In layman term, these buyers are called "laggers" — in case you might be laughing in disbelieve, trust me, laggers exists in any marketplace. As price continues to fall, some of the earlier buyers might decide to take profit and switch over to become a seller to take advantage of both the markets. On the other hand, some buyers who panic because prices are falling sharply might close their positions very quickly, and this would fuel the fall.

Consolidating or Raging Market Diagram Sideway Ranging Market Even if price were to move side ways, it moves by cycling in a narrow price range. In this example, buyers and sellers are in equilibrium. However, don't expect price to move in a straight line even if they are in equilibrium. Instead, we only know that there isn't much tradable volume in the market since each time price reaches a floor i. bottom of the price range , buyers would see that as an opportunity to buy.

An alternative view is that there were not enough sellers to push price any lower. The opposite is also true, and that happens when price reaches a ceiling i. top of the price range. Sellers see that as an opportunity as well and would jump into the market to sell because price is now high enough. As there were insufficient buyers, price naturally moves lower when sellers come in. As the market lacks volume, the floor and ceiling can often fluctuate a little since there is no single player that is taking control.

Nonetheless, like any other market, nothing is ever permanent. It is common to find traders or investors who would take advantage of these limitations and leverage it to make some short term profits. Thus, different types of buyers and sellers will push the prices as a yo-yo.

The Dow Jones Index daily chart in Diagram is another example of how the market never moves in a straight line. On top of that, price moves from one market condition to another. While price is cycling within the three markets, the above is also a good example of how price is cycling actively even in the bigger picture or macro market. Timeframes and Liquidity Price cycles in all timeframes. In other words, you can find price cycling within the Trending, Reversing and Ranging markets and that can happen in the daily, 4 hourly, 60 minutes, 15 minutes, 5 minutes and even the 1 minute timeframe.

However, for price to do that, the market needs to be liquid. A good indication of a liquid market is when you find it relatively easy to execute your trade and you can do so at or close to your desired price. This is possible because, when in a liquid market as the currency market or even some Fortune companies, you can find buyers and sellers of all sizes exchanging financial assets all the time.

Just to be clear, price continues to cycle even in an illiquid market. However, it is easier to find price cycles in smaller timeframes when the market is liquid. That means, the market almost always return to the mean or average price after it moves away from it. For simplicity, it might be easier if you think of it as a pendulum. Imagine a pendulum swinging from left to right and back, the centre of the pendulum is like a mean position, and the pendulum would always get pulled back to the centre but then it also gets pushed away from the centre.

Diagram Reversion to Mean — Distance from Mean x Vs Time t Graph The diagram above shows the distance x of the pendulum away from the mean position zero against time t. As you can see, price always moves away from the mean before it reaches an extreme. Price then reverts to the mean from the extreme as if there is a magnetic field pulling it back to the centre. Price action works in the same way when travelling in cycles. While the mean of a pendulum is constantly zero, the mean of the market price is constantly moving.

In fact, in a trending market, price doesn't even return to the mean before it moves back into the trend direction. Another interesting fact that you must be aware is that it is difficult to predict how far price moves away before it is pulled towards the mean again. Many have tried to pick the extremes i. market tops and bottoms , and, unfortunately, that's not a wise decision. In fact, with-trend traders would wait for price action clues after price topped or bottomed before buying or selling in the new trend direction.

Diagram Google Inc showing Reversion to Mean As shown above, the Google Inc daily chart shows that price has been cycling up and down constantly.

As part of price cycle, it is also constantly being pulled back towards the mean price moving average line before moving away from it again. Diagram Range Market Vs Trending Market Let's make this slightly more interesting, if you split the chart in 2, you can find a ranging market and a trending market in there. In the ranging market, price is crossing from one side of the mean price to the other and that is somewhat similar to the pendulum. On the other hand, in a trending market, price usually stays on one side of the mean price only - this is a good indication of a strong trend.

Nonetheless, price continues to cycle and it is still being drawn back to the mean price once in a while before moving higher again. In fact, it is constantly cycling up and down. Nonetheless, you can still find some predictable patterns within those random movements. However, never try to pick tops or bottoms. Market or price action Pullback, by definition, happens when price moves at least one bar against the dominant trend direction DTD.

A pullback is a price movement that moves in the opposite direction of the trend but it is only temporarily price movement before it resumes back into the main market direction. Pullbacks are sometimes referred to as price Retracements or Corrections.

Some may even just call it a Dip. If price does not go beyond the recent extreme, then the pullback could reverse, or it could consolidate. Diagram ABCD Pattern For the purpose of illustration, we will use be using the ABCD pattern to explain the details of simple pullbacks because the ABCD pattern is a perfect example of it. On top of that, a simple pullback always moves in three legs.

Using the diagram above, in an uptrend, AB is the first leg where price is moving towards the DTD. This is followed by the second leg BC and the cycle is completed as soon as the final leg CD moves beyond B.

Just to be clear, the activity a pullback is only represented by BC. However, for the sake of completeness, a pullback BC must remain between A and B and it must include CD where D moves beyond B. If not, that would be considered a failed pullback — further discussion on failed pullback can be found in Section 6. For the purpose of this book, we can assume that a simple pullback has 3 legs. You may find that other traders refer them differently. It shows how a pullback can be short and quick.

Since the definition states that price needs to move at least one bar against the DTD. In this example, the trend bar prior to the single seller bar in the circle represents AB and the seller bar is BC. The next trend bar that moved above the entire seller bar is CD. Hence, this is a valid pullback even though the ABCD pattern is not obvious. In this example, the entire ABCD pullback can also be considered as a single leg since the 3 legs are really small.

Diagram Example of Multi Bar Pullback The next diagram above is a multi bar pullback, and it shows a few seller bars before price resumed back into the DTD. A pullback can be shallow or deep, and it can be fast or slow. While the depth and speed of the pullback are independent of each other, they are often influenced by the market drivers at that point in time, and no one really knows when any of them happens. Again, we will dive into the characteristics of pullbacks in a later section.

