Studies in Tape Reading

Here's some good reading stuff..

http://www.beursplaza.com/ebook6.pdf

http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:wyckoff_market_analy

type entry take the top and the bottom.

I've combined this theory method with the other market behavior principal that works for me. I'm using it for several years. The combination performs a powerful method to forecast the market when and where market to decide it will go from short-term trend to intermediate trend. With this, I believe someone can trade anywhere, any platform because it is just the same thing. It will take years to understand it. I had been through it the pain and the gain to master it. Until now I'm still learning new ideas from the combination of these methods. Mechanical forecasting will never take place of an intelligent mind. The rewards will be given those who hard work to study this method. It's not for the weaker one.

Tape Reading

Sometimes it is nice to reexamine a simple concept when there appears to be overwhelming volatility in the markets. Mechanical systems and patterns are helpful and even necessary for the structure they impose in organizing data, but even Richard Dennis in his original course discussed ways to “anticipate” entry signals, exit trades early, and filter out “bad” trades.

Learn to follow the market’s price action and read the signals it gives. This can become a strict discipline in itself and the result will be greater confidence that a trade is or is not working.

Tape Reading

“Trading technique is simply the ability, through study, observation, and experience, to recognize the signals in each of the several phases of market movement.”
- George Douglas Taylor

Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend. (It does not mean you have to have the ability to read the prices scrolling across the bottom of the screen on CNBC!) Tape reading is nothing more than monitoring the current price action and asking: Is the price going up or down right now? It has nothing to do with technical analysis and everything to do with keeping an open mind.

Even the most novice observer has the ability to see that prices are moving higher or lower at any particular moment or, for that matter, when prices seem to be going nowhere or sideways. (Markets do not always have to be going somewhere!) It is also fairly easy to watch a price go up and then tell when it stops going up – even if it turns out to be only a momentary pause.

I’ve known hundreds of professional traders throughout my career. I don’t want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA’s who are running a money-management program with “OPM” – other people’s money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment – even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, “The only truth is the current PRICE.” Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases.

Watching price action can actually be very confusing if you go about it like a ship without her sails up in an ocean squall. You will get tossed back and forth with no sense of direction and no sense of purpose. There are two main tricks to monitoring price action. The first is to watch the price relative to another “reference point.” This is why many traders use a “pivot point” – and it works! It is the easiest way to tell if the market is moving closer to or further away from a particular point. This is also why it is often easier to get a “feel” for the market once you put a position on – your “reference” point tends to be your entry price.

Some reference points, such as a swing high or the day’s opening price, will have much more significance than those points involving some type of calculation. (Some numbers might have special meaning for those who calculate them, and who am I to argue if they work.) I like to concentrate on pivot points that the whole market can see. To sum up so far, when watching price, we want to know the following: how fast, how far, and in which direction. It takes two points to measure these things. One will always be the current price, the other a pivot point.

* Do not watch price for the sake of watching price. Watch price with the intent to do something or to anticipate a certain response!

Responses

“The study of responses … is an almost unerring guide to the technical position of the market.”
- Rollo Tape (Richard Wyckoff), 1910

Forex Chart Pattern

An Introduction

Chart Pattern theory has been around since the early 1930’s and deals with forecasting market movements through analysis of market psychology. In chart pattern theory, market psychology is defined as the movement of a price graph between support and resistance levels.

 Theory has is that support and resistance lines define levels at which the market believes the price of a financial instrument is undervalued or overvalued. It is  widely believed that a price movement through either the support or resistance level is indicative of a trend that is top follow. Although Chart Pattern theory does not provide strict entry and exit levels, it does provide an indicationof the level to which a financial instrument is headed

Even if you are not a technical analyst it is important to learn how to read forex charts. The fact of the matter is that it is virtually impossible to get a proper assessment of the value of the forex market without knowledge of chart patterns.

There are numerous chart types used in forex market analysis, but in a lot of them the following patterns often emerge. As a trader, it is to your advantage to learn their meaning and relation to price movement and market direction.

Technical analysis assumes that:

a) prices discount everything, 

b) prices moves in trends and 

c) history repeats itself.

