TaiChi Price Action - Intraday Trading Strategy

[Taiki]

Before going to the next topic of determining the trend and trade direction, lets have few concepts/definitions of price action trading that I use in this approach. These are nothing new, and many of these are already discussed in other forums, by other member.. I have learnt all these things from Trader Ji, Web, and books..

Keeping them here to complete the concepts, and they will be helpful for future reference as well...

Regards
Taiki

 

[Taiki]

Price Action Trading

Price action trading concept represents analysis of price movement as a process of financial speculations. It is a form of technical analysis which completely ignores the fundamental aspects of a security and gives focus only to the relation of security's current price to its historical price. It has no mystic power that can predict what the market will do, but it works to keep the odds in our favour by trading with a perception that the trend will most likely continue. Trend continuation is the most likely while never guaranteed outcome of the markets.

Trading price action is not only about trading chart patterns and doing candlestick analysis, but it is also about to be able to successfully read and understand what the chart is trying to communicate.

Price discounts everything

Price of an underlying product rises or falls based on the net supply and demand. And there are many factors which can affect the net supply and demand. Price moves with trader's anticipation. It is the result of the expectation/effects of various macroeconomic developments, outcome of good quarterly results, Govt. regulations, anticipation of inflation data, employment reports, rate hike etc. Price moves in anticipations, and when the actual data is out price reacts to the accuracy of the estimation rather than reacting to the actual data. But whatever is the cause, the effect is, price changes. And by the time the public is ready to act, the news is already reflected in the price

In technical analysis, we are not concerned about the reason why market is rising or falling. As anything that can affect price (fundamentally, politically, and psychologically), but whatever reason it is, it is actually reflected in price. Therefore it follows; the study of price action is everything that is required.

Regards
Taiki

 

[sangram1705]

Objectively defined trading rules.

2. Market Structure Analysis

Market structure represents the overall picture of the market at any given point of time. It signifies all the interconnected characteristics like potential areas of support and resistance, price trend, relative strength of buyers (bulls) and sellers (bears), momentum and activity and ease of entry in to and exit from the market.

Though studying the market structure does not guarantee about future price movement, it does keep the odds in our favour by helping us to identify where the price is with respect to past swing high or swing low, its direction and momentum. So that we can analyze the current price action with respect to previous pattern and where it is more likely to head.

How to analyze market structure

They key to a solid and proper market structure analysis does not limit to analyze the price chart confined to a single time frame. So I prefer studying the price behaviour from a longer time frame, and slowly trimming down to the smaller time frames. Higher time frame analysis gives a broader view of market, picturing a long term view, and when I carry my price action analysis down to smaller time frame it gives more finer details of price behaviour within the broader framework.

I start my market structure analysis from weekly chart, and then coming down to 4hour, 30 minute and 5 minute chart analysis.

Step I - Weekly Chart Analysis

Weekly chart is the chart where each data point is comprised of the price movement for an entire week of trading. Thus it shows the price trend, congestion, support or resistance levels from a broader prospective which lasts for several months. Therefore this gives us an idea of price behaviour on a long term trend.

Step II - 4 hour chart analysis

A regular trading session on NSE has almost 7 hours of trading. So with a 4 hour chart we will get two candles for the day, and thus it shows the day's market activity in a clearer format as compared to daily chart. 4 hour chart shows how price is behaving on an intermediate trend, and where price is and where it is more likely to head with respect to longer term trend.

Step III - 30 min chart analysis

Study of a 30 min chart represents the short term or intraday trend and we will try to make friend with this during our intraday price action trading. We will follow various price action concepts and put them in action to determine the trend, support/resistance and trade areas and also to prepare the intraday trade plan.

Step IV - 5 min chart

Once 30 min chart is observed and S/R areas, trends are identified, we should be ready with our trade plan for the day. 5 min chart is our trading time frame where we will observe the price action trade set-ups to finalize on the entry and exit levels.

For our intraday price action trading one may skip the weekly and 4 hour chart, but I always prefer to have them in my daily journal as its always good to know the instrument that you are going to trade from every possible corner.