For now, just appreciate that pullbacks can happen in various shapes, depths and speeds. Also, do appreciate the fact that pullbacks are natural occurrences in the financial market, and these are trading opportunities for traders. However, unless a trader understands how pullbacks work, a pullback is nothing more than another price pattern. Think about it, price needs to pull back before it can push forward. And the repetition of pulling back and pushing forward is what contributes to a price cycle.

As mentioned in Section 4. If that is true, then this must also mean that prices will make pullbacks in any market conditions, any timeframe and any direction as well. As traders, instead of trying to predict the future, it is more useful to recognise these pullbacks and then perform your analysis based on how these pullbacks behave.

Remember that trading is about stacking up the probabilities in our favour, and this is exactly what you are trying to achieve here. By recognising the various types of pullbacks, you can pick trades that have a higher probability of success in order. Once we have the probabilities in our favour, we take the trade. For the purpose of illustration, I have grouped market pullbacks in two distinct groups — simple and complex pullbacks.

Hence, they are usually fairly obvious and easy to spot while complex pullbacks might take a little longer to form. However, a simple pullback can remain simple, or it can evolve to become a complex pullback as well. Either way, when that happens, you should just ignore it and look for trading opportunities elsewhere. The following are more examples of simple pullbacks. This is probably amongst the easier price pattern to spot. Characteristics of a deep pullback are: - In a deep pullback, the price moves a significant distance against the DTD, and this is the key identifier of a deep pullback.

In other words, it can also be a sharp pullback even if it is a deep one. However, the key is the distance travelled as opposed to the type of bar. However, not realising that the bulls are still strong, the bulls usually come back into the market just before the bears managed to build confidence. This is the key identifier of a shallow pullback. It can also be a flat pullback if turns out to be sideway movement. Sometimes, you can also expect to see long tailed bars.

Reading the price action in the diagram above, the bears only managed to push price slightly in there favour, and the bulls were already back in the market. Hence, price is expected to move relatively far after the pullback. Having said that, you can occasionally find sharp pullback that is relative shallow. Either way, the idea is to keep a close watch and not to predict the market.

With such a strong bear trend bar, the sellers were hoping to attract more sellers into the market but only realised that the buyers were still in control and that push did not go far.

However, it is slightly more extreme than your typical shallow pullback because the market only moves sideways, with very little countertrend movement, before it resumes in the DTD.

Many waited for a minor reversal to show confirmation that price is correcting itself — unfortunately, due to the big players driving the market, price continues its bull run before traders even realise it.

In other words, when you see a complex pullback, I would strongly suggest that you should stay out of the market. Complex pullbacks happen when price steps into a consolidating phase. It then remains consolidated for awhile before it resumes into the DTD. No one really knows how long it remains consolidated before it moves again. On top of that, if you struggle to recognise the price patterns on your charts, I believe it is only reasonable to say that you should stay away from it and find another clearer chart where the probability of making a profit is higher.

Meanwhile, the price range of the pullback becomes narrower as it goes against the DTD. Both the lines converge as price action becomes narrower. As investors see this, they would also begin to sit out of the market. In other words, this becomes a self-fulfilling prophecy as the wedge continues to narrow even more. Note: See the Glossary page for definition of Upper Resistance Line and Lower Support Line. In other words, the upper resistance line and lower support line are parallel to each other as price pullbacks.

Thus, creating a small price channel. Thus, it can be challenging when identifying where price turns. Without that confirmation, the pullback could even end up as a wedge or a flag pullback instead. In an uptrend, this happens when price retraces to touch the horizontal bottom support line twice before resuming to its main trend direction. In fact, sometimes, rectangle pullbacks are deemed a double bottom pullback as well. After that, the sellers made their second attempt to push the price lower.

While they looked successful initially, the buyers stepped in again at the price near the first attempt. This time round, the buyers were serious, and, from then on, they took charge of the market. Each time price hits the line, it drops. However, each time it drops, the fall weakens. Thus, it starts making higher lows and, like a wedge, price started to converge.

Each time the buyers push price to that level, price drops as part of the order got triggered. Since price only moves towards the dominant trend direction, the extremes are not retested. Thus, this becomes a reversal pattern instead of a pullback. Pennants Pullback Diagram Pennant Pullback Characteristics of a pennant pullback: - Pennant is similar to a symmetrical triangle. It has a sloping upper resistance line, a sloping lower support line and both these lines converge to form a triangle as shown above.

Typically, price would start moving again before it reaches the extreme tip of the triangle. However, it is challenging to pinpoint when price would resume back into the DTD again. Widening Wedge Pullback Diagram Widening Wedge Characteristics of a widening wedge pullback: - A widening wedge happens when the upper resistance line and the lower support line diverge.

Unlike previous converging pullbacks, where buyers and sellers sat aside to wait for further confirmation, this is a tug-of-war in the making. Buyers would push price higher but stronger sellers would take over as soon as it reaches a higher price.

The buyers came in again as soon as price moves lower and the buyers pushed price even higher in the next round. The process repeats itself until a clear winner emerged.

Remember that price never goes in a straight line? With that, pullbacks are easier to spot if you think of price action as price that is cycling up and down. Another important key concept that you need to know about price is that, for price to cycle higher, you need a swing low before it moves to create a swing high and vice versa. Diagram Repeated ABCD Looking at the diagram above, you can see how the ABCD pattern is cycling up and down repeatedly in an uptrend.

Starting from point A and B on the left, watch how each price action pullback creates a swing low C which is followed by a swing high D. In order to spot a new pullback, change the C and D to a New A and New B. As cycle repeats itself, another pullback develops to create a new swing low New B and a new swing high New D. As you can imagine, this carries on for awhile as long as price continues to cycle in the DTD. Hence, it is useful if you think of price pullbacks as they cycle with alternating highs and lows.