Assuming the above tenets are true, charts can be used to formulate trading signals and can even be the only tool a trader utilizes. There are two types of patterns in this area of technical analysis:

1. Reversal: A reversal pattern signals that a prior trend will reverse on completion of the pattern.
2. Continuation: a continuation pattern indicates that the prior trend will continue onward upon the pattern's completion.

The difficulty in identifying chart patterns and their subsequent signals is that chart use is not an exact science. In fact, it's often viewed as more of an art than a science. While there is a general idea and components to every chart pattern, the price movement does not necessarily correspond to the pattern suggested by the chart. This should not discourage potential users of charts - once the basics of charting are understood, the quality of chart patterns can be enhanced by looking at volume (In my opinion, i believe we cannot use volume in forex market because there is no central market like others financial instrument) and secondary indicators.

Here are several concepts that need to be understood before reading about specific chart patterns. The first is a trendline, which is a line drawn on a chart to signal a level of support or resistance for the price of the security. Support trendlines are the levels at which prices have difficulty falling below. Conversely, a resistance trendline illustrates the level at which prices have a hard time going above. These trendlines can be constant price levels, or rise or fall in the direction of the trend as time goes on.

Here's the different patterns used by chartists that we're going to cover:

1. Ascending Triangle
2. Descending Triangle
3. Channel Down
4. Channel Up
5. Double Bottom
6. Double Top
7. Falling Wedge
8. Rising Wedge
9. Head and Shoulders
10. Inverse Head and Shoulders
11. Flag
12. Pennant
13. Rectangle
14. Triangle
15. Triple Bottom
16. Triple Top

Summary : Forex Trends

A forex trend is broadly defined as the direction in which a currency pair is moving. Currencies usually do not rise straight up, nor do they fall vertically down. It is more common for them to retrace some of their decline or advance, before continuing in the direction of the original forex trend. Each forex trend, therefore, consist of a series of price thrusts in its direction and price reactions contrary to it ( which are also called retracements, corrections or pullbacks). Trends are differentiated by their direction and by their duration.

Currency trends are divided into three types according to their direction - uptrend, downtrend and sideways trend. In an uptrend each currency price thrust reaches a higher level than the one before it and each currency price reaction stops at the level higher than the preceding reaction. In a downtrend every price thrust reaches a lower level than the thrust before it and every price reaction stops at the level lower than the previous reaction. In a sideways market both price thrusts and price reactions don't substantially exceed their previous counterparts.

Forex trends are also divided into three groups according to their duration - major, intermediate and minor trend. Major forex trends last from one to three years. Intermediate forex trends continue form three weeks to three months. Minor forex trends are completed in less than three weeks. 

Major forex trends are best viewed on the daily charts, intermediate trends - on the hourly charts and the minor trends - on the 15-minute charts. Major trends are formed by the intermediate price thrusts and reactions, each of which are intermediate trends. Intermediate trends are in turn made up of minor price thrusts and reactions, each of which are minor trends.

Video-How to Spot a Trend Just From the Price Action

Price Action as i always say is offering a tremendous amount of information and signals that is worth it to study and understand .. in the next video i would like you to see the swing highs and swing lows illustrated on the chart just to train your eyes about that kind of charts and be more accurate in determining the correct trend .. 


Remember that Price Action Trading needs real practice for long time so, be patient and spend enough time .. 

Update: Another Video about Price Action

Price Action Trading Method

Swing Highs and Lows

The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice.

I define a swing high as;

     A three bar combination
     A bar preceded and succeeded by lower highs


I define a swing low as;

     A three bar combination
     A bar preceded and succeeded by higher lows


Market Phases
There are only three ways the market can go;

• Up
• Down
• Sideways

With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows.
In short

• The market is going up when price is making higher highs and higher lows
• The market is going down when price is making lower highs and lower lows
• The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows

This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade.
What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).

Bias Changes

A Short or Bearish Bias Change occurs when the following sequence develops.
HH>HL>LH>LL>LH The bias change is confirmed when price moves below the las lower low made as highlighted on the chart.
Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Red Line).
There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

A Long or Bullish Bias Change occurs when the following sequence develops.