Regards
Taiki

1) how a trader's journal looks like. can you show some sample/ guidelines for maintaining a journal
2) if one wants to trade intraday swings/ short term swing should he refer to 5 min chart.

 

[Taiki]

1) how a trader's journal looks like. can you show some sample/ guidelines for maintaining a journal
2) if one wants to trade intraday swings/ short term swing should he refer to 5 min chart.

Dear Sangram,

On trader's journal, are you asking on how the journal for this price action trading will be or in general what contents should be placed on journals ? There can not be any specific rules for maintaining a journals, but how ever you should keep those points which will help you in evaluating your trading approach on a later date. Just by looking at a journal you should be able to remember that particular day's market trend, support/resistance level, trade areas, trades taken/ignored, reasons, thoughts etc..

These are the points I keep in my journals..

1. Date, Scrips, Trend, Support, Resistance
2. Contracts, Trade areas (Levels to watch for), Previous session close.
3. Open Position If any, Trading capital, (MM, Trade Risk, Biz Risk)
4. GLobal Indices, Any imp event (IIP, CPI, RBI policy etc)
5. Pre Market Trade Plans
6. Post Market Analysis

i) Market Behaviour wrt. Pre-Market trade plans​

ii) Trades taken (reasons)​

iii) Any specific observations/Lessons​

iv) Attach charts​

For intraday swings/short term swings, one can use 5 min chart's price action to fine tune the entry. But again this is no hard and fast rules. I believe nothing is absolutely right/wrong in trading. Whatever works for you is right for you. That may not be right for someone else. but that should not bother you. As long as it works for you practice it, and keep capitalizing over it. Once it stops working, it's the market's way of saying - "Something is changing, You need to adapt".

Regards and Good luck.
Taiki

 

[sangram1705]

Thanks,
For your efforts to reply in a detailed way.
Till mow I was always planning to make a trade journal but would keep on postponing. Today after seeing your post atleast I have already started preparing my journal.

Many a times I have noticed that although I plan for my trades in advance but often forget many tit bits (may be some minor support resistance), even support resistance lines drawn in advance but get confused with which one is support & which one is resistance & in the process of scrolling back charts missing entries, encountering unnecessary tention etc.

Definitely this will be of great help to all traders.:thumb:
Thanks again

 

[Taiki]

Thanks,
For your efforts to reply in a detailed way.
Till mow I was always planning to make a trade journal but would keep on postponing. Today after seeing your post atleast I have already started preparing my journal.

Many a times I have noticed that although I plan for my trades in advance but often forget many tit bits (may be some minor support resistance), even support resistance lines drawn in advance but get confused with which one is support & which one is resistance & in the process of scrolling back charts missing entries, encountering unnecessary tention etc.

Definitely this will be of great help to all traders.:thumb:
Thanks again

Dear Sangram,

In my initial days, though i was always maintaining a diary, i was loosing interest after few days, but then I realised the importance of diary, the day I analysed them after understanding trading psychology and money management. Then I came to know that having a winning attitude does not lie in the system, but in your discipline. Having a good trading system with proper MM, is just a starting point. The path will be enjoyable with proper discipline and implementing/executing your plans.

For confusion with S/R lines, and forgetting the trade plan during live market, is natural. Even i forget sometime, I keep a sticky note on my screen with imp trade decisions, so that i can quickly refer them back in case of urgency. One can use pen and paper as well. For S/R, you can use different colour to plot them so that you wont get confused with them.. Like Green line for support, Red line for resistance etc..

With practice, and increased screen timing, this things will come as a second nature to you.. So keep practising... :thumb:

Regards
Taiki

 

[Taiki]

Support & Resistance

Identifying supports and resistances, is the very first thing I want to do on a chart before preparing to trade it. Supports and resistances are areas on the price chart which act as barriers to price movement. Support act as a floor, limiting price's further downward movement. Resistance acts as a ceiling, limiting further upward movements. So support is an area where demands overcome supply and price is more likely to bounce off this level rather than breaking it. And resistance is an area where supply overcomes demands and price tends to face resistance as it goes up.

