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The Ultimate Price Action Trader

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  1. Resources & Course Downloads
    1 Topic
  2. Getting Started
    1 Topic
  3. Support & Resistance
    10 Topics
  4. Market Structure
    7 Topics
  5. Candlestick Patterns & Entry Triggers
    12 Topics
  6. Trading Plan and Strategy Development
    10 Topics
  7. Risk and Trade Management
    15 Topics
  8. Understanding Market Behavior with Statistical Analysis
    5 Topics
  9. Becoming The Ultimate Price Action Trader
    12 Topics
  10. Bonus 1: Trading Examples
    33 Topics
  11. Bonus 2: Advanced Stock Trading Course
    10 Topics
  12. Bonus 3: Group Coaching (Recordings)
    14 Topics
  13. Bonus 4: Trading Checklists
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If my entry timeframe is 1-hour, what timeframes must be used for support resistance drawing? In UPAT course you say that entry timeframe should be always used. Does it mean that I must draw many levels at daily/4-hour/1-hour charts, or weekly/daily/4-hour is enough for entries at 1-hour?

If you’re entering your trade on the 1-hour timeframe, then I will recommend drawing the levels on the 1-hour and the daily timeframe.

Because the daily timeframe is used by most traders around the world, so I’d recommend having the daily levels there as well.

Chances are, if you zoomed out your 1-hour timeframe enough, you can probably see those levels on the 4-hour timeframe as well. I suspect that there will be an overlap of levels in the 1-hour and 4-hour timeframe.

For me, I draw my levels on the daily and the weekly timeframe. I enter the 4-hour, 8-hour and sometimes the daily timeframe. But I don’t draw on the 4-hour or 8-hour timeframe.

If you are entering on the 1-hour timeframe, you could just draw on the 4-hour and the daily timeframe.

How can we know when a support/resistance will break? If it bounces off and then tries again, should you wait for 3rd retest or exit? Sometimes the bounce is big that it takes a while to come to that level. And being an intraday trader, I can’t hold that long! Thanks.

Let’s talk about support since resistance is just the opposite. Of course, I don’t know for sure, but the biggest clue I get is through looking at where support is relative to the higher timeframe.

1. Support is likely to break when it’s against the higher timeframe trend

Let’s say the daily timeframe is in a downtrend and there’s a support on the 4-hour timeframe. You can be sure that the support on the 4-hour timeframe is likely to break since the daily timeframe is on a downtrend.

2. Support is likely to break when there’s a series of lower highs into support

It’s a sign of weakness because there’s selling pressure exerting on the market and that’s how there is a series of lower highs.

I see myself as a medium-term swing trader in equities. By this I mean, I take long-only positions and like to catch swings with an average of one to three months holding period. I use daily and weekly charts. Problem is, it takes time for my setups to unfold, therefore I don’t get enough experience with my preferred setups over a given 12 month period. I’m thinking of dropping down into a 4-hour / 1-day timeframe to generate more trading experience with my preferred setups, and just use minimum amounts. That way I build up my trading database and hopefully get more conviction in my setups. My question is: are learnings from price action on a 4-hour timeframe transferrable to a weekly timeframe? Any comments on this approach to get more experience?

The thing about equities is that when you go down to a 1-hour or 4-hour timeframe, the charts will look very different from that of the daily timeframe due to gaps.

If you compare that to the charts of FX markets, you’ll realise that the charts on 4-hour timeframe look very similar to those on the daily or weekly timeframes.

Because the equity markets open and close at a fixed time, and they have price gaps, that’s why the 4-hour chart looks quite different from that of the daily timeframe.

If you trade the US stock market, there are a lot of stocks to choose from and if you trade the daily timeframe on the Russell 3000, you practically have 20% of the 3,000 stocks to potentially choose from.

You can use a stock screener like the one on Thinkorswim to filter for stocks according to their Rate of Change, then select the top few stocks. That way, you’ll still be able to identify potential stocks to trade even on the daily timeframe.

