If there is one pattern in the price action you need to learn for trading breakouts profitably, it is this pattern. And no, I’m not talking about a candlestick pattern. I’m talking about trading price action and the order flow behind it.
In today’s trading video lesson, I’m going to share with you my most profitable pattern for trading breakouts.
One of the most important trading, technical and price action skills you’ll need in forex trading, stock trading or trading any major market, is the ability to draw and find key support and resistance levels and zones. This is a trading ‘skill’ you’ll need to build.
However, did you know there are two types of support & resistance? The first one is horizontal support and resistance, which we did a video on recently here.
The second type of support and resistance you’ll find in trading is dynamic support and resistance, which is fundamentally different in terms of how it’s constantly moving, while offering a floor or ceiling to the price action.
In today’s trading video, I’m going to share with you one method I use to find dynamic support and resistance in the markets, whether its trading stocks, forex, commodities, or global indices.
Finding trade setups is one thing, but then choosing the best trade setups is another skill entirely. In today’s trading video, I share with you 3 strategies and tips I use every day to find and choose the best trade setups.
Trading at resistance zones, especially large ones can have a major effect on your accuracy, stop loss and take profit placement. In today’s video, I discuss with my members during our coaching session how I trade resistance zones, and look for more precise entries based on the type of trend.
I also discuss how to relate to double tops in terms of the price action context.
Trend reversal patterns are ‘sadly’ taught to beginners as ‘candlestick patterns’. The problem with this is a) you never learn to read price action, or order flow, and b) you get stuck looking for patterns that don’t happen often, thus missing many reversals or transitions in the price action.
In today’s trading video, we discuss a trend reversal pattern and how to read it in the price action + order flow. We also discuss how this pattern can be great for finding trend transition trades, potential breakout setups, and when a corrective structure is going to end.
What’s Inside?
A key topic that orbits around price action trading is “how do I trade with candlestick wick patterns in the forex market?” The problem with this question is it comes with some misunderstandings about price action, order flow and what wicks really communicate.
The goal of today’s article is to give you a new perspective on trading price action wicks that most ‘internet gurus‘ won’t tell you. It is to give you an understanding of candlesticks, what they communicate and how to relate and trade them.
We’ll give you this understanding and how to trade with candlesticks through 4 key points on forex price action wicks.
But before we get into trading wicks, we have to understand the foundation of where our approach comes from.
I approach trading from a particular perspective that a) order flow is the proximate driver of price action, and b) all activated orders in the market are based upon ‘information‘.
NOTE: If you want to learn more about how I trade price action context, click here.
But to simplify it, trading price action ‘context‘ is trading the overall ‘structures‘ or ‘Gestalt‘ of the market. And you cannot get this through 1, 2 or 3 candles.
People who trade based upon 1, 2 or 3 candlestick patterns, such as pin bars, or fakey’s, or engulfing bars are candlestick traders.
Fun Fact: The fakey pattern or setup, is really called the Hikkake pattern, given that name decades ago, which today many forex ‘gurus’ have renamed to make them sound like their own.
Regardless, candlestick pattern traders are not ‘price action traders‘. They are ‘candlestick traders’. Essentially, candlestick pattern traders believe 1, 2 or 3 candlesticks define the price action context and order flow in the market, and thus give you trade setups.
But ask yourself, why do many key support or resistance levels hold without a pin bar rejection. Why would it do that if the pin bar is such a superior tool for recognizing and ‘confirming‘ whether the key support or resistance level will hold? Why do banks, hedge funds, and prop traders place orders at particular prices well before a pin bar has ever formed, and not based upon the New York close daily charts?
NOTE: If you want to learn why a typical pin bar entry is a retail entry, click here.
When you start to ask these questions, the foundation for trading pin bars and candlestick patterns breaks down. That leaves you with trying to understand the underlying order flow in the market. And you do this by learning to read and trade price action context.
This is how we approach the market.
Now that we have this foundation, we can move on to how do we relate to forex price action wicks (or any wicks)?
When you look at the essence of what a wick represents in terms of the price action and order flow, you come to the conclusion that all wicks are a communication. They communicate that the order flow was rejecting that pricing and value.
If the market accepted it, it would close there, and remain there.
However, there is a ‘but’ in there. The ‘but’ is while wicks in the forex market = a rejection of value, they are not for defined periods of time or defined moves in pips.
What I mean by ‘not for defined periods of time‘ is a) beyond the close of their candle, and b) they are not going to define how long the market will reject that move or value from that moment forward.
