Price Action Trading Reversal and Continuation

Patterns
How To Read Chart Patterns and Price Movement Using Trendline and Channel Trading
Strategies
By James E. Davis
Copyright © James E. Davis
All rights reserved. This book, or parts thereof, may not be reproduced in any form without
permission from the publisher; exceptions are made for brief excerpts used in published
reviews
Introduction

Trade is difficult.Trading is a straightforward process.

But putting it all together consistently will require hard work and motivation, and only those who put in the effort
will succeed.
Your chart analysis methods are straightforward, but while complexity is appealing to people, it is not a guarantee of
success.

Moving averages acting as support and opposition is a common theory that needs to be corrected. The theory begins
to fall apart and the trader becomes perplexed when you begin to question the conventional wisdom and start to look
at it critically.

Simple is good.I'm not requesting your belief in me. I'd prefer you didn't.
In order to prove it to yourself, I ask that you approach the material with an open mind and be critical.
You will fall short.
There is no "sure-fire" trading method or plan that will guarantee you a string of profitable trades or 100% win rates.

Your job is to consistently carry out your trading strategy and let your advantage put you back on the winning side
of the winners circle because your wins and losses will occur in a random distribution..

You won't find information about numerous indicators or unique settings that will "tip you off" to a set of profitable
transactions.

They are nonexistent.

What does exist are market movements historically, trading behavior, and small cues that indicate the likelihood of
one event occurring over another.

There isn't a table of topics because of this.

Jumping around will cause gaps in your understanding and prevent you from getting the full benefit of what you are
reading because each part builds on the one before it.

Are you prepared to begin?

INTRODUCTION TO PRICE ACTION

View the market action on any chart by opening it.

Is it rising? going downward? Going in reverse?

What is moving the price, whichever way it may be moving? Depending on how important something is, demand
and supply for it will vary.

We can anticipate slight price fluctuations but nothing to worry about if an item is considered valuable, if there are
many of them, and if it's a fair price.

As long as there is enough desire for an item, once the supply is exhausted, the price of that item will rise.
The greater the desire, the quicker it sells, and the higher the price rises.
What if sales of the product decline due to complaints about its bad quality?
Due to word-of-mouth spreading that the product is subpar, supply begins to grow while demand begins to decline.

As soon as there is a surplus, the price is reduced to draw in customers. Price will decrease as availability grows and
demand decreases.

As price action traders, we must pay close attention to how and how quickly the price changes because that is the
action of price.

When traders base their trading decisions on frequently occurring price patterns, they show the trader which way the
market is most likely to move..

3 Reasons Why You Should Trade Price Action

1. Price movement is an indicator of general human conduct. Certain patterns on the charts are the result of human
activity in the market.

In essence, price action trading is about utilizing those trends to comprehend market psychology.
The price is hitting support levels because of this, and then it rebounds back up.

This explains why the price declines after hitting barrier levels.
Why? due to a general human response!

2. Price movement gives the market structure. Although you can't anticipate the market's next move with 100%
accuracy, structure can help lessen your uncertainty and reveal what the market's likely next move will be.

3. Price movement assists in lowering false signals and market "noise". Any indicator, including the stochastic, tends
to offer false signals when used in trading.

Because indicators are derived from the raw price data, price action is a much better choice than using them as your
primary trading tool. However, price action is not immune to false signals (think failed breakouts).

This implies that a dealer won't use a trading indicator, right?

No.

When deciding whether to take a risk in the market or remain passive, a trading indicator may still be used, but price
action is the primary consideration.

Why It's Important to Consider The Four Market Stages

Markets don't move up, down, or sideways in a straight path. Both an increase or decline in price and the direction
of the market as a whole are based on an alternation of movement.

Stage One: Accumulation phase

This is the period right before a bull run that follows a sell-off, when you can start to place yourself ahead of the
move. In this area, knowledgeable traders begin to build up positions while other traders largely disregard the
market.

The method this accumulation is done must avoid catching the attention of other traders. Larger traders are trying to
develop a position at a discount and avoid attracting attention.
If there are more buyers, the price may rise quickly, which is not what you want when trying to acquire a position.

