The Hidden Secret of Technical Analysis

http://www.YourTradingCoach.com - Discover a whole 'other world' of technical analysis, where novice traders fear to go.

Category:

Howto & Style

Tags:

• trading
• technical
• analysis
• price
• action
• stocks
• forex
• emini
• e-mini
• futures

[gengarjetty]

lots of traders criticize indicators (and correctly so, apart from the moving averages and RSI, I don't find these oscillators or macd good) and prefer price action.. what exactly IS price action, I mean, what methods would you categorize under price action? Thanks.

[YourTradingCoach]

@gengarjetty

Good question. I'll expand on this in an upcoming newsletter article, due to limited space here, but essentially there are two main branches of price action analysis. (a) the pattern based approach (triangles, head and shoulders etc) and (b) analysis of strength and weakness within price movement (Wyckoff, Volume Spread Analysis, YTC Price Action Analysis). I'm very much in the second category. In either case though, the most critical element is CONTEXT.

[YourTradingCoach]

@haybusaz, Decreasing momentum indicates reducing net bullish or bearish pressure. So in an uptrend for example, it would indicate either a reduced urgency from the bulls, and/or an increase from the bears. What that means for future price action depends on the context - where is it happening within the higher timeframe structure.

[luvbug50514]

Head and shoulders is usually a continuation pattern by the way which means you will be selling the bottom of a trading range most the time so be careful with them.

[YourTradingCoach]

@luvbug50514

Hi luvbug50514,

Thanks for your comment, but you must have misunderstood the video. I don't trade H&S patterns at all. They were given as an example of the overly simplistic way that most traders approach TA. That's not how I trade at all. Apologies if this was confusing. My TA is more pure price action based, analysing individual bars within the context of previous price action, to identify shifts in supply/demand and identify future bias.

Cheers,

Lance

YourTradingCoach

[AsianTeas]

Yeah I agree with the comment about volume. As I watched this video I couldn't help but think come on..... mention volume. Analyzing price movements without looking at the volume is a ticket for disaster in my opinion. A stock moving on 500k versus that same stock moving on 4m is not the same, even if the price movement is identical.

I love your videos and I appreciate the time and effort you put into them. Your series on candlestick patterns were great.

[YourTradingCoach]

@AsianTeas

Hi AsianTeas,

Thanks for your great feedback. Yeah... anything which is not a derivative of price can add value, so I encourage people to make use of volume and market internals, when available for their chosen markets.

Thanks again for your comments,

All the best with your trading,

Lance.

[NaledgeDIESEL]

@gengarjetty all time frames link together, meaning that yes if you have a bullish signal on a short term chart but a bearish signal on the long term you can still pull the trigger on your short term bull reversal; but keep in mind that the long term trend is still bearish. This type of trading requires a closer eye on your trades, but short term swings within the longer term trend be it bullish or bearish can provide hefty profits during a time of correction or consolidation...

[gengarjetty]

@NaledgeDIESEL

Understood, but what about the longer term trend, I mean, who really looks for a bullish reversal pattern when the longer term trend is bearish? medium term oversold levels are better in longer term bull markets , and vice versa, right?and can we look for bearish chart patterns within longer term ranges? ie, on the weekly chart theres a range, but there's a breakout pattern in the dailies, we could go for it, right?

[NaledgeDIESEL]

@gengarjetty when the stochastics reach the overbought range this could potentially mean that the bulls are running out of momentum. Then you will be looking for a bearish reversal pattern from your candlestick analysis followed by further selling pressure(confirmation of the trend). This could be a great opportunity to take a short position for a potential pullback down to oversold levels..buyback to cover short on bullish reversal pattern, stochastic cross, breaks resistance, etc.

[gengarjetty]

@NaledgeDIESEL

so basically what your saying is that the oscillator just tells you when to look out for the reversal signal, but isn't an actual reversal signal , unlike the price action, or even the MA crossover.

[NaledgeDIESEL]

@gengarjetty Technical indicators such as slow stochastics or RSI, can help you determine whether a stock has reached technical overbought/oversold levels...Candlestick charting can help judge the sentiment of the price action; a candlestick pattern like the "dark cloud cover" is a good bearish reversal pattern to take a short opportunity. Bearish price action for example would be decreasing volume during a rally, stochastics rolling over, reversal patterns after a recent rally..etc

[spencereng]

The larger trend always wins, so use short term time frames to trade in the direction of the larger trend. If the 60 min chart is bullish don't short the 5 min chart.