRZ. you can also see how support becomes resistence and vice versa

Trend Lines

in a up trend, find out the support areas and draw a line connecting the support lines/zones. in simple terms its a diagonal version of horizontal support, resistence lines. the behaviour of price action around TL is same as SR. But most ppl dont pay as much attention to TL.

to draw TL you need atleast 2 points, but to confirm 3 are needed. like SRZ, the more number of times TL is tested the stronger the signal is. similarly resistence becomes next support. all the behaviour is same except we are in diagonal instead of horizontal

the steeper the trend line, most likely it will fail or get broken. rising too fast is not good. drawing TL is an art. dont force them to fit the market. identify the major up/down trend and find 2-3 support or resistent points and draw a line touching all of them. some times you will get multiple TLs and some intersection of TLs. dont get bogged down, always trust the major TL

sometimes you get intersection of SR and TL they are very powerful. we will cover the confluence part in the system rules

http://img59.imageshack.us/img59/8219/trendlinesexamplethumbn.png

Fibonacci Retracement

These are more of psyche levels that market respects. why only these numbers ? dont know. but it works. google for definition of fibonacci series if youdont havecomputer science / math background. we are interested in only 3 levels. 38.2, 50 , 61.8. if the price corrects by 38.2% from its immediate wave high and we find agreement from reversal candle, SR, TL , BRN, etc then we get a buy signal. lets say immediate wave/swing low is 100 and 140. the swing height is 40 rs. 38.2 of 40 is 15.28, so if the price is coming down from 140 and comes to around 140-15=125, then we are ALERT. more correction, the better signal it is. again its not exact number, its a zone with some band.

you dont need to worry about this calculation, several charting tools have this fib drawing tools, but important thing is to identify swing high, low.

you can have 2 waves. one major wave and another intermittent wave. if you draw fibs and get intersection of lines from both waves, it adds power. for example 38.2 of one wave can coincide with 61.8 of inner wave, then its powerful. in this system confluence is the main entry rule (more later)

fib extension can be used for taking profits. its opposite to reversal. just dont worry right now.

http://img507.imageshack.us/img507/5143/fibonacciretracementupt.png

http://img141.imageshack.us/img141/4227/fibonacciretracementdow.png

Space / Traffic

When you hit the ball you dont want any fielders around it. did you ever notice how many times sachin hits the ball and it pierces the feilding and goes for four. and how often you see shashtry hitting straight to fielders. however strong your shot is if it doesnt find gap, its useless.

same thing here. we want to work in a free space. not in lot of traffic and surrounded by immediate opposite signals. the percentage of success goes up when you are in a free zone without much traffic around in near future. so it is one of the most important rules in our system.

i will explain this with some examples. again just use your eye. train your eye. it becomes natural over a period

look at this chart. it gave buy signal (pin, tl, in direction of trend) but if you see immediate left side, there are atleast 2 resistence lines immediately above us and too many candles in the near left side. we dont want this much traffic. we will find it hard fighting against these guys

http://img21.imageshack.us/img21/3910/space1p.jpg

there is a beautiful video on space vs traffic here. under mqb11

http://www.james16group.us/Guests/guestmaterial.html

ok guys thats all about this module. we will move onto System Rules tomorrow, meanwhile get familiarized with these basics and be ready.

any questions so far ?

Thanks bala for the effort. You made it look very simple for a novice like me. Waiting for your next module

Yes - thanks for the efforts, Bala!!

thanks guys for visiting this thread.

there are couple of things we need to learn before we start laying out system rules.

1). EMAs.

I will inly use this indicator, thats all, no other stuff like RSI, BB, Parabolicā€¦ Keep it simple. EMA is prefered over SMA due to weightage for recent price action. we use EMA 150 and 365. the current bar must be above these 2 lines for buy. when the bar is nearing one of these lines, we are ALERT.