It can be difficult to identify this period because it might just be a consolidation before another leg down.
Your likelihood of identifying these price areas can be improved by: Support holding with modest probes below
Strong upthrusts intended to entice longs, halt the longs, and drive prices lower result in cheaper buy points when
applied to resistance.
● Exhaustion thrusts in the same motion-down direction.
Stage Two: Markup (participation) phase

In this stage, the typical trader starts to pay attention and starts to "trade the trend."
For traders looking to get in on the possible price uptrend, a breakout from consolidation and the occurrence of
retests of the zone are standard trading plays..

Stage Three: Distribution Phase

A bear market is thus poised to occur as a result.
You'll observe that price movement is not as fluid as it was in stage two.
Springs unable to push price above highs due to opposition
Compared to bull candlesticks, bear candlesticks have a broader range.
Swing analysis suggests greater downward movements than upward ones.

Traders who have held accounts start to unload here. They don't want to do it fast because that would result in a
sharp price drop. It's even conceivable that larger players are supporting the price to entice more longs to join when
probes are below support and then bought up.

Then, bigger players can sell for more money.

Without a doubt, you are dealing with professionals who have the funds to change prices to influence other traders'
actions, such as buying when the market is about to decline..

Stage Four: Mark Down Phase

As the bear market entered stage three, price action was indicating the likelihood that it might occur.
In contrast to stage two, traders are now selling off their assets.

When considering the markdown period in forex, things are a little different. You have taken away what you
consider to be a powerful currency and switched sides in the belief that the second currency— the quote currency—
will be more powerful than the basic currency. Why Do We Cover a Wider Perspective?

This can be viewed as the market system evolving naturally. On the oldest charts ever drawn, these four phases can
be seen.
On all charts and time frames, these four stages also appear on a smaller size.
This implies that you can base your complete price action trading strategy on:
● price trending
● price consolidating
In order to trade, you can use the factors of mean reversion and momentum that shape the price.
Why?
Since the dawn of time, markets have operated in this manner.

Keep in mind that these four phases are typically only visible after the moves have begun and can occasionally be
challenging to see. The purpose of describing these four phases was to help you understand the various ways that
markets can advance.

This will eventually be worth something..

Plotting Price: Candlestick Overview

I won't discuss the numerous candelabra varieties (do they even have a competitive edge?) but want to make sure
everyone is aware of the fundamental principles of candelabra design because they will be used.

At a few key places, variations of the basic design can provide important information. Later, we'll talk about that..
The size of the body of a candlestick will rely on the opening and closing price values.
The highs and lows experienced during the opening and ending prices are represented by shadows.

You can tell which party, bulls or bears, held the balance of power during the time period you chose for each
candlestick by looking at the size of the body and the presence or absence of shadows. Although the arrangement of
1, 2, and 3 candlesticks can result in a pattern, I have not discovered any advantage in the way these are typically
exchanged.

Depending on where they appear on the chart, these are the major candlestick types I pay attention to:
1. Depending on the location, a candlestick with a lower shadow indicates reduced price rejection and might be of
interest.
2. Powerful propulsion Candlesticks indicate confidence in the path, which in this case is downward.
3. This candlestick is "unusual" and frequently denotes a price peak. In this instance, it might at least briefly halt the
price decline.
4. An examination of and rejection of higher costs are indicated by the upper shadow. Location is crucial, just like
the bottom shadow.
Recall the four stages for a second as we put the puzzle pieces together..

Swing Analysis - The Importance It Holds

Markets fluctuate between ranges and trends, and patterns are more likely to keep going than to reverse course.
What will be covered is not time frame dependent, but there may be different paths for higher and lower time
frames.

I'll be using daily charts in the instances to make things clearer. Given that trends endure, finding a means to take a
position in the same direction as the market's trend makes sense.

Swing analysis comes into play when determining the trend's intensity, which is the first thing you'd want to do.

I don't want you to start searching for chart patterns or to activate a technical indicator. We are interested in learning
the differences between a pattern and a range..
What do you observe about each of these swings just from a quick glance? What distinguishes them from one
another? Are they all the same or does one seem bigger than the others?

Is the chart growing or ranging? should be your first question when examining one.

1. Since this is the impulse phase, we want to see a price surge that indicates buyers are still enthusiastic about
entering the market.
2. The price is retracing or correcting itself. We want this pullback to be small and generally, without strong
momentum candlesticks, so that we can be sure that we have some strength overall.

3. Since this is the trend's continuation, we want to see the second impulse leg's power to remain strong.

Searching for strong impulse movements, taking a position during the corrective phase, and then riding the second
impulse leg to profits is one of the simplest (and most successful) trades.