What do you think about triple timeframe like (I look at the daily chart for the trend, the 4-hour for patterns then the 1-hour for precise entry)?

I trade on 2 timeframes, the trading timeframe and a higher timeframe. By having 3 timeframes, I find that it complicates matter a little bit.

I know there are traders like Dr Alexander Elder who talked about the triple timeframe, but I find that 2 timeframes are enough to simplify things for me.

Let’s say I enter on the 4-hour timeframe at support. Then on the daily timeframe, I want the market to be on an uptrend. So when I enter at support on the 4-hour timeframe, I know I’m buying from an area of value, in the direction of the higher timeframe trend.

Yes, you can also go down to the 1-hour timeframe to fine-tune your entry. But it also depends on the trading setup itself.

For example, if the daily timeframe is on an uptrend and it approaches an area of support, you can look for a breakout with a buildup on the 1-hour timeframe, which might not be visible on the 4-hour timeframe.

In this case, you’re using the 1-hour timeframe as your entry and the daily timeframe as the higher timeframe.

What is the preferred timeframe while trading intraday and position trading?

If you’re looking to trade intraday FX, I will say the 5-min and 15-min timeframes are useful for intraday traders.

For position traders, I assume you’re going to ride long term trends, then the daily and the 8-hour timeframes are useful for you to ride trends that could last for weeks or even months

What’s the difference between a pullback and a false break?

A pullback is simply the market moving against the direction of the trend.

A false break is a specific price pattern that could get you into the trade. If the lows of the candle cross below support only to close higher, above support, then that’s a false break.

It’s similar to pullback, but it’s more specific because the price has to take out the prior low, reject it, and close higher back above support.

For breakout or trend continuation trades, would you recommend to enter the trade after candle close or use a buy/sell stop order?

There isn’t a best approach, both have their pros and cons.

If you wait for a candle close, you’re waiting for confirmation but you’ll enter the trade at a higher price.

Whereas, if you use a buy stop order, you can enter at the price you want but it could be a false break.

Generally, when I trade FX and commodities, I use a buy stop order. But when I trade stocks, I wait for the candle close.

It’s more a timeframe issue since I trade stocks on the daily, weekly and monthly timeframe, so I’ll wait for a candle close before I enter a trade.

For FX, I trade the 4-hour and daily timeframe, so I’m perfectly fine entering a trade using stop orders.

Does the Pullback Trading Strategy work for scalping?

I’m not sure which pullback trading strategy you’re referring to, it could be the pullback trading system booklet that I offered or the pullback trading strategy from a discretionary perspective.

If you’re talking about the pullback stock trading system then it probably won’t work for scalping because that system was built for stock markets in the daily timeframe in mind.

Should my MA be set on the open or close of the price?

I usually use the close of the price, that’s pretty much the standard that most traders use.

How many trades should we be in at a time?

It depends on your trading strategy and the number of markets you trade. I don’t have the perfect answer for this.

How to select stocks for trading? What would be the criteria to select stocks?

I like to buy stocks in an uptrend because there are no point trading stocks in a range or downtrend – the trend is your friend.

This is not like FX where you only have 20 or 30 pairs to trade with. But the stock market has thousands of stocks to choose from. You can choose the best which are trending higher.

You want to choose those that are in an uptrend because the stock market is in an uptrend in the long run. The stock market is a barometer of the economy, we’re so much ahead right now compared to 30 years ago in terms of GDP and quality of life – those are reflected in the stock market.

I’m pretty confident that the next 20, 30 years will be even better than where we are today. Since I’m bullish about the stock market in the long term, I want to buy stocks which are in an uptrend.

You can use a stock screener like on Thinkorswim to filter for stocks which are trending higher, you can scan for them using the Rate of Change in the last 50 weeks. The top 20 stocks are the ones which are probably in an uptrend.

I’m overwhelmed, how do I know which trading strategies to use? There are too many strategies out there.

You’ll have to first define your goal from trading. Are you looking to ride a trend, capture a swing or to day trade?