In a downtrend, a H-L-H-L would represent one cycle, and H is where the pullback is located. Meanwhile, in an uptrend, a L-H-L-H would represent another cycle, and L is where the pullback is located. Evidently, there is a pullback in each price cycle and price cycles happen in any market conditions. Hence, if you struggle to find price action pullbacks, all you need to do is draw the highs and lows on your charts and you can almost see them immediately.

Reading price action using swing highs and lows is a great way for spotting pullbacks and pullbacks are good with-trend market entries. This is also a good alternative to ABCD patterns. Both Swing H and L are equally good when compared to ABCD patterns. More importantly, neither is better than another as both are equally good. In fact, the best ones are the ones that what works for you. So make sure to try both and find out for yourself. However, since price action is driven by market players, they are not exact science and they have their limitations too.

Hence, do not worship the tool but use it in moderation. More importantly, use it along other tools that you may already have. He is known to have discovered the numbers, which are a sequence of numbers where each successive number is the sum of the two previous numbers.

And so on. The sequence extends to infinity and contains many unique mathematical properties. These numbers are based on Liber Abaci — a book on arithmetic by Leonardo of Pisa, known later by his nickname Fibonacci.

Liber Abaci was among the first Western books to describe Hindu—Arabic numbers traditionally described as "Arabic Numerals" The main ratio used is 0. Meanwhile, the inverse of that is commonly known as the Golden Ratio — 1. Other ratios include 0. It is understood that Fibonacci numbers and its ratios represent many natural phenomena. Of course, that happens to include the financial market — since prices are driven by human beings as humans too are part natural phenomena.

Without any surprises, the typical Fib ratios that are used include However, Hence, many technical traders also associate this as a Fib Ret ratio. Fib Ret ratios are more useful when price is in a trending market because it is assumed that price is likely to continue in its major trend direction.

Since Hence, it carries the characteristics of a shallow pullback which was discussed earlier. As you can imagine, it is not uncommon for price to test each ratio before settling for one. It is only temporarily counter- trend price movement before it resumes back into the main market direction.

A thousand battles, a thousand victories. If you want to succeed in using price action pullbacks in your trading, you need to know how pullbacks fail too because, when it happens, you are prepared for it.

Once you learn to navigate the market, through successful and failed pullbacks, you are certain to progress pretty far in this career. With that, this section is to explore price action leading to a pullback failure and what our options are when it happens. Diagram Simple Pullback Using the example of a simple uptrend pullback, we define a pullback when price moves against the dominant trend direction DTD momentarily from B to C before it reverses back into the DTD from C to D.

Diagram When Pullbacks are Completed Vs When Pullback Fails As mentioned earlier, the terminology of a pullback only represents BC. However, for the sake of completeness, a pullback must include CD where D clearly moves beyond B.

On the other hand, if C clearly moves below A, BC is no longer a pullback and that is the point where the pullback fails. Just a reminder, it is important that a break below point A shows conviction, because a convicted failure represents a market leader taking charge. Diagram Failed Pullback on USDCHF Daily Chart The Swissy USDCHF currency pair daily chart above shows a failed pullback. Starting from the left of the chart, the move down to C after AB made a new high looked like a normal pullback.

In fact, the small-bodied doji bar C seems like a reasonable indication to show that the sellers have had enough, and the bullish trend bar after that was a good signal showing that the buyers were back. However, CD did not go beyond B. Instead, price turned at D to move south. The pullback became invalidated as soon as price moved below A, and bar E was where it happened.

When that happens, E becomes the first lower low LL in the uptrend. This is an important price pattern for trend traders to remember because, when a pullback fails, the chances are high that the market trend has ended. However, this does not imply that the market is going to start trending in the opposite direction immediately.

When a trend ends, there is a chance that price would reverse into the new direction or it could start moving sideways.

In fact, if you get a sideways market, you could still find the market trending again in the old direction at the end of the sideway market, and that is not surprising at all. Diagram Dow Jones Index showing Mixed Market The Dow Jones Index above taken from Diagram showed how price moved from one market to another in no particular order. To sum it up, here are the potential outcomes when a pullback fails: - Market moves sideways - After that, it continues in the original trend direction, or - After that, it reverses and starts a new trend in the opposite direction - It reverses and starts a new trend in the opposite direction As you can see, the market works in its mysterious ways.

However, while the market is random, we can still narrow down the options and be prepared when either of them happens. As mentioned earlier, a failed pullback is a good indication of change of trend. However, it is not surprising that you can come across a failed pullback that fails. Essentially, in an uptrend, this happens when price moves below point A but fails to sustain the drop. In other words, you have a false break below Point A.

This is not surprising as well since Point A is also a horizontal support level. As you can see, that is why it is important to get a clear break below Point A before you can be certain that the market condition has changed. If there is no conviction to break below Point A, which was a good indication that there were insufficient sellers to push the price lower, buyers see that as an opportunity to buy the market at an even cheaper price.

The key at this stage is to start looking for clues in the market again. One of the approaches here is to figure out which market player is buying — is it a big player or a mid player?

If you find a strong bullish pin bar followed by bullish trend bars, the chances are high that the big buyers are back. If not, then be prepared for even more uncertainty. For smart traders, the real confirmation that the bulls are back is when you get a clear break above point B. This is also important because, without that confirmation, price can even make a second attempt to test Point A. When that happens, there is a possibility that neither the buyers nor sellers are dominant anymore.

In fact, price could have shifted into a ranging market before you realised. Diagram Gold 1 hour chart showing a Failure of a Failed Pullback The Gold 1 Hour chart above showed a failure of a failed pullback circle. Price made a small spike below Point A but managed to close with a pin bar where the body of the bar was completely above Point A. All these price action are clues to show the probability of convicted break was fairly low. In this example, price did not show much conviction after the failure of the failed pullback and price started to wonder sideways.