As a general guideline, avoid thinking about counter trend trading when you see a strong trend like the one shown in
the graphic.

We'll also discuss when and where that is appropriate, and we can tell by looking at price action when a countertrend
trade might be a risk you can stomach.

Naturally, a market that is rising higher will record greater swing highs and lower swing highs.

That is the structure of an uptrend, and a downtrend is the opposite..

This is a very obvious uptrend, and I've highlighted some areas that would be valuable to a price action trader
seeking to open a long position.

1. We don't want to see significant trend-contradictory adjustments like this one. The market may be able to correct
its overbought state without the need for another push lower thanks to a consolidation that has occurred at the
conclusion of the thrust. Support settled the price.

2. A second new peak and a price decline. Since the momentum candlestick is unable to break the support level,
buyers may be moving in to support the price.

3. As the price increases, there is a brief decline that is followed by a stabilization. Price breaking the high and then
losing momentum is a warning sign for a long investment. When the price declined and did not recover, a short trade
with conservative profit goals could be justified until/if a new trend was formed.

4. Within three bars, the price breaches support and moves back above it. That suggests that bears are once again
doing well.

This is a unique approach. There is hardly any retracement or range as the tendency grinds higher. A low volatility
move like this can indicate at least a short-term pattern change, which may seem counterintuitive. Why? It has a lot
of longs. merchants are just swarming in, loaded. Try shaking a closed soda container as an analogy. When you load
that, it eventually pops with a loud bang.

Takeaways
We want to see strong impulse movements in the general trend direction because trends in motion tend to remain in
motion.

Corrective movements must be less pronounced than the impulse; breaking support for longs (resistance for shorts)
does not automatically signal a trend shift; and low volatility pushes in the trend direction frequently finish with a
bang rather than a fizzle.

Swing Analysis - Trends To Trading Range

Rarely do markets simply go from rising to falling; instead, they typically settle into a trading band.

A trading area is defined.

You can categorize a market as trading in a range when it is not forming a trending pattern, greater highs/lows in an
uptrend..

Something has
changed in the market once we stop reaching higher highs while in an uptrend. We have stopped being trendy.

Until proven otherwise, assume a consolidation is starting when you see a price pattern with a red star in it. Why
make snap judgments? Work with what you can see.

The corrective swing before the star is longer than the prior swing down in price, which is another indicator that the
uptrend may be having some difficulties.

Traders who had positions long before the final surge up would be carefully weighing their options.
Is this the start of a stabilization in a sideways trend?

That's one result. A complicated correction is a different one..

When the market draws back in two waves, traders who position at the red line on a pullback typically get stopped
out.

Another problem is that we will have established a lower high and lower low when the price crosses the red line.

Technically, that is a downtrend, which might tempt traders to sell, but keep in mind that trends typically don't
simply revert without a stage three distribution.
You can watch for complex pullbacks to happen after a strong market run as well as after one or more simple
pullbacks.
Takeaways
Longer corrective movements indicate some market weakness.
A simple pullback's low being broken does not indicate a trend shift.
Expect complex pullbacks following strong impulse legs and one or more straightforward pullbacks.
Explosive price movements may be risky.

When trading a pullback, we want to see some momentum from the previous move, which may indicate that the
market is getting ready for another leg up.

Weak impulse moves can serve as a caution that entering a continuation trade is not the best course of action,
particularly if divergence is visible.However, we don't want to see too much progress..

1. Price breaks previous resistance with force, and it is clear from these two candlesticks that they vary greatly from
those in the swing up.

2. The thrust above highs and subsequent failure should have reduced your expectation for a smooth pullback
trading chance, if the strong momentum hadn't already alerted you to it.
3. As the price gets closer to the third contact, draw a trend line connecting earlier peaks. When the price twice
crosses above this trend line, you should think carefully before entering a continuation trade on a pullback.

Although the concept of "too much" is arbitrary, a trend line can be used to determine whether price has moved "too
much, too fast." 1. Takeaways
2. Strength is beneficial. That is not enough.
3. If the momentum is too strong, we can use an objective method
to assess whether the likelihood of a complicated correction
and/or prolonged consolidation is present.

Support And Resistance: Is It Really There?

For a variety of factors, there are price points where products will struggle to sell.
Can we, however, always predict them in advance? No.
To be explicit, price only rejects from support or resistance zones (not specific price points).