Once you can define your goal, then you can find the right trading methodology to meet your goal. If you want to ride the trend, then you can look at the daily timeframe and ride trends across many of the FX and futures markets etc.

You’re overwhelmed right now because you haven’t decided what you’re trying to achieve.

Which trading strategies do you use more often in stocks trading?

For stocks, I trade mainly the false break at the area of support or the pullback towards the moving average.

I don’t trade breakouts that much recently because there aren’t much breakout setups over the last few months.

Can you explain or show some examples on how to scale-in a trade?

The thing about scaling-in is that you’ll make money only if the trending nicely.

You want to scale-in when the market is in an uptrend or when the higher timeframe is in an uptrend.

You don’t want to scale-in your trade when you’re going counter-trend, because when the market goes against you, you’ll lose all your open profits.

1. Ideally you want to scale-in when you have 3R in open profits.

Let’s say you’ve entered on resistance turned support in an uptrend.

This means that if you’ve risked 100 pips initially and now you’re up by 300 pips, then you can look to scale-in your trades.

The reason is that you don’t want to scale-in your trades only to lose all your open profits during a pullback.

Remember that when you scale in a trade, your position size gets larger. So any pullback that occurs is going to be more painful compared to if you did not scale in your trade.

So have at least 3R in open profits, the minimum you can go is 2R in open profits if you look to scale-in your trade.

2. Reduce your subsequent risk on the trade

Let’s say you usually risk 1% on your trade. Then when you look to scale-in your trade with open profits of at least 3R, your subsequent scale-in size shouldn’t be 1% ­because that’s too much.

You should risk ¼ or 1/3 of your initial risk, so it should be around 0.25% or 0.3%.

So if the market were to do a pullback, you will still be able to withstand that pullback because you have a smaller position size on your scaled-in trades.

We’re not trying to make a truckload of money as quickly as possible, instead, we’re trying to stay in the trade for as long as we can and not get shaken out easily. There’s no point having a huge position size only for you to be out of a trade after a small pullback.

Once you’ve understood the above 2 points, then you can start to look for valid trading setups to enter the trade.

For example, if the market respects the 50MA and the price subsequently does a bullish price rejection at the 50MA, you can look to scale-in your trade there if you think that’s a valid setup.

Since we are price action trader, should we ignore correlated pairs and just trade mainly on price action, for example, AUD/USD (long), EUR/USD (short) as long as there’s a valid setup?

Yes, they have a certain degree of correlation since they have a common currency, the USD, depending on the timeframe you’re looking at.

But how much they are correlated also depends on the currency you’re looking at.

Let’s say USD is gaining strength, but AUD is gaining even more strength, then AUD/USD is going to rise. But let’s say USD is gaining strength, but EUR is mediocre, then EUR/USD is going to fall.

So yes even though they are correlated, but their correlation isn’t exactly 100%.

My take is if you have correlated pairs, then just take the best trading setup and ignore the rest.

Otherwise, you can split your risk across the different pairs. Let’s say you usually risk 1% on each trade, then what you can do is to risk 0.5% on each of the two trades so you’re still risking 1% in total.

Do you hold forex positions overnight? Because if we trade on higher timeframes (4-hour and above), it is easy to hold the positions overnight right? Is it dangerous/advisable to hold overnight positions? There are overnight fees (aka financing costs) involved, do you think this is a big concern?

Yes, I do hold FX positions overnight. It is easy to hold positions overnight, you simply have to not close that trade.

Those who should be more concerned about holding overnight should be short term traders. If you trade on the 15-mins or 1-hour timeframe, your stop loss is usually smaller compared to someone trading on the daily timeframe.

With a smaller stop loss, you can afford to put on a larger position size like 1 lot or 2 lots. Then what happens is that any gaps or a sudden spike in the market will impact your P&L a lot because of the small size of your stop loss.

So if you’re a day trader or short term trader, then you’re more at risk with overnight positions. If you trade on the 4-hour or daily timeframe, then your risk is minimised because your stop loss is much larger, at around 200 to 300 pips. Even if there’s a gap of 50 or 100 pips, it won’t affect you that much.