Bars with long tails and small bodies are classic examples where there was little conviction from either side of the market. In other words, the failure of a failed pullback was the start of even more uncertainty.

Looking at price action, this was somewhat similar to a double bottom pullback bar A and 1 where the horizontal support level was tested again but it failed to break below it. After the failure, price started moving higher, and there were evidence that bigger buyers were present as soon as you saw long bodied and short tailed trend bars bar 2.

The final confirmation was when price broke above Point B bar 3 and 4. Market Extremes One of the beautiful phenomena about the trading the market is that the market is driven by humans or human behaviour and humans are usually resistant to changes — this is especially true at market extremes. To begin with, we know that the pendulum swings from one side of the mean to another.

At a certain point in time, it has to move away from the mean before it reaches an extreme position the boxes in the diagram above. Then it reverses and swings towards the mean again. If you believe that the extreme position is where the pendulum reverses, then you should also believe that the same happens in the financial market but it happens at market extremes.

Unfortunately, the financial market is not as straight forward as the pendulum because no one knows where the market extreme is. Hence, the only way to find out is to constantly test the market until we reached the Final Test.

However, the test of the market between the buyers and sellers becomes more intense when they approach market extremes because it is at these extremes that the price leader changes from the buyers to sellers or vice versa.

Hence, the term Final Test represents the final attempt by the bulls or bears to push prices further before it reverses. With that, here are some example scenarios when price is near market extremes. Diagram Test of the Extremes If you can, could you imagine a market that is at an extreme of a price cycle? Looking at the diagram above, imagine the market you are looking at is similar to it? Price is showing higher highs HH and higher lows HL , which is a healthy indication of a bullish market.

Each time the market moves higher, there is a test of the last high because, for a new HH to exist, it needs to break and go beyond the last HH. These tests become more challenging as the market gets exhausted, and the number of buyers and sellers moves closer to equilibrium. As you can see, the market made a recent HL and it begins to crawl higher again.

With- trend traders would look for the break of the last HH again as a confirmation of a pullback. However, if the market shows signs of exhaustion, traders would be looking for those signs showing weakness and would stay out of the market until there is confirmation or even clues of reversal.

Essentially, any of the following could happen. This is followed by a Lower Low LL which is a confirmation that the LH is the final test. Just to be clear, the LH does not confirm the final test because you can still get a double bottom pullback and price could continue north.

However, as soon as price made a LL, that was the confirmation that the pullback has failed. Both the LH and LL are great clues showing the start of a downward trend. Also, this is a classic failed pullback pattern. Double Top Diagram Double Top and Lower Low Alternatively, price could have made a clear final test when attempting to make a new high. In fact, the failure made a double top instead. Similar to the previous scenario, a LL is required for confirmation of the final test.

Without the LL, price could turn out to be a flat pullback, and it could end up moving sideways instead before making another test of last high. A double top is a slightly earlier clue that the bulls are losing control and that the sellers are getting ready to enter the market. Hence, the likelihood that others would get into the trade has increased too — thus becoming a self-fulfilling prophecy.

Price made the final test where it finished with a new HH. Nonetheless, the sellers came into the market and completely took control of price. While this usually traps the bulls, it is also a strong price action pattern showing commitment from the sellers who dominated the market.

Smart buyers who see this would likely stay out of the market. Due to the distance travelled from HH to LL, price would also likely have formed a bearish trend bar which is another good clue that the sellers are back. Essentially, the above is somewhat similar to an engulfing bar candlestick pattern if it was shown in a candlestick chart. Essentially, this is back to square one and any of the above patterns could potentially happen either on the next test or anytime in the future.

In fact, it is important that you know how and when they fail so that you are prepared for it. Once you understand that, nothing can surprise you anymore. The examples showing the tests of the extreme shows the various scenarios of how market trends end and how they can continue further. Knowing what you know now about pullbacks, you should recognise that a pullback is a Price Action signal. Since most technical indicators are derived from price, by default, price is the only leading indicator in technical analysis.

Hence, some would go to the extent to argue that price action incorporates fundamental analysis and macro information.

In other words, pullbacks are powerful indicators. You see, our objective as traders is to not predict the future. Instead of trying to predict the future, we search for clues in order to stack the probability of success in our favour. Hence, the more clues we can find, the more likely that the pullback can work in our favour. This section is about understanding the various clues for success in the market.

I hope that by understanding these clues, you are able to stop predicting and to start collecting clues instead. Shallow Vs Deep Pullbacks In Section 5. That just means, in an up market, buyers are dominating the battle and, in a down market, sellers are the dominant ones. Since the market is one-sided in a shallow pullback, only a few investors push the price against the DTD.

The chances are high that the trend would remain strong for awhile. Hence, as soon as the pullback is completed, the market will be waiting eagerly to continue its push further. Diagram Shallow Pullback Shows Strength Looking at the diagram above, the buyers tried to push the price higher bar 1 near the arrow. On the other hand, sellers did not wait long before they sold the market again and that formed a shallow pullback. The shallow pullback was a good sign that the sellers were in control and they continued to push price even lower.

Also, once the market started moving again, smart buyers who saw such momentum will stay out of the market. Hence, it is self fulfilling that with little or no buyers, the market can only move in one direction and would do so easily. Diagram Deep Pullback Shows Weakness The opposite is also true.

A deep pullback often leads to less aggressive price movements at the end of the pullback. The above example shows a very deep pullback bar2 and price had gone quite close to the start of the previous low bar 1 before it resumed its move in the DTD. However, as you can see, price did not move far before it showed signs of weakness and it started its move down again.