1. Is there opposition
here? Be precise. Price doesn’t truly resist until that happens.
2. Resistance, indeed. Is there still opposition?
3 . No. It might have been, but price cuts defeated it.

It is not the point to declare a price point support or barrier as the price moves toward it. It might become that, but
each time the price approaches a zone, it might also be turned around.

Let’s examine how potent support and opposition can truly be in the appropriate setting.

You can see that selling resistance and buying support were some excellent trades by looking at the green arrows
that emphasize the areas where the price bounced, sometimes more than once.

Would you have attempted some of the exams, retakes, or levelbackward bounces?
Do you see a benefit to having high levels?
The issue is that I closed my eyes while placing these lines on the map at random.

If you had chosen to trade these lines, you would have done so against arbitrary price zones that have nothing to do
with the chart's price movement.

What should you use for levels is a query that should be obvious.
Use stages that are clear to everyone and place some distance between them. We can measure the area in an
impartial manner, and that will be covered next.

Recognizing that levels can collapse at any moment will help you treat any lines you draw as potential barriers
rather than actual ones.
The conventional wisdom is to choose zones that stand out on the chart, but there is also another approach that is
equally legitimate.
Examine The Swings Inside
Going inside the extremes places you where the action typically is instead of choosing the extreme points, as is the
conventional advice.

Price frequently makes a low (or high), a lower low, and then fails to create a double bottom before bouncing back
in the vicinity of the pivot before the extreme low. (or high).

There are many possible explanations for this, but to keep things straightforward, let's suppose that more rivalry
occurs when price attempts to challenge extreme positions.

Breakout traders, as one example, will sit on their hands if price remains out of that volatile region because price
won't trade into the low.

On a chart, this won't appear as neatly organized in reality, but if you practice seeing them, it does become simpler..
The white lines on this gold chart start from swings that come before the extreme peaks. On this diagram, some are
obvious, while for others, you will need to enlarge the image in order to see the center points of these lines.

Prices will sometimes spike into these lines numerous times before settling on them and turning away from them.
This idea is crucial.

You should grasp the concept of support and resistance because it does depict the equilibrium and imbalance of
supply and demand at particular prices.

A trader can benefit from knowing whether support and resistance zones will stay or break.

It will, at the very least, provide you with an area where you can use market action to decide whether or not you
have a trade.
The question is whether you can exchange this with assurance and reliability.

The main points to remember are: How can you tell that the levels you are showing on your price chart are any
better than a random level?

Keep an eye out for levels that are glaringly apparent.

Use price levels where there have been prior responses.
These are general statements. Make use of a large variety for the levels you select.

Support And Resistance During A Consolidation

As was stated earlier, lines can be found on a chart in any random place and seem to influence price. Is trading at
chance a viable option? No.

Some price segments on a chart are not randomly placed; rather, they are created as a result of how price changes
over time, from trends to ranges to trends. How can we tell when prices are settling?

Higher highs and lows or lower highs and lows make up the typical trend structure. The market is not trending if that
tendency is broken.

The pattern of higher highs and higher lows was disrupted in this uptrending market once a lower high was
established..
The preceding pivot high in an uptrend and pivot low in a downtrend must be defeated for the market to continue its
price increase (trending activity).

A trade range can produce one of two things:

1. The market is in a trading range, and until there is a breakout, we anticipate the market to move in the same
direction.

1. 2. Price may be in a distribution or accumulation range, which will cause a shift in trend..
Prior to breaking sharply to the downside, this trading range persisted for approximately two months.

Even while there were a few price action indicators that the downside had a higher likelihood of occurring, it is only
in hindsight that it can be determined that this was a distribution range.

Bear candles with a wider spectrum that are stronger

After settling below resistance, the price failed to breach it.
Can you understand why support and resistance appear to be less random in respect to trading ranges?
Price action indicates a trend's termination.
Price is not clearly trending within of the major pivots. ● Most price motion is contained in drawing lines at pivots.
In this chart, a trading range resolves into a continuation of the market's prior upward movement.
Any signs of a break to the upside?
• Basing at support + probes but higher price rejections
• Assuming that the breakout resolves in the trend's favor
Strong forward motion into the initial high pivot

Let me add that a breakout where the price moves from the bottom of the range to the top should be viewed
suspiciously.
You might argue that it is more of an exhaustion of price than a continuation of the trend because it takes a lot of
buying pressure to move price in that way..