2). Multi Time Frame

Even though we are looking at daily chart, we must look at weekly, monthly charts to derive the trend. remember trend is our friend. we only buy when the trend is upwards. we wont go againt trend. however sometimes when we get a buy signal and we are against trend, we will closely monitor the trade and keep moving the SL.

now that we learnt the basic components lets construct the system using these. by now we got a fair idea of the price action dynamics. lets take advantage of this and build a system with high probability of success

first we need to identify wether we got resersal bar or not. reversal bar is a pin bar, bullish outside bar, double doji followed by a breakout. these indicate momentum shift from sellers to buyers.

next is the most impartant thing. where this recersla is occuring ? what is the location ? we are not interested in trading every reversal. it should occur at a good location. for us good location is one or all of these

swing low (support level)

trend line

ema 150 or 365

fib retracement level 38.2, 50, 60.1

BRN

we need confluence of more than 1 or 2 location points. confluence is agreement. out of the 5 location pointls listed above we should get as many as possible to make it strong. we dont trade on one. we need atleast 2. that means we should get a reversal bar at support level and trend line. its very rare you get confluence of mutiple factors, you should grab those opportunities, thats where value lies. that means we are at a point near support level, near trend line line, near fib level, near ema level and near BRN. this is like eating full meals with soup, starters, main cource, desert and paan !!!

we pay attention to traffic, if we see lot of traffic ahead and we got confluence of only 1 or 2 location points, either we reject the signal or trade cautiously.

so entry rules are

1). big , visible pin piercing the location point line but closing above it with strong volumes.

2). location should be a confluence of many points like support, tl, fib, ema, brn. the more the better

stoploss is the next support level. lets say current suport is at 110. next support is 105. we place SL at 105-buffer. buffer is always useful to avoid wrong breakouts.

tp is next resistence or first trouble area. this could be upper line of channel. when you hit one of these areas, take 50% off and move the sl for rest to break even and let it ride. remember MM is very important. cut down losing trades, ride on winning trades.

so its very simple and easy to understand system. zoom yout chart to atleast 6 months and look for visible, big pins, buob, dojis at support, tl, fib, ema, brn. only trade in the direction of trend. that means the overall trend is upwards and we look for temporary, intermittent downward movements and look for strong reversals at strong location of intersection of multiple lines (support, tl, fib, ema, brn)

be patient and wait for proper signal. dont try to force fit the chart into the system, let it come out obviously and train your eye to spot those opportunities. you need to spend 1 hour on weekend to look at all charts for any possible opportunties

i will post some example charts later

great going through your write ups bala.

while in theory, I know most of these things posted, the way you bring about the things and try to develop a system that works based on them, I am most pleased to go through your write ups.

carry on.

regards

hitesh.

thanks hitesh-ji.

here is a chart of astral poly. there are 2 signals. one for sell. one for buy.

the sell signal --> swing high, visible pin (trend is upwards, so watch out for correction and resumption of up trend)

buy signal --> visible pin. pierced trend line, 2 PPZ. PPZ is nothing price pivot zone (support/resistence line). it has free space (look previous 5-10 bars). i didnt draw fibs, you can check fib 50 rejection also.

http://img824.imageshack.us/img824/9421/astral.png

Good effort. Simple enough for the novice like me to understand.

Thanksā€¦ without any background, could follow almost everything until last part about chart on traffic/space.Possiblywill get clear with further study.

good going bala. it would be very useful if you could use a recent chart of the one of the stocks we track at valuepickr and identify possible entry/exit points which can be tracked.

traffic/space.Possiblywill

at the entry candle, look at prev 5-10 candles. there should be some space as shown in the graph. basically free space indocate free ride upwards. otherwise it will keep facing troubles as it moves up. as far as possible FTA (first trouble are) should be far away so that we can get good profits. not always you get free space as we want, but just keep a watch on it.

the strength of the signal depends on confluence of many factors. but we dont always get as many as we like. we take case by case and manage the trade

http://img651.imageshack.us/img651/7129/kaveri.png

hemant-ji,

here is a buy signal on kaveri seeds.

pros :

1). huge volumes

2). ppz rejection

3). tl rejection

4). BUOB. good size. even though the bottom side didnt engulf as much. but this could be due to gap up opening. still a good strong reversal candle

5). i didnt draw fibs. but you can see fib 0.5, fib 0.61 on two waves confluencing at ppz level.

6). nice space

cons : would have liked to close at highest of the day. but some profit booking ahead of holiday.

entry could be at next day opening or wait for a small retracement. upto you. normally you get a small retracement if you are patient.

i have marked stoploss and first take profit area