A study of price action in a trending market
This is not a trade idea, but just a guide about what to look for when a trend is starting.
1) Almost always a market will consolidate (range bound) before a trend starts.
2) You can trade the top and bottom of the range, but usually you have no idea if the range will break at the top or bottom, so it is better to wait for a breakout to show you the direction.
3) Sometimes there can be a false break, so staying more patient and await a retest is the safer option. Yes, there is a chance that a retest may not happen and you will miss the optimal entry but that is a price you have to be willing to pay if you want to trade as safely as possible. In this example of AUDCHF this week, you actually got a perfect retest and this was a good spot to enter a short.
4) Next we see a stair stepping kind of PA with market testing the previous support. All of these are good locations to enter a trade or to add additional positions.
5) I will admit that this text book style of PA does not happen all the time, but it does happen. The key is to recognize it soon and take advantage of it by adding more positions - of course as dictated by the risk management/trading plan that you have created for yourself. A well trending market is the time to increase your risk to the max that you have allowed yourself.
6) So how long should you stay with such a trade? - I will suggest that you stay in it as long as the trend continues. In most cases, the trend will not just reverse on a dime - you should see another consolidation period that shows the bears(or bulls in case of an uptrend) no longer have complete control of the market. The other side will make a series of attempts to move the market in the other direction. That should be your cue to close the position.
7) Sometimes, however the market can make a V bottom. This is usually caused by news releases, so be careful in such situations.
Finally I will add that you should be comfortable switching to the 15m or even the 5m chart and study PA as the trend slows down. You will extract maximum benefit from these trades if you develop your skills of reading price action. No one can teach you that - it is screen time and practice that will enhance your skills. Feel free to demo trade on this aspect as you improve. Mark the spot where you exited a trade and go back and check later how far the move actually went.
As you can see from my chart you don't need any indicator at all if you can read price action.
Good luck!!
1) Almost always a market will consolidate (range bound) before a trend starts.
2) You can trade the top and bottom of the range, but usually you have no idea if the range will break at the top or bottom, so it is better to wait for a breakout to show you the direction.
3) Sometimes there can be a false break, so staying more patient and await a retest is the safer option. Yes, there is a chance that a retest may not happen and you will miss the optimal entry but that is a price you have to be willing to pay if you want to trade as safely as possible. In this example of AUDCHF this week, you actually got a perfect retest and this was a good spot to enter a short.
4) Next we see a stair stepping kind of PA with market testing the previous support. All of these are good locations to enter a trade or to add additional positions.
5) I will admit that this text book style of PA does not happen all the time, but it does happen. The key is to recognize it soon and take advantage of it by adding more positions - of course as dictated by the risk management/trading plan that you have created for yourself. A well trending market is the time to increase your risk to the max that you have allowed yourself.
6) So how long should you stay with such a trade? - I will suggest that you stay in it as long as the trend continues. In most cases, the trend will not just reverse on a dime - you should see another consolidation period that shows the bears(or bulls in case of an uptrend) no longer have complete control of the market. The other side will make a series of attempts to move the market in the other direction. That should be your cue to close the position.
7) Sometimes, however the market can make a V bottom. This is usually caused by news releases, so be careful in such situations.
Finally I will add that you should be comfortable switching to the 15m or even the 5m chart and study PA as the trend slows down. You will extract maximum benefit from these trades if you develop your skills of reading price action. No one can teach you that - it is screen time and practice that will enhance your skills. Feel free to demo trade on this aspect as you improve. Mark the spot where you exited a trade and go back and check later how far the move actually went.
As you can see from my chart you don't need any indicator at all if you can read price action.
Good luck!!