Let’s take a look at another continuation range

Can you identify the key distinctions between this trading range and the prior one?
1. Price immediately regained support after failing to withstand the downward momentum.
2. Baselining underneath resistance, which can provide you with a fantastic entry before the break.

3. A push in momentum and a narrow range at the candlestick's peak indicate a bullish trend.
When lower prices were refused, price finally returned to test the breakout level, and the market continued to rise to
new highs..

Takeaways

● Markets either trend or consolidate, and you need to know which one it is at the moment. (this is not as easy as it
may seem)

● Trading ranges ultimately develop into trends.

● Trading within the range is frequently a crapshoot, and betting on the extremes is frequently the wiser move. ●
Examine the range for bullish or bearish signals.

The A-B-C Of Price Evolution

We may take advantage of the energy that is contained in price movement by understanding how it moves.

Our trading possibilities emerge in a variety of ways during these complicated moves..
This condensed explanation of how the market functions emphasizes that it doesn't proceed from point A to point B.
Prices veers off in the direction of A-B-C.

These movements are less clear and may be trickier to define on an actual chart.

Crunching the candlesticks together will frequently smooth out small blemishes and draw attention to the significant
details that we will find interesting..

Price will:
● Trade within a range till it.....
● When it departs from that range and gains pace, it will result in...
● Trending price movement that will ultimately result in...
● Another trading range that might either be a trend continuance or trend reversal

● If we keep an eye out for price action and emerging structure that shows us where the probability is highest in this
development, we can spot our trade opportunities.

● I should also point out that price can occasionally reverse the trend without a consolidation by forming a "V"
pattern. ● These price increases are difficult to trade because they are highly emotional.
● For these, I merely wait for price to "settle" before entering a trade from a bullish or bearish flag or a sideways
consolidation.

The key points to remember are:

1. Finding your trades is this straightforward when you follow this method.
2. It is challenging in actual marketplaces.

Mean Reversion Trading

The concept of mean reversion assumes that a market that has diverged greatly from its average price would
eventually return to a region near the average price..
These transactions are frequently referred to as countertrend trades, but occasionally they will stop the existing trend
and produce an opposing trend.

Your goal should be to trade against the trend with modest price objectives and treat a complete trend change as a
gift.
Not all mean-reverting markets merit taking a chance.

When the retreat is finished, you should think about making a trade in the direction of the price's initial push because
the mean reversion is sometimes accompanied by a rollover in price.

Some markets that are reverting are worth the risk.

Traders may choose to hunt for a trade in the direction opposite to the initial thrust if it indicates an overextended
market..
1. When appropriate, you begin to fan the trend lines as the price begins to stray from the initial trend lines.
Generally speaking, check to see if the last swing before the price peak (or trough) was tied to a trend line.

2. After two weeks of gains, a powerful momentum candlestick pushes to the upside, but the price does not continue
in the momentum's direction during the following several days.

3. Price plots a high over the two-day consolidation's resistance zone but rejects it right away.
Considering the setting of this chart::
• Fanning of trend lines as a result of the price's quick ascent
• Gained momentum and inability of momentum to last
• Strong opposition to highs The conditions are ideal for a mean reversion trade.
In this case, the reversal occurred at the USDCAD high of 2016, which resulted in a shift in the currency's trend.
Here's an illustration of how crude oil futures have changed.

1. Trend lines are continuing to slant upward, indicating a stronger run higher in price.

2. Beginning with this example, compare the personalities of each retreat and subsequent breakout, as discussed in
our prior discussion of swing analysis.
3. The price is rejecting highs while creating an upper shadow. This leg's downturn undoes gains made during the
previous five days. The red candlestick closes at the bottom half of the preceding candlestick because the subsequent
swing is unable to reach a new high.

These trades can be entered in a variety of ways, depending on how powerful the corrective move is.
Traders could hold off until the highest low is broken.

On the downside, traders may employ an upward-sloping trend line and enter on a break. When the corrective move
is a momentum move, this approach works well.

When price tries to hit a new high, some traders will utilize a smaller time period and hunt for a bearish pattern.
Before choosing to assume risk for a mean reversion trade, you would want to see those kinds of price events, in
varied degrees.
Takeaways:
1. Mean reversion is a typical feature of price evolution.

2. The majority of mean reversion markets are creating opportunities to trade pullbacks in the direction of the prior
leg.
3. In some mean reversion markets, countertrend trades are worthwhile if the price is exhibiting overextension or
exhaustion.