As you can see, the bulls did not show conviction anymore and there is little strength in pushing the price higher bar 3 was the next high. As mentioned in Section 6. Hence, deep pullbacks can sometimes be a good indication that the market is nearly exhausted, and the trend could end soon. A Mechanical Approach A more mechanical approach to measuring pullback can be done by using the Fib Ret tool.

As shown in Section 5. The ratios that are good indicators of a shallow pullback are On the other hand, In other words, if you find a pullback reversing around If you find pullbacks reversing around As shown above, there was a gap when the market opened but that did not affect how price reacted to the After the initial pullback, price continues to drop and you could find more pullbacks along the way.

As a trader, do not panic as it is normal for price to continue to retrace time and again. In fact, these pullbacks go deeper and deeper as more and more buyers gradually enter the market causing the downward momentum to lose its strength. Diagram AUDUSD Pair showing Strong Buying Pressure The AUDUSD currency pair showed a shallow retracement on the 15 minute chart circled. The flat pullback around the Again, price started to make deeper pullbacks and the sharp pullback bar 1 is a good example of that.

Knowing that there is strength in the market, smart buyers see the sharp pullback as a good buying opportunity to buy at a cheaper price before price climbs higher. While it might be difficult to spot these pullbacks in a live market, it just goes to show that these types of pullback are great indicators for strong selling pressure.

However, you need to practice spotting shallow pullbacks before you can take advantage of them. It is important to make an effort to search and to recognise these pullbacks as they are great set ups.

The one-sided market will tilt the bias in our favour. Hence, I would like to highlight the fact that trend bars are great to show strengths in the market, and you should look for them especially at the start of a new trend. They are very useful clues for trading success especially near extremes.

Essentially, trend bars are impulse price action which indicates that the big players are driving the market. Big players usually have deep pockets to push the market, and they do so in the medium to long term. Hence, the longer the trend bars the better. If the trend bar is longer than the average size bar, that is also a good indication of momentum and this is usually the start of a market rally or decline. If you find that the trend bars have very small tails that is evidence that the market is one-sided, and the momentum is increased further.

Alternatively, if the trend bar is at the end of the run, this can be an indication of exhaustion. The bar was long and had short tails. The length of the bar was multiples of its preceding bars not shown , and it shows that the sellers were serious. After the initial trend bar, price made a double top pullback circled before it presented another trend bar bar 3. Smart sellers would have taken a short entry at that double top pullback. Meanwhile, those who wanted more confirmation may have taken the break below bar 2 as soon as the pullback was completed.

Alternative, more short positions would have been taken at the shallow pullback immediately after bar 3. Diagram FTSE Index Showing Buyers Conviction The FTSE Index on the daily chart above started off with three buyer bars with the centre one being a trend bar bar 1. The Japanese calls the three candlesticks a Three Advancing White Soldiers. While that was a bullish pattern, the next bullish clue was a simple and sharp pullback circled at a The combination of factors showed plenty of reasons that the bulls were serious, the subsequent run after that was just further confirmation as price barely made any more pullbacks until later.

This is also considered more reliable because the horizontal levels are less subjective compared to other clues since each support or resistance only require one piece of information — a swing high or swing low. Diagram Creating Support and Resistance Levels Using the diagram above as an example, you can see that each swing high H was identified as a horizontal resistance level. Once price broke above that level, price would then retest the swing high where the resistance could turn support.

In other words, more often than not, prices are reacting to the price swings created in the past. While each H and L could be new in the existing cycle, some of them could coincide with past swing Hs and Ls. Diagram Hammerson PLC Daily Chart Showing Resistance and Support Levels Looking at the Hammerson PLC Daily Chart above, price made a swing high at bar 1 and made a higher high at bar 2.

Nonetheless, price consolidated around bar 2 before it made a swing low and a new high after it broke above bar 1 and bar 2. Bar 3 was a good retest of bar 1 swing high, and it turned out to be a good bounce back into the DTD. Interestingly, price came back down again to test that same level bar 4 and it eventually became a double bottom pullback.

However, before I dive into the subject of timeframe correlation, it might be worth grasping the relationship between timeframe and market players. Market Players There are various market players in the financial market and they each have a different role to play in the market. Due to the varying objectives that they carry with them when they enter the market, they influence the market differently. For simplicity, I have grouped the various market players in three categories below.

I have also included a short summary of characteristics of the respective players: Big Players - Central banks or major financial institutions - They are long term market players and usually drive the markets as they have deep pockets. Mid Players - Mid-sized or small-sized banks, large hedge funds, market makers, large corporate or commercial companies - A mixture of short term and long term players. However, they are usually able to influence the small players.

Small Players - Retail and private individual traders. The Bigger Picture As you can see, understanding the market players can potentially help you plan ahead because you cannot ignore the fact that they are able to influence other market players, as well as the direction of market trend. In order to further elaborate my point, here are two obvious relationships between the market players and timeframe.

I hope to highlight the importance of the bigger picture. Strong Trending Day Bars If you see long trend bars on a daily or weekly chart, especially at the start of the new trend, be prepared for a strong trending market.

As mentioned previously, strong trend bars are good indication of strength but a trend bar on a bigger timeframe is more reliable than one in an intraday timeframe. As stated earlier, the big players are in the market for the longer term. When they enter the market, they have the resources to fuel the movement of price in a certain direction for a relatively long time.

Above that, they enter the market in small chunks — as oppose to putting their entire buy or sell orders in one trade. Hence, when you see a strong trend bar on the daily chart or even on the 8 hour charts , be ready to follow that same direction because that is usually a good indication that the big players are in the market. In fact, all you need to do is to follow them and the probability of winning increases as well. While you are certain that you are following your rules, you feel that the market is against you.