Once price breaks a support or resistance level, the level reverses its role. When price breaks a support, it is expected to continue dropping until it finds another support levels. And the support level now will be converted to a resistance level and will offer resistance to any future price rise. Opposite is true when resistance is taken out.

Different traders use different ways to identify a potential support or resistance area. Remember, support and resistance are no definite levels; rather they represent an area where imbalance between supply and demand is visible on chart. Few traders use Fibonacci retracement and extension levels as support and resistance levels, some others apply Gann theory, Pivot point calculation (like floor pivot, camarilla pivots) etc.

I use mainly 3 concepts to check and identify supports and resistance. They are - Historical swing high/swing low, Trend lines, Price congestion areas.

Regards
Taiki

 

[anilnegi]

Support & Resistance

Identifying supports and resistances, is the very first thing I want to do on a chart before preparing to trade it. Supports and resistances are areas on the price chart which act as barriers to price movement. Support act as a floor, limiting price's further downward movement. Resistance acts as a ceiling, limiting further upward movements. So support is an area where demands overcome supply and price is more likely to bounce off this level rather than breaking it. And resistance is an area where supply overcomes demands and price tends to face resistance as it goes up.

Once price breaks a support or resistance level, the level reverses its role. When price breaks a support, it is expected to continue dropping until it finds another support levels. And the support level now will be converted to a resistance level and will offer resistance to any future price rise. Opposite is true when resistance is taken out.

Different traders use different ways to identify a potential support or resistance area. Remember, support and resistance are no definite levels; rather they represent an area where imbalance between supply and demand is visible on chart. Few traders use Fibonacci retracement and extension levels as support and resistance levels, some others apply Gann theory, Pivot point calculation (like floor pivot, camarilla pivots) etc.

I use mainly 3 concepts to check and identify supports and resistance. They are - Historical swing high/swing low, Trend lines, Price congestion areas.

Regards
Taiki[/QUOTE

Kindly sight with an example if possible, thanks

anil negi

 

[Taiki]

Swing High - Swing Low

Swing high and swing lows represents market's turning point from past. These are the area where market has changed its direction. Few traders use precise rules to determine a swing high and swing low. For example in a swing high they like to see a price bar high with at least one/two/three lower highs to the left and to the right. Similarly in a swing low they like to see a price bar's low with at least one/two/three higher lows to the left and to the right. Though there is nothing wrong in this approach, but in the concept of price action I do not like to be so restrictive. If it looks like a swing high then it is a swing high and if it looks like a swing low then it is a swing low.

So basically a swing high and swing low represents an area where a large group of traders changed their hand and overall market sentiments changed. Let’s say price is in uptrend and majority of the traders are bullish on the securities. And at some point of time, after an extended period of rally, profit booking is likely to set in, which will create order flow in opposite direction of the ongoing trend. Thus price changes its direction and pulls back a little against the uptrend, and making a swing high at the top. This swing high represents an area where majority of market participants felt it was highly unlikely for price to move higher and thus they changed their hand.

In future whenever price rallies back to the same area, unless something changed fundamentally, traders are bound to feel insecure about their long position and may cut their position by booking profit or may create short position at higher price anticipating another correction from the previous swing high area. Thus it creates bearish order flow near swing high and makes it an area of resistance.

Similar logic also goes for a swing low acting as an area of support.

In the following chart you can see how a swing low is giving support to price fall, but once broken down, it has turned in to an area of resistance for any future price rise.

In the next chart you can see how a swing high is giving resistance to price rise, but once taken out, it has turned in to an area of support for any future price fall.

Please not here I am not marking lines to draw S/R, but using area from Amibroker. And you can see on different times, price is finding support/resistance at different level, but from the same area. So the point here is some noise is expected near S/R areas, so instead of looking for exact levels of support and resistance, mark the areas which is likely to attract opposite order flow, and stay alert to follow the price action once price comes to that area..

Regrads
Taiki

 

[Krushna]