This is a simple system using Price Action (PA). what is PA ? PA is about what exactly is the price doing NOW. Most of the indicators tell what has happened in the past and based on that they project the future, there are lagging, leading indocators and some repaint the signals. either you are too late or too early. with PA you are with the current price behaviour. i know its very difficult to predict what market will do next 5 min, 1 hr, 1 day. but if you follow some simple PA strategies. you can be with the market.
for this system you need some understanding of candle stick patters, do a google or search on this TJ forum you will get lots of links, study them, practice them. i am going to follow only few of them here.
Pin Bar
This is a bar that has long, long tail and small head. looks like a pin. perfect pin would be
1. it should be obvious from very far off distance. it should be bigger than the previous bar. if previous bar is dominating, then most likely this pin bar would be some kind of profit booking bar. also be aware of friday, low volume pin bars that would most likely be profit booking bars
2. it should close within previous bar body. if it closes below prev bar in a down trend, then it doesnt tell us that it has reversed its direction
3. pin head should be at the top/bottom as much as possible. if it closes around middle of the bar, its more like a doji, indecision bar.
BUOB
Bullish Outside Bar. outside bar means the high, low of this bar engulfs the previous hi, lo of the bar. its high is higher than prev high, low is lowers than prev low and is a bullish bar. it would be good if the body also engulfs prev bar body. but you can ignore this condition provided other considerations (i will touch upon them below) are dominant
BEOB
Bearish Outside Bar. outside bar means the high, low of this bar engulfs the previous hi, lo of the bar. its high is higher than prev high, low is lowers than prev low and is a bearish bar. it would be good if the body also engulfs prev bar body. but you can ignore this condition provided other considerations (i will touch upon them below) are dominant
DBHLC
Double Bar High Low close. here we have 2 bars. both bars have same high, but the second bar closes below first bar.
DBLHC
Double Bar Low High close. here we have 2 bars. both bars have same low, but the second bar closes above first bar.
Double Doji
there are 2 consiquitive doji bars. doji is where the bar has same close and open and preferably at the middle. doji indicates indecision
Confluence
Now that we understood these signals, taking every signal by itself is not good. we need further confirmation. we need confluence of 2 or more signals, then only we take the trade. for example if we take every pin bar we may not be profitable. we need confluence. so what constitutes this conflunce ?
1. one of the above signals
2. location. this is THE most important thing in this system. we take pin bars at swing high or low. this means there is a series of bars going down, down and then we find a pin, then thats a signal for reversal and we may take long position. if you find a pin in a ranging market, then its not good enough as it could be one of those profit taking bars. we need a good swing. how good it should be ? it should be obvious even if we look at a distance from your screen. pin bar at swing low tells that bears have pushed the bar low, it has breached previous low, but the bulls have taken over and the reversal might be coming. same with swing high. so location plays a major role. location can be at swing high/low or major support/resistance zones. if we are looking at daily chart, we need to look for atleast 3 months of data or more. every small support/resistence or swing can be a trigger.
3. fibonacci levels. if we see a pin bar at great location AND its at a fib level, then it adds strength. draw fib lines from its immediate wave high, low. if we
get a intersection of 38.2 or 50 or 61.8 then it adds strength. i only look at these 3 levels. this tells we are in a correction mode and price respects these fib levels most of the times. it either goes down or goes up when it reaches these levels. so it would be good if we find a fib level at current bar. also we might draw 2 sets of fibs on 2 different waves and if we find a intersection of these 2, then its a good signal. for example, we find 38.2 of one wave, and 50 of another wave confluencing at our current bar, then its really really good. pl note drawing fib lines, identifying waves properly is important. pl google and learn this
4. ema 150, 365. if we are near any of these 2 EMAs, then it adds strength.
5. psyche levels. big round numbers (BRN). market respects these numbers. for example 1100 for RIL, 3000 for SBI, 500 for DLF. i dont consider every round number as psyche number, it should be a big number. for a stock in 2 digits, every 10 rs level is a big number. similarly for 3 digits stock every 100.
6. space/traffic. we should have a free space so that our trade can go ahead without bumping into traffic immdeiately. if you see lots of support/res lines immideately then its not good. we can still take the trade, but book some profit and move the stoploss to entry
7. direction of overall trend. we should try to follow the overall trend and go with it. if a stock is in a major downward trend, try to take shorts only. as much as possible try this approach.