Guess what? hedge fund traders are manipulating the market in order to meet their daily profit targets. This usually happens when the market on the larger timeframe is consolidating. Remember that a consolidation is when the market is undecided. This is also a period when mid-players take control as they know that the big players are probably sitting out. At this stage, the big players probably have most or all their orders filled and they are waiting aside until they decide to either push the market further or to exit it.

However, the only real thing that we know about mid players is that they lose their control of the market when the big players are back into the market. Again, these are usually obvious on larger timeframes. As you can see, the above are illustrations of two extreme market conditions.

The truth is that the financial market usually goes through either of the above or experiences something in between at any point in time. That is also what determines a trending, reversal and ranging market. However, if you are uncertain about the market conditions, always use a larger timeframe for clues. For example, if you are trading a 5 minute chart, it will be worth checking on the 60 minute chart for direction. If you are trading a 4 hour chart, it is be worth checking the daily chart etc.

Hope that makes sense? Looking for the right market players can be somewhat challenging but, do not be despair, because all you need is practice. More importantly, when probability works in our favour, price action usually shows sign of strengths that can help us find those winning trades. Since pullbacks are everywhere, you need to appreciate the fact that some pullbacks have higher chances of success than the others.

Hence, in this section, I hope to share some ideas on ways to pick pullbacks that could yield better probabilities of success. The first pullbacks are the with-trend entries that can be found at the very start of a new trend. Diagram Ideal Top and Bottom Entries In an ideal situation, the most profitable way to trade the market is to catch the run from the very top and cash out at the bottom of the market.

The opposite is also true if you catch it from the bottom and exit right at the top of the market. If the price hits the 0. However if you are able to find level of multiple Fibonacci, that specific level will be where you are going to enter a trade.

Pivot Points Besides the Fibonacci indicator, the Pivot point is another indicator that is used by institutional traders. Similar to the Fibonacci indicator, the support and resistance level created by the Pivot points serve as a strong level of support and resistance.

For the Pivot levels, you can plot the daily pivot, weekly pivot and monthly pivot on the same chart. Do note that the power of the monthly pivot is larger than the weekly pivot and the power of the weekly pivot is also larger than the daily pivot.

Swings Swings are V-shaped Swing Low and N-shaped Swing High patterns. When you see a swing high, the top level will then formed the resistance level. When you see a swing low, the bottom level will then formed the support level. However not all swing highs and lows are of equal importance, those swings that have more depth are considered stronger level of support and resistance than those with lesser depth.

Below are some pictures for your comparison. The above are 3 ways you can identify strong level of support and resistance. Therefore spend some time to practice them on your chart today to have a better understanding of their trading nature.

Secret 2: Power of Indicators The next secret to successful trading lies in the indicators that you are using as well as how you use them. Most traders do not know the nature of the indicators that they are using and therefore finds them useless to their trading. My suggestion to you is to learn the various ways to use an indicator as well as learning how to fine tune them to suits your trading plan.

Below are some of my favourite indicators and the way you can use them in your trading. So spend some time to go through them now. MACD Indicator Before I start to tell you the power of MACD, I must spend sometime to do a introduction on what is MACD and who invented it.

MACD is a forex indicator that is developed by Gerald Appel who has written 12 books on investment strategies. MACD is in fact one of the simplest and reliable forex indicators I have used so far.

As it is actually analyzing and displaying chart for past data, it is often know as a lagging indicator. However there are times where you can use MACD as a leading indicator to help you predict the next movement of the price.

What this means is 26 days and 12 days Exponential Moving Averages. The 26 EMA is a slower setting for MACD which will produce a slower indicator that is less prone to whipsaws. As for the 12 EMA, it is usually a faster setting for MACD.

In the MACD indicator, there will usually be a 9 days EMA that will represent the trigger line while the histogram represents the difference between MACD line and its trigger line. i Bullish Crossover: Bullish crossover usually indicates a upward movement in the market and the way you can identify a bullish crossover is through the two line in the indicator namely; MACD line and its trigger line.

Whenever MACD cut through its trigger line in the upward direction, it usually indicates an uptrend or an upward movement. ii Bearish Crossover: Bearish crossover usually indicates a downward movement of the price and the way you can identify a bearish crossover is when the MACD cut through its trigger line in the downward direction.

iii MACD Divergence: This is the best signal any trader can get from MACD: Divergence. First of all, let me explain to you what is MACD divergence all about.

When we say that there is a divergence in MACD, we are referring to the scenario where MACD and the price are not in the same direction movement pattern. Example: When the highs of a currency pair is getting higher and higher, MACD highs are getting lower and lower. From my experience, you will usually see a downside movement after a negative divergence is formed. When the lows of a currency pair is getting lower and lower, MACD lows are getting higher and higher.

Whenever you see positive divergence, you will usually see a upside movement in price. You will have a more robust forex strategy if you are able to combine these two signals above to constitute your buy sell signals.

MACD is a good indicator when it comes to buy sell signal as it always allow the trader to validate a trend line break or a breakout in price.

With this function, MACD can help the trader to identify fake outs in trading. ADX Indicator Riding the trend is one of the most profitable trading strategies you can have as it is a good way of producing high risk reward ratio trade and the best way to find out the status of the trend is to make use of the forex adx indicator. So Why ADX Indicator? If you have been reading my blog, you will know that I have written an article to help you identify the trend of the market using various forex trend indicators like the moving averages.

The moving averages are still a good way to tell the trend but they are unable to give you a value for the trend and this is where the ADX indicator comes into play.

What Is ADX Indicator? It is an indicator that is made up of a single line with value ranging from 0 to You may think that it looks like an oscillator but it is uni-directional. If you take a close look at the picture below, you will find that the adx will point up when you are in a good uptrend as well as a downtrend.

How to Use the ADX Indicator? I personally use it to tell whether the market is trending or ranging. As stated in the earlier part of this post, the ADX has a range value from 0 to When it is moving below the 25 level, it is telling you that the strength of the market is very weak.