What does give you this information? Price action context.
The goal of price action context is to give you a ‘probabilistic framework‘ for what the market is more likely to do. Wicks will not give you this information, nor give you a probabilistic framework for how to trade this.
Hence you have to come back to price action context.
The most essential point to understand here is forex price action wicks (or any wicks) = a rejection, but we cannot understand how that rejection will manifest, so we have to take these as a grain of salt.
What this also means is that 1, 2 or 3 candlestick wicks will not ‘confirm’ a rejection of a specific kind (which is what we want if we’re going to trade said ‘confirmation’ or rejection).
If you want to understand why confirmation price action signals will crush your account, click here.
Wait a minute, how can the opening and closing of candlesticks ‘matter’ and ‘not matter’? Let me explain.
In very ‘particular’ circumstances, the opening and closing of candlesticks will matter. Such as:
There could be a few more circumstances, but by and large, the majority of time, the opening and closing of candlesticks do not matter.
What matters more is order flow and price. This is why most institutions, hedge funds, and prop firms know their price ahead of time, regardless of the close. They know where they want to get in, and where they want to get out, regardless of the candle being open or closed.
Hence the opening and closing of candlesticks matter, but on a limited scale.
There are many ways I relate to forex price action wicks (or any wicks) in my trading, but I’ll give you a couple wick trading strategies below.
If a wick represents on a base level some sort of ‘rejection’, which side is most likely to ‘reject’ the price or value? The with trend players, or counter trend players?
With trend is the answer. With trend players are more often controlling the market and order flow, so they’re more likely to reject a price effectively cause they’re largely in control.
I personally like seeing with trend rejections on pullbacks heading into a level because they are showing a more ‘probabilistic framework’ of order flow in the market.
Below is an example of a good chart showing this on the USDCAD 4hr chart.
Notice how the majority of the wicks and rejections with trend hold, while the counter-trend rejections fail?
Below is another good example of a chart on the 4hr USDJPY chart.
Hence when trading, if you are trading with trend, wicks rejecting price in your favor make your trade more ‘probable’, while trading counter trend are less ‘probable’.
If you wan to learn more about trading with a probabilistic mindset, click here.
What do you mean by a ‘clean’ rejection or wick off of a key support or resistance level?
While I relate to support and resistance as ‘zones‘ of order flow, sometimes they line up super well to where you can clearly see price is rejecting off a very specific price and value.
Case in point, take a look at the USDCAD 4hr chart from mid-October last year to mid-Jan this year (~3 mos).
You can see in the chart above, the price action rejected off of the key resistance level near 1.2913 six times in a 3 month period with almost every rejection happening within a few pips of each other, and the biggest break being only 7 pips.
When price rejects very ‘cleanly‘ off of a key support or resistance level, they become more ‘probable‘ of a legitimate rejection.
Not all charts and key levels will look like this, but they do often in many price action structures, and can be good for building your ‘probabilistic framework‘ for understanding price action context and the order flow behind it.
You can see another example of this below with the USDJPY daily chart.
Notice how 3 of the 4 rejections were almost at the same price with only one breaking by a small amount?
There are many other ways to understand wicks and rejections in the price action, but these are two good methods to work with that I use personally and trade profitably with my own money.
Forex price action trading wicks (or wicks in any market) are important to understand, particularly from the perspective of order flow and price action context. Wicks ‘communicate‘ at a base level ‘rejection‘, but they do not by nature determine any rejection to follow through.
However there are ways you can use wicks in your trading price action, particularly the two methods I mentioned:
What did you learn from this free trading article? Do you feel you understand candlestick trading wicks, rejections and how they work in forex applications?
Make sure to leave your comment below, along with share this via Twitter or Facebook with those you think can benefit from this.
This is part 3 of a 4 part series. Listen to the last one here: Don’t Fight or Trade Like This, or if you missed the previous one, checkout The Blind Entry (How It Will Leave You Trading Blind)
I’ve shown over the last few content pieces how the idea of confirmation in price action is an illusion. This video demonstrates that when retail traders are getting in the market, professional traders are already in profit.
Here’s the transcript for the video:
“Hello, traders here.
Chris Capre, 2ndSkiesForex.com.
So I’ve recently shown over the last few content pieces how the idea of confirmation in price action is an illusion and it’s not what professional traders are looking to enter the market.
I’ve also shown how entering on a 50% retrace tweak entry on a pin bar is a sub-optimal or retail entry.
I think it can be easily said that when retail traders are getting in the market, professional traders are already in profit.