Trend Continuation - Function Of The Market

One trading strategy that is easily overlooked in a world where complexity frequently outweighs simplicity's
efficacy is the pullback.
Recall that we previously discussed the four stages of the market, and that the second and fourth stages are when we
see price trends.
Markets don't rise or fall in value indefinitely, and price pullbacks are frequently experienced along the road.

Some traders will enter the downturn before it starts using a mean reverting trading method. As we set up for a trend
continuation trade, their exits may help advance our trade.

In order to do this, we will use price action to help us choose an entry point and a price pullback (commonly referred
to as a correction).

1. Trend lines are continuing to slant upward, indicating a stronger run higher in price.

2. Beginning with this example, compare the personalities of each retreat and subsequent breakout, as discussed in
our prior discussion of swing analysis.

3. The price is rejecting highs while creating an upper shadow. This leg's downturn undoes gains made during the
previous five days. The red candlestick closes at the bottom half of the preceding candlestick because the subsequent
swing is unable to reach a new high.

These trades can be entered in a variety of ways, depending on how powerful the corrective move is.

Traders could hold off until the highest low is broken.

On the downside, traders may employ an upward-sloping trend line and enter on a break. When the corrective move
is a momentum move, this approach works well.

When price tries to hit a new high, some traders will utilize a smaller time period and hunt for a bearish pattern.
Before choosing to assume risk for a mean reversion trade, you would want to see those kinds of price events, in
varied degrees.
Takeaways:
1. Mean reversion is a typical feature of price evolution.
2. The majority of mean reversion markets are creating opportunities to trade pullbacks in the direction of the prior
leg.
3. In some mean reversion markets, countertrend trades are worthwhile if the price is exhibiting overextension or
exhaustion.
Trend Continuation - Function Of The Market

One trading strategy that is easily overlooked in a world where complexity frequently outweighs simplicity's
efficacy is the pullback. Recall that we previously discussed the four stages of the market, and that the second and
fourth stages are when we see price trends.

Markets don't rise or fall in value indefinitely, and price pullbacks are frequently experienced along the road.

Some traders will enter the downturn before it starts using a mean reverting trading method. As we set up for a trend
continuation trade, their exits may help advance our trade.

In order to do this, we will use price action to help us choose an entry point and a price pullback (commonly referred
to as a correction).

Starting at "A, " swing analysis enables us to see how strong this upward movement is. Although there is an
evident reversal candlestick at the highs, trends rarely simply reverse direction. On some level, trends typically enter
a trading range before breaking in the opposite way.

Long upper and lower shadows on the candlestick that follows the reversal indicate that there was a trending upward
advance on the lower time frames.

On the daily chart, it appears to be a straightforward correction at first, but as you take into account the price
movement on the smaller time frames, it turns into a complex correction.

A measured move, which gives us an approximation of the end of the second leg where to search for the entry, can
be made by measuring the first swing and projecting that distance from the tip of the doji candlestick.

Four Hour Chart

Let's focus on the key elements on a four hour chart to get a clearer picture of the retreat at "A.".
1. We do not want to witness a downturn that includes a forceful slam against the trend. If you had noticed this, you
might have remained passive as the price started to revert to the trend's direction. If necessary, return to the swing
analysis section.

Strong momentum shifts like that at turning times will frequently position you for a quick trade in the anti-trend
direction.

2. It is clear that the second leg differs from the first leg in personality. This fits better with a pullback that we might
wish to take.
In this instance, price surges beneath the support level (remember our discussion of candlesticks? ), rejects lower
prices, and traders can position with a stop order over the high of the rejection candle.

The breaking out of the three candlestick range following rejection could be another entry.

Price falls down once more and begins to base just beneath the downward-sloping trend line following the rejection
and breakout. Another place to position yourself is here.

Your entry would have been in the three bar range that occurs after the reversal if you had stayed on the daily chart.

All goals and stops should be based on the higher time frame chart if you choose to drop your time frames for
entering when price enters an interesting area.

Not All Pullbacks Are Clean

The pullback at "B" is a little trickier to trade than the one at "A," which was a rather clean pullback, but we can still
apply everything we've discussed to give us the advantage when markets become more volatile..
Now that you've looked at "B," the following details ought to be clear to you:

• The modest rally's first leg has momentum, and based on our swing analysis section, we'd prefer not to see this
kind of movement.