Now here are the system rules. very simple if you understand whatever is written so far.
Long
you can take long on any of these
1. you find a pin at swing low at major support, it should breach the low / support and come back and close above this on same bar. this is a rejection of support breach which means we are going to go up.
2. if we find a pin at BRN, breach the BRN , comes back and closes above BRN. this shows market has respected this BRN.
3. if we get a BUOB or DBLHC at swing low or at BRN, we can take long
4. if you find double doji, and at swing low, then go long on breach of higher of the 2 bars
for all these 4 if we get one or more other confluencing signals like fib, ema it will add strength. but we wont get all the confluencing signals all the time. so use your descretion. but location rule is mandatory for any signal
Short
you can take short on any of these
1. you find a pin at swing high at major resistence, it should breach the high / resistence and come back and close below this on same bar. this is a rejection of resistence breach which means we are going to go down.
2. if we find a pin at BRN, breach the BRN , comes back and closes below BRN. this shows market has respected this BRN.
3. if we get a BEOB or DBHLC at swing high or at BRN, we can take short
4. if you find double doji, and at swing high, then go long on breach of lower of the 2 bars
for all these 4 if we get one or more other confluencing signals like fib, ema it will add strength. but we wont get all the confluencing signals all the time. so use your descretion. but location rule is mandatory for any signal
Entry : add a small buffer and take on next bar open.
Take Profit : identify first trouble area ahead. if you see too much traffic ahead, take 50% profit and move the stops to entry. else try to place tp at a good area
where you are likely to bump into issues like major sup/res, BRN, EMA points
Stoploss : dont take any trade without a SL. normally signal bar +- buffer. at some space if you can
Lot : never risk more than x percentage of account baalnce. for daily, i dont recommend more than 2%
Time Frame : this system will work well at higher TF like Daily, Weekly, Monthly. i dont recommend intraday even though it works some times. it can give false signals. but you can manage your trade using lower TF. also if we get very good confluence , we can take on hourly.
Warning :
1 . avoid when there is a big news or results day. fundamentals should remain as it is
2. dont take any signal that comes. be picky. market is going to be here for ever. no hurry. PATIENCE is the key. never try to force a trade. take only high probability trade, if you like it you can increase the lot size if account allows
3. take only highly liquid stocks. preferably index stocks. and some very good mid caps
4. never take a trade that doesnt give atleast 1:1 risk-return
Summary : this is a simple PA that takes advantage of reversals at great location
for this system you need some understanding of candle stick patters, do a google or search on this TJ forum you will get lots of links, study them, practice them. i am going to follow only few of them here.
Pin Bar
This is a bar that has long, long tail and small head. looks like a pin. perfect pin would be
1. it should be obvious from very far off distance. it should be bigger than the previous bar. if previous bar is dominating, then most likely this pin bar would be some kind of profit booking bar. also be aware of friday, low volume pin bars that would most likely be profit booking bars
2. it should close within previous bar body. if it closes below prev bar in a down trend, then it doesnt tell us that it has reversed its direction
3. pin head should be at the top/bottom as much as possible. if it closes around middle of the bar, its more like a doji, indecision bar.
BUOB
Bullish Outside Bar. outside bar means the high, low of this bar engulfs the previous hi, lo of the bar. its high is higher than prev high, low is lowers than prev low and is a bullish bar. it would be good if the body also engulfs prev bar body. but you can ignore this condition provided other considerations (i will touch upon them below) are dominant
BEOB
Bearish Outside Bar. outside bar means the high, low of this bar engulfs the previous hi, lo of the bar. its high is higher than prev high, low is lowers than prev low and is a bearish bar. it would be good if the body also engulfs prev bar body. but you can ignore this condition provided other considerations (i will touch upon them below) are dominant
DBHLC
Double Bar High Low close. here we have 2 bars. both bars have same high, but the second bar closes below first bar.
DBLHC
Double Bar Low High close. here we have 2 bars. both bars have same low, but the second bar closes above first bar.
Double Doji
there are 2 consiquitive doji bars. doji is where the bar has same close and open and preferably at the middle. doji indicates indecision
Confluence
Now that we understood these signals, taking every signal by itself is not good. we need further confirmation. we need confluence of 2 or more signals, then only we take the trade. for example if we take every pin bar we may not be profitable. we need confluence. so what constitutes this conflunce ?