This video further demonstrates this about the pin bar entries, such as the 50% retrace entry, or the sell on break being also a retail or sub-optimal entry.
Now, I’m going to use an example here from a live trade I’m in right now and this is one that I’ve discussed in my members trade setups commentary in the price action course.
So, I sold right at this resistance level.
I felt like we’re still in a range type structure and that if the market protruded up to this resistance right over here, that sellers or offers would enter the market and push the pair back down.
And that is exactly what happened. So I got in at 1.4975 and literally it was about 6 pips off the intraday high.
And so I put a stop just above these little wicks right over here, particularly this one here, which left me with a 30 pip stop.
Now, I’d like to compare this entry versus the 50% retrace entry or sell on break so that you can see the differences.
Now, going to another chart here, first off using the 50% pullback entry here, you would’ve missed this trade completely.
So according to the faux authorities on price action, particularly Nial Fuller, the next entry would be the sell on a break of the lows here.
In fact, pretty much every other person who teaches the cut and paste or carbon copy version of price action that you see out there, especially around the pin bar, would all say you either sell on a retrace or you sell on a break of the lows.
Now, this gives you a much worse entry, and about as late or a retail entry as you could possibly get. So that puts you in at about 1.4943, roughly.
Now, assuming in most cases we’re going to have the same stop, just above this here, most of the time we’re gonna have the same stop on the same type of entry.
You are going to need a 70 pip stop compared to my 30 pip stop which is at 1.5003. So you need 70 pips, I have 30.
Now, just from a risk to reward perspective, when you are hitting +70 pips or +1R which would put you at 1.4863, that’s right about… that’s actually below the intraday lows.
So this right here is your intraday, that would be your +70 pips or your +1R.
When you are hitting your first +1R, my entry at 1.4975 is up already 112 pips, is at +4R. So now the moment you’re getting your first R, I’m already up 4 times that.
In fact, by the time your entry in the market right here at 1.4933 which is a pretty razor sharp entry if you’re selling on break, I’m already up +40 pips from my 1.4975 entry. Or in this case, +1.33R.
Again, coming back to the perspective that it is
“more often a professional is already in profit when a retail trader is entering the market”
you can see the differences quite clear here between the two entries.
But let’s play a little fantasy here. Let’s say that the market pulled back magically to your 50% level perfectly.
Let’s say you got the absolute highest uptick on the pullback. The best possible entry in the trade. It just happened to go there. That would be 1.4958.
Now, again, assuming most of the time we will have the same stop loss placement, your stop loss is 47 pips if you put it at 1.5003 whereas mine is still 30.
So when you are hitting your first +1R at 1.4910 which is right about here, there, so when you’re hitting your first +1R, at 1.4910, I’m already up 65 pips or +2.16R.
So, with that being said, it should be very clear, especially with all the other content I’ve posted before this, it should be very very clear the differences between a professional trader’s entry and a retail entry, especially being offered by the faux authorities on price action.
If you want to continue to have sub-optimal retail entries, then you can use the 50% retrace entry.
But if you want an entry location that gives you better accuracy and a higher +R per trade, many times double the +R available, then you’ll want to adjust your entry method.
And this is what I teach in my price action course, particularly how to get plus high R trades like this.
Now, if you found this video lesson useful, please make sure to like, share and tweet it below, and I’d love to hear from you what “a-ha” moments you have from this video.
So please come over to see this video on my website as well at dev2ndskies.wpengine.com where all the discussion is happening and leave your comments there.
But thank you for watching this video, again my name is Chris Capre at 2ndSkiesForex.com, where I teach you how to increase the way you trade, think and perform.”
Now that you’ve seen the video and had a chance to analyze the two methods and how they perform differently, which one wins?
What do you think? Please share and comment below.
This is part 3 of a 4 part series. Listen to the next one here: Don’t Fight or Trade Like This, or if you missed the last one, checkout The Blind Entry (How It Will Leave You Trading Blind)
This is a trading video on set and forget price action trading strengths and weaknesses.
Read more
Why confirmation price action signals crush your trading profits and success.
Read more
What do you work on to improve your trading skills and become a more profitable trader each day? I’m willing to bet the majority of you are not doing this. And what I’m referring to is a secret most professional traders and elite athletes know.
What is this one thing you’re missing if you’re not making money trading and won’t become profitable. But the key isn’t just knowing what this secret is, but making sure you put it into balance.
In today’s video, I talk about something that is dominating everything you do in trading, including why you struggle for consistency and profitability in trading.