LL>LH>HL>HH>HL The bias change is confirmed when price moves above the last higher high made as highlighted on the chart.

Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Blue Line).

There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

Trending Price Action

After a bias change has been seen and confirmed, one of the phases that the market can then take is to start trending either up or down depending on the bias change previously.
In the chart below we can see what price ideally looks like when price is trending up and trending down. Each phase shows price making HH's & HL's on its way up and LH's & LL's on its way down.

Ranging Price action
Now this is where the chart can become interesting. By using the price action counting of the swing highs and lows we can know at a very early stage IFprice is going to start to develop range bound activity.

• Price is not making new highs OR new lows

I don't mean all time highs/lows or new day/week/month highs/lows... just simply a new chart swing high or low. Price will start to stall and not make a new swing high/low and typically will stay contained within the last swing high and low that was made on the chart. Isn't that a simple definition?

Range rule definitions

• Price doesn't make a new high or low on the move
• If price stays contained within the last swing high and swing low to be made, price will remain range bound until it makes news move highs or lows.
• Price confirms the range when a lower high and a higher low is made within the previous swing high and low.

In the chart below you can see that from the left side of the chart price is making LH's & LL's all the way to the first blue arrow which in real time would be the latest lowest low. Price then moves higher to make a HH. These two swing levels have been highlighted.
At the point of the chart, in real time, price needs to either start moving higher past the last swing high (red Arrow) making a new high OR move lower past the last swing low (blue arrow) making a new low. Until either of those things happens price will most likely remain range bound. In this example that is what happened.

Range considerations
Some considerations for identifying ranges at an early stage in real time are;

• That price could be creating a pullback or bias change and as the chart unfolds for you a new high or low could be made voiding the potential range.
• There are several definitions of a range one of the more common ones is that you are looking for a double touch of support and resistance. For me this is a little too late in the game as price may not create the double touch as in the example above. With this price action method you can identify the possibility of a range developing VERY early without having to worry IF price does or does not give you the double touch. As you can see with that definition you would interpret that price is not range bound at all but, you can clearly see visually that price is moving sideways without any definition.

What you should have learnt from this short article A simple rule defined method to identify swing highs and lows How to use this swing high/low definition to interpret price action market phases How to identify a bias change How to identify trending price action How to identify Range bound price action Bias Change pattern variation In the below images we can see the pattern variation and compare them to the outlined pattern above.  The only main difference is that you are looking for a breach of a previous swing high or low as the first qualifier to indicate a potential bias change. Acronyms used HH - Higher High HL - Higher Low LH - Lower High LL - Lower Low By Philip Newton

Identifying Reversals

Properly distinguishing between retracements and reversals can reduce the number of losing trades and even set you up with some winning trades.

Classifying a price movement as a retracement or a reversal is very important. It's up there with paying taxes *cough*.

There are several key differences in distinguishing a temporary price change retracement from a long-term trend reversal. Here they are:

Identifying Retracements

A popular way to identify retracements is to use Fibonacci levels.

For the most part, price retracements hang around the 38.2%, 50.0% and 61.8% Fibonacci retracement levels before continuing the overall trend.

If price goes beyond these levels, it may signal that a reversal is happening. Notice how we didn't say will. As you may have figured out by now, technical analysis isn't an exact science, which means nothing certain... especially in forex markets.

 Another way is using Price Action Strategy. Will discuss about this later.

Retracement or Reversal?

What are Retracements?

A retracement is defined as a temporary price movement against the established trend. Another way to look at it is an area of price movement that moves against the trend but returns to continue the trend.

What are Reversals?

Reversals are defined as a change in the overall trend of price. When an uptrend switches to a downtrend, a reversal occurs. When a downtrend switches to an uptrend, a reversal also occurs. Using the same example as above, here's how a reversal looks like.

What Should You Do?

When faced with a possible retracement or reversal, you have three options:

If in a position, you could hold onto your position. This could lead to losses if the retracement turns out to be a longer term reversal.

You could close your position and re-enter if the price starts moving with the overall trend again. Of course there could be a missed trade opportunity if price sharply moves on one-direction. Money is also wasted on spreads if you decide to re-enter.