• Once again from the swing analysis section, the trend has entered a trading range, and price activity within ranges
can be challenging to understand unless it is at the extremes.

• We expect price to approach our measured move target, which is located at the green line.
As demonstrated in our section on candlesticks, the market initially rejects lower prices before beginning to move
upward.

The information given in the section headed "The A-B-C Of Price Evolution" is illustrated by this example.
Price decreased.
• Became part of a trade range
• Returned to the ground
• finished a difficult correction
The likelihood of an upside resolution was strong given that we were in an uptrend..
This four-hour chart demonstrates how challenging trading markets may occasionally be. Consolidation is implied
when a market makes higher lows and lower highs.

In retrospect, you can see where you would place yourself, but it would have been very challenging to read this chart
in real time, especially the middle. Avoid these markets or time periods.

Where do you think there is trading potential? What you see on the daily chart is being examined in greater detail by
the arrow. Recall momentum and candlesticks? This demonstrates the measured move's completion and price
rushing into previous support. Price stops, and lower offers are turned down.It switches to momentum bull
candlesticks from momentum bear candlesticks.

With this chart, there is a clear shift in character..

How Do You Enter Pullbacks?

We can locate an entrance to take a position in the market using the same information that we have already
reviewed.
Knowing when the tide has turned and the continuation of the trend direction will take over is the problem.

You can never be 100% positive of anything in trading, but we can look for price movement that suggests the
continuation.
1. Momentum candlesticks in the trend's direction during a pullback can indicate the trend is likely to continue.
2. Lower price probes and rejections (in an uptrend) suggest that the balance is shifting back to the upside.
3. Lower time frames can be watched for a close-up look at candlestick formation in higher time frames and
indicators of trend continuation.
The decline in the price of Bitcoin has an impact on this stock, RIOT. The value of this stock continued to droop
after the sharp price drop, drifting back toward where the uptrend began.
The same kind of price thrusts that we observed after the initial decline did not return to the market.
When employing momentum as a trade entry, we want to see the green circle.

Price dropped into a support area; will it hold or collapse?

The largest green candlestick in the most recent price movement is in the area of support, indicating that support is
remaining in place. (momentum has stepped in)

Continued to be below the trend line (would you still enter?)

Price discrepancies are strengthening.
You can place a buy stop over the momentum candlestick's high. If the interest results in a price discrepancy, that is
an issue.
Arrive before the candlestick closes
Enter the next day's opening (paying slightly more)
Trade Entry Using Lower Time Frames
When using this method of trade entrance, you must keep in mind that your stops and targets must be set using the
trading time frame.

Make sure you stick to the shorter time frame you are employing. I'm using the daily chart as the trading time frame
for this example, and the lower chart is for 30 minutes..
1. 1. The price resolves into a trading range and gains significant momentum off the lows. We can only get a
stronger upward movement from an upside breakout. Instead of betting the breakout itself, we are trading the
potential resolution of a pullback.

2. 2. To position yourself before the breakout, use probes below with quick lower price rejection as an entry.

3. 3. As with the daily chart, in this illustration you can buy stop at the high of the momentum candlestick. Keep in
mind that pullbacks following a powerful breakout are typical.

To elaborate on point #3, after the breakout and the subsequent pullback, you will apply what you already know
about successful pullbacks, which is that the price movement shouldn't be robust throughout the pullback..

Takeaways:
● Pullbacks are a frequent trend in the market that provide a trading advantage.
● Find a powerful setup leg that, in your opinion, justifies another leg in that direction.
● The two most common types of pullbacks are simple pullbacks and complex pullbacks.

● Momentum within the pullback legs is not a positive sign, and after a decline with momentum, we frequently
observe price developing into a trading range.

● Lower time frames can be employed so that traders can watch the price movement during the downturn and search
for indications of the trend resuming.

Trading Ranges - Breakouts - Is There An Edge?

Returning to the four stages of a market, it is clear that price ranges and breakouts from them are regular
developments in price.

Breakouts generally receive the advice that they will fail. Some do, but not all, and it's our duty to figure out how to
tell, by price action and structures, which ones stand a better chance of succeeding..
You can see where price had established a support zone that we could readily describe in this chart of T-Bond
futures. When a price breaks through a support level, it keeps falling.

Depending on the time window you are looking at, these ranges will appear longer or shorter.