What usually happens at this time is that the market is in consolidation and will most probably be moving in a range. When the indicator moves above the 25 level, it is telling you that the trend is strengthening and the larger the value, the stronger will be the trend.

However to have a better understanding of the trend you are in, you need to combine the direction of the indicator together with its value. Sign of a Strong Trend: You are in a strong uptrend or downtrend when the ADX indicator is pointing up and moving above the 25 level. Sign of a Weak Trend: You are not in a strong trend when the indicator is pointing down and moving below the 25 level.

Other Uses of ADX Indicator 1 Divergence: Besides using the ADX indicator for telling the strength of the trend, you can also use the divergence of this indicator to warn you of possible retracement or reversal.

If you have entered a LONG trade and you see the ADX making lower highs while the price make higher highs, this is a good time to exit your trade as a retracement or a reversal is going to occur. The problem with most breakout traders is fake out which is the false movement of the market leading most inexperienced traders to enter a trade and then stopped them out by reversing the movement.

With the ADX indicator, you will now be able to check if a breakout is valid or not. When you see the price breaking out of a pattern or trend line, you can immediately check your indicator to see if it is pointing up and moving above the 25 level.

A valid breakout will be formed when the ADX indicator is pointing up and moving above the 25 level and an invalid breakout will be the opposite. I hope that you find this indicator useful for your trade and eventually integrate it into your trading plan.

If you have other uses for the ADX, do share with us by commenting below. I hope that this blog will eventually become the place where traders share their knowledge and everyone can learn from one another. CCI Indicator The CCI indicator is known as the Commodity Channel Index and this is an indicator that is developed by Donald Lambert. I will not bother you with the calculation of this indicator because your trading platform can automatically help you to calculate and plot out the indicator.

What I am going to share with you today is what exactly this indicator can do for you and how you can integrate it to your trading plan.

However when you see the CCI moving below the level, you are in a strong downtrend period and you can enter a SHORT trade. Similar to the above LONG trade, you should exit your trade once the CCI move up to the - level. a Trend Line Break: You can make use of the CCI to draw trend line and once you see the trend line being breached, you are going to see the market moving in the direction of the breakout.

b CCI Divergence: Similar to MACD divergence, the CCI also produces positive and negative divergences. This is usually a signal that the market is going to move down but the time it takes for the down move may vary and you should not assume that it is coming in the next few candles.

Similarly, you should not assume that it is going to happen very soon. When you see the indicator moving below the level, you are in an oversold zone and you can then place a LONG trade once you see the indicator moving above the level.

You can try this indicator out in your trading chart and see how it performs for you. Bollinger Bands The Forex Bollinger Bands is an indicator that is developed by John Bollinger and What Bollinger band can do for you is to help you to measure the volatility of the market. It can tell you the current situation of the market by using its upper and lower band.

Whenever the market has low volatility, the bands will be narrow and whenever the market has high volatility, the bands will be wide. In this blog, I will not be going through the various sophisticated mathematical calculations for the individual tools as I find them totally useless as most forex platform that you are using is able to automatically help you plot them out. However you can also adjust the setting if you find the price constantly penetrating the upper or lower bands.

What Bollinger Band Can Do For You The upper band usually indicates a resistance level while the lower band usually indicates a support level. If you take a close looks at your Bollinger band. You will find that the price usually bounce off the Bollinger band whenever it touches the upper or lower band.

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Dev Anand. Continue Reading Download Free PDF. How I Trade Profitably Every Single Month without Fail First of all, let me take some time to introduce myself to you.

I am Kelvin and I am a full time currency trader. I have a passion for trading and this drives me to create a forex blog that gathers a community of traders together.

Due to constant request from my blog readers asking me to share my trading strategies with them, I took a total of 13 months to create a course that teaches you all the strategies that I have been using all these years without reserve. Now that you have subscribed to my newsletter, you will be receiving forex tutorials from me every month as well as trading videos that I have specially created to help you in your trading. In this book, you will be taught the 3 secrets to successful trading.

Do note that these 3 secrets are all based on my own experience and therefore will be useful for you in your trading. This is a reward for those of you who really took action as it shows your determination in learning this skill. Most new traders tend to ignore the importance of support and resistance because they do not know that the wave like movement of the market is actually the creation of support and resistance.

When the price hits a major resistance for the first time, it will most probably moves down first due to the repulsion of that level. It will then attempt to break this resistance level again and once it manages to break through it, the old resistance level will now turns into a new support level.

You will find that the price will always comes back to test that new support level before it moves further up. Such action contributes to the formation of waves in your trading chart. Therefore as a trader, you must be able to identify where the major supports and resistances are. With these level identified, you will then be able to know where to enter a trade, where to place your stop loss and where to place your target profit.

In this section of the book, I will teach you a few ways to identify strong level of support and resistance. Fibonacci Indicator The Fibonacci indicator is one that is commonly used by institutional traders and therefore the level of support and resistance created by this indicator is more significant. The Fibonacci indicator consists of retracement and extension. All you need to do is to drag the indicator from the top to the bottom of the wave and you will be able to select which retracement and extension level you want to show.

From my trading experience, retracement level like the 0. As for the extension, it depends on the retracement. If the price hits the 0. However if you are able to find level of multiple Fibonacci, that specific level will be where you are going to enter a trade.

Pivot Points Besides the Fibonacci indicator, the Pivot point is another indicator that is used by institutional traders. Similar to the Fibonacci indicator, the support and resistance level created by the Pivot points serve as a strong level of support and resistance. For the Pivot levels, you can plot the daily pivot, weekly pivot and monthly pivot on the same chart. Do note that the power of the monthly pivot is larger than the weekly pivot and the power of the weekly pivot is also larger than the daily pivot.

