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Understanding Price Action Trading
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obdlc
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September 24, 2014 - 20:57
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Hello Theo & everyone here on ElectroFX.

I become a free member last week. After reading all the material and watching the videos, I thought it would be a good idea to take a chart and notice how many trades I'm able to spot on a certain period of time.

The chart I'm attaching is from the EUR/USD on the Daily Chart. I'm not using the MT4 platform, but set it up the in a similar way Theo teaches. I'm using Renko charts and 2 layers.

I'm sorry if it is a bit messy or confusing, I tried to zoom it out a bit so everything could be seen. The number there are use for the pushes on trends spotted, whether on the fast layer (small number) or slow layer (big number).

I notice in the videos, that instead of waiting for the 3rd wave to entry, one could see it as 3 Point Turn pattern for an early entry trigger, and that's what I've been applying.

Any advice would be highly appreciated.

Thank you.

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Theo Patsios
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September 24, 2014 - 22:02
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Hello,

It looks to me like you have a good level of understanding, you can only expect a low trade frequency at that Daily level but they will always be very solid trades. I only see 1 solid Entry that you have not pointed out for an earlier trigger and have marked it in with a red arrow. This is a 3-Point Turn to turn the larger wave that itself will then be a trend continuation pattern.

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As you get more comfortable and maintain a solid win rate, or even a 50/50 win rate with 1:2 and 1:3 risk:rewards trades, you should consider keeping this chart as your Map and introducing to yourself the next layer down for a better trade frequency.

Also, seeing what your win rate is for the year on this scale of chart can be sped up using back tester software. By using available technology you could actually trade several years very accurately in just weeks and speed up your learning curve.

Welcome to the Forum,

Theo

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obdlc
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September 29, 2014 - 18:40
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Hi Theo and thank you.

Following your advice I already print out this chart to have it as a reference next to my monitor. The daily trade videos you did at the beginning of the year were very very helpful.

I'm starting to backtest a couple of pairs. It doesn´t only help to give some confidence and statistics, but also trains the eye too.

You are right, the daily doesn't offer high trade frecuency. I had the plan to trade multiple pairs using the Daily (without going to the extreme of wrecking my trade management and overall risk). I´ll have a look at maybe trading the 4H chart and see if I remain comfortable with that.

Quick question: for my renko charts I use 10 as the size of the brick (like you show on your forex basic section). Do you believe this is a good parameter or should I use a smaller number?

Thank you again Theo and all the best.

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Theo Patsios
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September 29, 2014 - 22:34
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Funny enough I have just started another daily video series yesterday, I will post the first one todaycool

When it comes to the size of the boxes for any given chart I have developed formulas based on the movement of each pair. Each pair is different and has different size boxes, each pair slowly changes over time because the Market is not static and so the numbers adapt. The software that has been developed to take care of this all automatically is for median renko and goes beyond what I introduce in the free course so I don't want to confuse things too much here. I would give you this indicator but since you use renko and my numbers are designed for median renko it would not work the same, plus you would also need to make sure you had a set amount of history on each timeframe for the calculations to be made. In order for that to happen you need to download tick data and convert to hst files and move from there. The VIP video course explains everything in detail because a lot gets lost in text.

If you want to just manually try and get a good match I would suggest that you open a daily candlestick chart next to your renko chart and keep adjusting the size of the renko boxes until you have what you consider to be the best replication of the daily charts movement. You will need to do this separately for each pair and I do take this to the decimal point on the renko size. Since you are trying to replace the Daily chart you will only need to check once a month to see if any adjustments need to be made.

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obdlc
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October 15, 2014 - 18:36
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Hi Theo.

During this past couple of weeks, I was able to switch to the MT4 platform on my broker. I was also able to add many of the indicators I was using, as well as your MT4 package for easier trading.

Once again, I wanted to share with you and everyone else what I've been watching on the usdjpy this past few days.

Based on some of the videos you and Rob posted it, I decided to use 3 charts for my trading: The first one is a standard Daily Chart, the second one an approximation between 1H and 4H chart (what I would call slow moving chart). Finally the third is a fast moving chart, between 30M and 5M.

Each chart has its purpose displayed on the top.

To clarify: the Daily gives me an overall view of the market. In this case, the market (layer) has been trending up until recently and its now showing a period of retracement. This could also be the start of a directional change. I have marked levels of support & resistance found on the daily on all three charts.

The 1H/4H chart also gives me a view of the market for that faster layer. As shown, after trending up in run out of steam and created a reversal pattern (double top) at the resistance level found on the Daily chart. It is now trending down, within the retracement of the Daily chart. It's now on its 3rd wave.

The last fast pacing chart is the one I use for entry. In this case, once the reversal pattern form on the middle chart, I looked for an entry within the last leg of the Double Top, like you always show on your videos. It would be a bearish trend continuation pattern (LL and LH) on that lower layer shown by this last chart.

As you can see, my Break Even point is the neck of the Double Top. This is the part where I'm still requiring some feedback. For some that could very well be the Profit Target. However, I'm always inclined to use an Entry and a Stop Loss based on the 30M chart, but aim for a TP based on the looking at the 4H chart. It certainly gives a better R:R ratio, but I'm unsure if this is a good practice or am I missing something?

Next trade: Apart from the support found at 105.50 on the Daily, I notice there is confluence with a Fibonacci level. Not a common practice for me to use Fib levels, but interesting that this 50% Fib confluence exists. If I see an indecision candle forming on the Daily an a reversal pattern on the 4H, I will look for an entry on the 30M to the upside aiming at the Resistance levels seen on the 4H.

On the other hand, if this support level is broken on the Daily, it could be seen as the 4th wave on the 4H chart. I would go short as bearish continuation trend aiming at the 104.00 support level from the Daily, with a Break Even point at the 105.00 (marked by the Free ATM Support Resistance indicator on the 4H chart).

That would be all. I hope my thinking process is adequate and my explanation clear enough. Like last time, any advice will be appreciated.

Thank you. 

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Theo Patsios
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October 16, 2014 - 05:06
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Looks like you have a decent understanding already.. nice to see.

With regards to using the 4H for targets this is basically just a slightly longer term way of doing the same thing. The only comment I have here is that this last sell you discussed is not really a 4H trade. This is very much a trade that gets it's structure from the 4H but should be completely managed on your entry trigger chart. What I mean is that if you got yourself in to a trade that was basically wave 3 that you have marked on your 4H, it could most definitely be a target based of of the 4H because it is very much a 4H trade. Since the moved has already made a significant daily wave this 4th leg is just an extension and should be treated as an extension. I hope that makes sense.

As for break even I often do that close to target and/or after price has pulled back against me and gone back in the direction of my trade again.

You assessment of what the next trade may be is sound, always be ready for both directions and know what "proof" you need in order to trigger either.

Theo

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