1. one of the above signals
2. location. this is THE most important thing in this system. we take pin bars at swing high or low. this means there is a series of bars going down, down and then we find a pin, then thats a signal for reversal and we may take long position. if you find a pin in a ranging market, then its not good enough as it could be one of those profit taking bars. we need a good swing. how good it should be ? it should be obvious even if we look at a distance from your screen. pin bar at swing low tells that bears have pushed the bar low, it has breached previous low, but the bulls have taken over and the reversal might be coming. same with swing high. so location plays a major role. location can be at swing high/low or major support/resistance zones. if we are looking at daily chart, we need to look for atleast 3 months of data or more. every small support/resistence or swing can be a trigger.
3. fibonacci levels. if we see a pin bar at great location AND its at a fib level, then it adds strength. draw fib lines from its immediate wave high, low. if we
get a intersection of 38.2 or 50 or 61.8 then it adds strength. i only look at these 3 levels. this tells we are in a correction mode and price respects these fib levels most of the times. it either goes down or goes up when it reaches these levels. so it would be good if we find a fib level at current bar. also we might draw 2 sets of fibs on 2 different waves and if we find a intersection of these 2, then its a good signal. for example, we find 38.2 of one wave, and 50 of another wave confluencing at our current bar, then its really really good. pl note drawing fib lines, identifying waves properly is important. pl google and learn this
4. ema 150, 365. if we are near any of these 2 EMAs, then it adds strength.
5. psyche levels. big round numbers (BRN). market respects these numbers. for example 1100 for RIL, 3000 for SBI, 500 for DLF. i dont consider every round number as psyche number, it should be a big number. for a stock in 2 digits, every 10 rs level is a big number. similarly for 3 digits stock every 100.
6. space/traffic. we should have a free space so that our trade can go ahead without bumping into traffic immdeiately. if you see lots of support/res lines immideately then its not good. we can still take the trade, but book some profit and move the stoploss to entry
7. direction of overall trend. we should try to follow the overall trend and go with it. if a stock is in a major downward trend, try to take shorts only. as much as possible try this approach.
Now here are the system rules. very simple if you understand whatever is written so far.
Long
you can take long on any of these
1. you find a pin at swing low at major support, it should breach the low / support and come back and close above this on same bar. this is a rejection of support breach which means we are going to go up.
2. if we find a pin at BRN, breach the BRN , comes back and closes above BRN. this shows market has respected this BRN.
3. if we get a BUOB or DBLHC at swing low or at BRN, we can take long
4. if you find double doji, and at swing low, then go long on breach of higher of the 2 bars
for all these 4 if we get one or more other confluencing signals like fib, ema it will add strength. but we wont get all the confluencing signals all the time. so use your descretion. but location rule is mandatory for any signal
Short
you can take short on any of these
1. you find a pin at swing high at major resistence, it should breach the high / resistence and come back and close below this on same bar. this is a rejection of resistence breach which means we are going to go down.
2. if we find a pin at BRN, breach the BRN , comes back and closes below BRN. this shows market has respected this BRN.
3. if we get a BEOB or DBHLC at swing high or at BRN, we can take short
4. if you find double doji, and at swing high, then go long on breach of lower of the 2 bars
for all these 4 if we get one or more other confluencing signals like fib, ema it will add strength. but we wont get all the confluencing signals all the time. so use your descretion. but location rule is mandatory for any signal
Entry : add a small buffer and take on next bar open.
Take Profit : identify first trouble area ahead. if you see too much traffic ahead, take 50% profit and move the stops to entry. else try to place tp at a good area
where you are likely to bump into issues like major sup/res, BRN, EMA points
Stoploss : dont take any trade without a SL. normally signal bar +- buffer. at some space if you can
Lot : never risk more than x percentage of account baalnce. for daily, i dont recommend more than 2%
Time Frame : this system will work well at higher TF like Daily, Weekly, Monthly. i dont recommend intraday even though it works some times. it can give false signals. but you can manage your trade using lower TF. also if we get very good confluence , we can take on hourly.
Warning :
1 . avoid when there is a big news or results day. fundamentals should remain as it is
2. dont take any signal that comes. be picky. market is going to be here for ever. no hurry. PATIENCE is the key. never try to force a trade. take only high probability trade, if you like it you can increase the lot size if account allows
3. take only highly liquid stocks. preferably index stocks. and some very good mid caps
4. never take a trade that doesnt give atleast 1:1 risk-return
Summary : this is a simple PA that takes advantage of reversals at great location