Swings Swings are V-shaped Swing Low and N-shaped Swing High patterns. When you see a swing high, the top level will then formed the resistance level. When you see a swing low, the bottom level will then formed the support level. However not all swing highs and lows are of equal importance, those swings that have more depth are considered stronger level of support and resistance than those with lesser depth.

Below are some pictures for your comparison. The above are 3 ways you can identify strong level of support and resistance. Therefore spend some time to practice them on your chart today to have a better understanding of their trading nature. Secret 2: Power of Indicators The next secret to successful trading lies in the indicators that you are using as well as how you use them.

Most traders do not know the nature of the indicators that they are using and therefore finds them useless to their trading. My suggestion to you is to learn the various ways to use an indicator as well as learning how to fine tune them to suits your trading plan.

Below are some of my favourite indicators and the way you can use them in your trading. So spend some time to go through them now. MACD Indicator Before I start to tell you the power of MACD, I must spend sometime to do a introduction on what is MACD and who invented it. MACD is a forex indicator that is developed by Gerald Appel who has written 12 books on investment strategies.

MACD is in fact one of the simplest and reliable forex indicators I have used so far. As it is actually analyzing and displaying chart for past data, it is often know as a lagging indicator. However there are times where you can use MACD as a leading indicator to help you predict the next movement of the price. What this means is 26 days and 12 days Exponential Moving Averages.

The 26 EMA is a slower setting for MACD which will produce a slower indicator that is less prone to whipsaws. As for the 12 EMA, it is usually a faster setting for MACD. In the MACD indicator, there will usually be a 9 days EMA that will represent the trigger line while the histogram represents the difference between MACD line and its trigger line. i Bullish Crossover: Bullish crossover usually indicates a upward movement in the market and the way you can identify a bullish crossover is through the two line in the indicator namely; MACD line and its trigger line.

Whenever MACD cut through its trigger line in the upward direction, it usually indicates an uptrend or an upward movement. ii Bearish Crossover: Bearish crossover usually indicates a downward movement of the price and the way you can identify a bearish crossover is when the MACD cut through its trigger line in the downward direction. iii MACD Divergence: This is the best signal any trader can get from MACD: Divergence. First of all, let me explain to you what is MACD divergence all about.

When we say that there is a divergence in MACD, we are referring to the scenario where MACD and the price are not in the same direction movement pattern. Example: When the highs of a currency pair is getting higher and higher, MACD highs are getting lower and lower.

From my experience, you will usually see a downside movement after a negative divergence is formed. When the lows of a currency pair is getting lower and lower, MACD lows are getting higher and higher. Whenever you see positive divergence, you will usually see a upside movement in price.

You will have a more robust forex strategy if you are able to combine these two signals above to constitute your buy sell signals. MACD is a good indicator when it comes to buy sell signal as it always allow the trader to validate a trend line break or a breakout in price.

With this function, MACD can help the trader to identify fake outs in trading. ADX Indicator Riding the trend is one of the most profitable trading strategies you can have as it is a good way of producing high risk reward ratio trade and the best way to find out the status of the trend is to make use of the forex adx indicator.

So Why ADX Indicator? If you have been reading my blog, you will know that I have written an article to help you identify the trend of the market using various forex trend indicators like the moving averages. The moving averages are still a good way to tell the trend but they are unable to give you a value for the trend and this is where the ADX indicator comes into play.

What Is ADX Indicator? It is an indicator that is made up of a single line with value ranging from 0 to You may think that it looks like an oscillator but it is uni-directional. If you take a close look at the picture below, you will find that the adx will point up when you are in a good uptrend as well as a downtrend.

How to Use the ADX Indicator? I personally use it to tell whether the market is trending or ranging. As stated in the earlier part of this post, the ADX has a range value from 0 to When it is moving below the 25 level, it is telling you that the strength of the market is very weak. What usually happens at this time is that the market is in consolidation and will most probably be moving in a range.

When the indicator moves above the 25 level, it is telling you that the trend is strengthening and the larger the value, the stronger will be the trend. However to have a better understanding of the trend you are in, you need to combine the direction of the indicator together with its value.

Sign of a Strong Trend: You are in a strong uptrend or downtrend when the ADX indicator is pointing up and moving above the 25 level. Sign of a Weak Trend: You are not in a strong trend when the indicator is pointing down and moving below the 25 level. Other Uses of ADX Indicator 1 Divergence: Besides using the ADX indicator for telling the strength of the trend, you can also use the divergence of this indicator to warn you of possible retracement or reversal.

If you have entered a LONG trade and you see the ADX making lower highs while the price make higher highs, this is a good time to exit your trade as a retracement or a reversal is going to occur. The problem with most breakout traders is fake out which is the false movement of the market leading most inexperienced traders to enter a trade and then stopped them out by reversing the movement. With the ADX indicator, you will now be able to check if a breakout is valid or not.

When you see the price breaking out of a pattern or trend line, you can immediately check your indicator to see if it is pointing up and moving above the 25 level.

A valid breakout will be formed when the ADX indicator is pointing up and moving above the 25 level and an invalid breakout will be the opposite. I hope that you find this indicator useful for your trade and eventually integrate it into your trading plan. If you have other uses for the ADX, do share with us by commenting below.

I hope that this blog will eventually become the place where traders share their knowledge and everyone can learn from one another.

The final part of our forex trading PDF is to explore which brokers are popular with both newbie and seasoned traders. During News Release, volatility is experienced and Besides liquidity, a currency pair's trading some pairs could move over pips range is also heavily dependent on depending on the type of news. Although this indicator cannot give you an indication of the direction of the market movement, it can be a good tool to help you verify the strength of the current market. In a nutshell, technical analysis assumes that history will repeat itself. What Is ADX Indicator? In the ranging market, price is crossing from one side of the mean price to the other and that is somewhat similar to the pendulum. Risk-reward ratio Stop-loss orders Traders should look to establish a risk-reward ratio for every trade they place.

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