What we are interested in finding out is if there is anything we can do to set up breakouts that are more likely to
succeed than fail.. It is simple to see a range, adopt a stance, and cross your fingers. You'll make accurate predictions
at times, but you'll also lose money.

What can we observe that can help us identify breakouts that have a chance of succeeding?
Trending Patterns

When we locate a clearly defined resistance zone, we may utilize this information to determine whether the market
is chasing higher prices by making higher lows..
The higher highs that are leading to the resistance area, which we can define once the second peak is plotted, are
shown by the blue lines.
We have money committed to even higher prices because traders are purchasing this market at higher costs..
Accumulation Inside The Range

This makes use of specific candlestick types that illustrate the rejection of lower prices while traders build up
positions inside the range..

Seeing lower prices being quickly purchased and the price reentering the range is a clue that we might be witnessing
the instrument's position accumulating.

You might begin trading when the highs of these kinds of candlesticks are broken, putting you in a position to profit
if and when the breakout to the upside occurs.

You must make sure you have risk management procedures in place to safeguard you in the event that the range's
bottom is broken with momentum. Make sure you are not trading solely on "hope" because they can break severely
against you.

Range Inside A Range

Smaller ranges are frequently found inside of larger ranges, and depending on where they are, you can place
yourself inside of those smaller ranges..

This chart serves as an illustration of some of the concepts we've discussed in relation to what may result in
profitable breakthrough trades:

• Price is forming higher lows as it approaches the resistance zone.

• In the upper part of the bigger range, price established a smaller range.
• Accumulation indicators in the smaller range

Remember that if you trade longer time frames, you will have to infer these kinds of patterns and then zoom in on
the smaller time frame to see the pattern's creation.
This is the four-hour chart's daily counterpart.

1. This candlestick appears on that day after price closed off the lows of the previous day and is moving within the
range of the preceding two candlesticks.

2. A sort of volatility compression is indicated by the fact that this candlestick is contained inside the prior
candlestick's range. On the four hour chart, we can locate our range inside of that candlestick.

Enter After The Breakout

Sometimes the price movement is unclear and you are not in a position to profit from the breakout.

That might also happen if you continuously select time frames that don't exhibit a pattern you can identify and stick
to the time periods you've chosen for your trading plan.

You must be aware of what a "good" breakout resembles when this occurs..

I want to give you a superb illustration of what a successful breakout might entail. You missed the entries before the
break, so keep in mind that you are attempting to position after the price has broken out of the range.

Because you are trading a pullback in price rather than the breakout itself, standard pullback rules apply.

There are other ways that pullbacks might take shape, but the main thing is that we don't want to see strong
momentum working against the breakout..

Here, we can see the range and a clear departure from it. A pullback occurs after a 25% gain in price, and you
should note that a complex retreat with two legs has developed.

The length of the first leg, which gives us a rough idea of where the complex correction will terminate, is shown by
the green line, which is projected from the peak before the second leg.

The question then becomes, "Would you have been stopped out on the second leg?" An entry at the green circle
would have been acceptable.

Many traders have been instructed to place their stops around the breakout level because they believe that if price
breaks through the previous resistance line and moves back into the range, the trade has failed.

The volatility and variations that occur around the breakout levels cannot be accommodated by that stop since it is
too close..

One of the better areas to put stops is below (for long trades) a pattern discovered inside the range. Stops should be
placed in a way that invalidates the trade..
The support zone of a smaller range inside the larger range is highlighted by the dotted green line. Placing your stop
below such zones allows you to benefit from holding transactions even when the zone is breached again, which is
typical and should be anticipated.

Being a price action trader, you should be aware that significant momentum working against you is not a good
indicator. You should also be on the lookout for further price action that would indicate the trade won't be
successful.

If price action is telling you any failure of the pattern, such as significant swings against the breakout, you do not
have to hold the trade to the stop..

Takeaways:
● Breakouts are a typical part of price evolution and can be used as a trading strategy.
● There are some patterns that can indicate that the breakout has a probability of becoming successful.
● Trading the patterns within the overall range increases your chances of success without ensuring it.

● If pre-breakout setups don't work out, you can still trade the pullback following the break using the pullback
trading guidelines.

Summary Briefing

You have learnt a framework on these pages that will help you approach any chart with a price action perspective.
Now it's up to you to put in the effort and compile this data into a trading strategy that you can apply to your trading
firm.

To complete a trading plan and to give yourself the best possibility of trading success, certain essential components
that must be covered must be addressed..