I hope you all are having a great time in markets. It’s been a very long time since I published an educational article on my website. So, without wasting any time, lets jump directly into the topic.
I came across an article written by Galen Woods about price action trading recently. He mentioned that price action trading is simple, but to be a price action trader is the hardest.
Very true. You must see what everyone else can’t see using the same resource, price charts, to become a successful price action trader. If you are still in a belief that leaning some setups, patterns and etc. etc.. will bring you success, you are wrong.. They will just place you in the exact same crowd who donates their money to the professionals.
You need to learn the alphabets first if you want to speak and understand a new language. The same applies here in trading. You must be very strong with the fundamental dynamics of the market if you want to make money out of PA trading. Market structure, trend transitions, strength and weakness analysis are the fundamentals of the methodology I use, YTC.
Defining the HTF structural boundaries and the type of trends, momentum analysis and projection and depth analysis to find strength and weakness are already discussed in the previous articles. But I never talked about the trend transitions before and I must blame me for that. 😀
So, what are they?
Simple.. Up-trend to downtrend, downtrend to uptrend, up/down to sideways, sideways to trending.
You already know that uptrend is a series of higher SHs and SLs, the downtrend is a series of lower SLs and SHs. Sideways is a contraction between support and resistance. But the transition from one trend structure to the other is not an easy task to do in realtime. But unfortunately, the whole trading completely depends on this. So, you must work on this. There is no other way.
No trend definition is perfect. I agree with that. But I don’t use this stupid line to initiate any counter-trend trades. This line just helps me to console myself while accepting small losing trades that are taken as per the strategy. I have a rule-based way of defining the trend structure and I adhere to it.
Before going into the images, I have a suggestion for you. You might have heard this saying, ” You will go to the place where you want to only when you leave the place where you are right now.” The same is true for trend structure. A trend is said to be transitioned into a new trend structure only when the previous trend structure is not intact anymore in the timeframe you are looking at. Let us say, you were in a ranging environment, that gave an upside breakout and moving up without completing the transition process that I am going to explain below, the range is still intact and the range boundaries are significant until the trend transition completes. Also, I don’t treat that as an uptrend (even if forms higher SHs and SLs) as the previous sideways range is still intact. You will understand what I am trying to say at the end of this article. I suggest you make a habit of looking at the trend structure before the present trend structure to have a broader look at the context. But if you keep on looking at the previous trends, it will again make your analysis non-actionable. Our goal is to conduct an actionable analysis and to make money by accepting the risk associated with the imperfections. So, looking back at the previous trend to make conclusions on the present trend is good enough. Sometimes, you need to look further left to understand what’s happening at the present moment. That you will learn gradually.
First, go through the following images without leaving a minute detail.
up to down
Trend to sidewaysSideways to tremd
The images are self-explanatory. Are they a perfect sequence of transitions? Absolutely not. But they are something that works most of the time.
Now lets look at one of the images I have posted in the Discretionary trading FB page on Friday.
Incomplete trend transition
If you notice, it looks like an uptrend at the time I have taken the short and my trade looks like a CT trade. For me, the transition from the previous ranging environment hadn’t completed yet as there was no BPB, and I did a target that short trade into the range resistance. Look where exactly I have taken the second exit, right at the previous range resistance, a 110 tick profitable trade. My trade management was aggressive for this one, on the highs of the LTF low close bear candles until it gave a successful breakout of the structural support.
If you see what everyone else can see, you will not get money from the other’s accounts. Make a habit of looking at the charts in a broader context which only few people can see, and you got yourself an edge over others. It of course needs hard work and a lot of reviews. But that is how trading works.
Hope this gives a new way to look at the trends.
This is regarding sideways transition to a trend. As I have explained in one of my recent articles about validating and invalidating the HTF S/R levels when they are no more providing necessary order flow to reverse the price, the same can be applied to range boundaries.
When the range boundary is not providing orderflow to reverse the price, you can remove that line from the charts and that becomes a transition itself.
The above image shows price interaction with range support. When the failure of BOF is confirmed, the level becomes insignificant. So, I can say that the trend has transitioned from range to downtrend and I will be looking for shorts at significant levels when the exhaustion is evident. If the previous swing high is broken instead of continuing down, then I look for longs as the trend transitioned down to up with a breakout of TVP.