You could close permanently. This could result in a loss (if price went against you) or a huge profit (if you closed at a top or bottom) depending on the structure of your trade and what happens after.

3 Types Of Trend

We always trade in the direction of the trend and the trend is our friend. One who trades against the trend is bound to lose a lot more than what they will make. We cannot stress this point enough. The most successful traders are the ones who only trade in the same direction as the trend Markets can only move in three directions:

1. Uptrend/Trending Up
2. Downtrend/Trending Down
3. Ranging/Sideway

Uptrend/Trending Up

When a sequence of candlesticks moves upwards, they will generally do this in a whipsaw fashion, creating a series of higher highs and higher lows (HH/HL) as in the example below.

These higher highs and higher lows are known as peaks and troughs, and they give us our points of support and resistance. If the market is making HH’s and HL’s, this constitutes an up trending market. An up trending market is also referred to as a bullish market. Dips/Retracement in an up trending market occur due to profit takers.

Downtrend/Trending Down

A down trending market is a market which is making lower highs and lower lows (LH/LL). Once again these peaks and troughs create our support and resistance levels. A down trending market is also known as a bearish market. See the example below.

Ranging/Sideway

The last direction a market can take is sideways, also known as a congested market. In a congested market, neither the buyers nor the sellers are winning.  The example below shows a sideways market that has been channelling/Rectangle

Trend Spotting/Identifying Market Trends

Market Environment

Is the market ranging or is it trending? One of the major considerations before you plan you trade.

When two people go to war, the foolish man always rushes blindly into battle without a plan, much like a starving man at his favorite buffet spot.

The wise man, on the other hand, will always get a situation report first to know the surrounding conditions that could affect how the battle plays out.

Like in warfare, we must also get a situation report on the market we are trading. This means we need to know what kind of market environment we are actually in. Some traders cry saying that their system sucks.

Sometimes the system does in fact, suck. Other times, the system is potentially profitable, but it is being utilized in the wrong environment.

Seasoned traders try to figure out the appropriate strategy for the current market environment they are trading in.

Is it time to bust out those Fibs and look for retracements? Or are ranges holding?

Just as the coach comes up with different plays for particular situations or opponents, you should also be able to decide which strategy to use depending on market environment.

By knowing what market environment we are trading in, we can choose a trend-based strategy in a trending market or a range-bound strategy in a ranging market.

Are you worried about not getting to use your beastly range-bound strategy? How about your Bring-Home-Da-Bacon trend-based system?

Have no fear!

The forex market provides many trending and ranging opportunities across different time frames wherein these strategies can be implemented.

By knowing which strategies are appropriate, you will find it easier to figure out which indicators to pull out from your toolbox.

For instance, Fibs and trend lines are useful in trending markets while pivot points, support and resistance levels are helpful when the market is ranging.

Before spotting those opportunities, you have to be able to determine the market environment. The state of the market can be classified into three scenarios:

• Trending up
• Trending down
• Ranging/Sideway

''If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle''

Sun Tzu

Trend

Definition of 'Trend'

The general direction of a market or of the price of an asset. Trends can vary in length from short, to intermediate, to long term. If you can identify a trend, it can be highly profitable, because you will be able to trade with the trend.

Investopedia explains 'Trend'

As a general strategy, it is best to trade with trends, meaning that if the general trend of the market is headed up, you should be very cautious about taking any positions that rely on the trend going in the opposite direction.

A trend can also apply to interest rates, yields, equities and any other market which is characterized by a long-term movement in price or volume.

Simply put, short-, intermediate- and long-term trends are the three kinds of trends that we see each day in our study of technical analysis. "A trend is your friend," is just one of the sayings that have come out of the study of primary as well as secular trends. Given the understanding that the psychology of the markets actually moves the markets, we can acknowledge that psychology develops and ends the trends we are going to look at today.

Learning how to identify the trend should be the first order of business for any student of technical analysis. Most investors, once invested in an uptrend, will stay there looking for any weakness in the ride up, which is the indicator needed to jump off and take the profit

The Bottom Line

Markets are made up of several different kinds of trends, and it is the recognition of these trends that will largely determine the success or failure of your long and short-term investing.