Yes, there are overnight fees, but that’s simply the cost of doing business. There’s no way you can avoid it totally.

The only way to work around it is to use a broker like CMC markets which also offers forwards contracts in FX markets instead of spot currencies. For forwards of FX markets, there isn’t financing charges.

Do you use a time stop loss?

I don’t usually use a time stop loss. However, there are times I use them, like in the pullback stock trading system.

For my own discretionary trading, I don’t use a time stop loss, I use a fixed stop loss, I have a fixed target or a trailing stop loss which are according to my rules.

Can you explain stop loss using ATR with a numerical example?

How the ATR stop loss concept works is that we want to set our stop loss at a level that invalidates our trading setup. We don’t want to set it just smack below support because support is an area.

What you want to do is to pull out the 20-period ATR and find out the current ATR value.

If the ATR value is $12, and the lows of support where you’re entering from is $100, then your stop loss will be at $88. In essence, that stop loss you’ve just set is 1 ATR away from the lows of the support.

The concept can be applied similarly to entering your trades on moving averages, support, resistance and trendlines.

What will be a good win rate for trading?

This is a very subjective question because you can be a profitable trader with a 40% win rate because you’re trend follower.

You can also be a profitable trader with a 70% win rate because you’re a mean reversion trader. Some of you might be thinking, “Oh then I want to be winning 70% of the time then!”

But the downside for mean reversion traders is that there are also times when your losses will be larger than your winners.

For trend followers, your winners will be larger than your losses but your losses are more frequent.

It’s really up to you to find what you’re comfortable with. Personally, I trade different systems, some with high win rates, some with low win rates.

What FX pairs lend themselves to a traditional stock trading approach, i.e. use daily / weekly charts + long-only + no leverage + ride long trends or big swings? Recommendations on exotic pairs are welcome. Have had some initial success doing this with AUD/PHP, and wondering what else is there out there?

I don’t trade FX the way I trade the stock markets. I get what you mean, you’re getting for pairs which have big swings and behave like the stock markets.

That would probably be more applicable to the exotic pairs like USD/RAND, USD/IDR, USD/NOK, USD/MXN or USD/CHY. Those exotic pairs can have long trending moves.

What is the volume’s role in trading price action strategy?

I don’t use volume in my trading. I find that volume is an additional element that’s unnecessary for me.

(Now, that doesn’t mean that volume is useless because I’ve seen traders utilising volume in their trading.)

I know that you might be looking for breakouts with increased volume, but there are also times that breakouts happen with low volume.

In my price action trading career, I haven’t found volume to be useful for me. Of course, if you find it helpful for your trading, feel free to use that.

This is more of a suggestion than a question: would you consider changing the format of this group coaching session to one where we can submit charts for you to analyse? I’m not looking for a buy/sell recommendation. Just wanted to get the Rayner price action “take” on a certain chart, and in doing you might be able to point out things I missed.

I think what’s good is that when we have free time in the UPAT coaching session, you can simply ask for certain charts to be analysed – that’s one possibility.

Otherwise, you can always drop an email to your coach, coach@tradingwithrayner.com and your charts can be analysed there as well.

It’s unlikely that I will change the entire group coaching session to just focus on the chart analysis because there are still many other questions and doubts which I hope to answer too.

I’ve seen your videos on Stochastics, RSI, MACD, they are all momentum indicators. In what setups or market phases would you use one over the others, and why?

To be honest, I don’t use stochastics nor the MACD though I have videos on them.

The reason I published those videos is to educate traders who intend to use these indicators to help them look at those indicators from another angle.

I publish a lot of strategies and techniques, but I can’t be possibly using every one of them.

For example, for RSI, I spoke about using RSI as a trend filter where you can use the 200-period RSI. There are different ways to use these indicators, and these are to supplement the traders out there with extra knowledge on how to use them.

The only thing I used is the RSI, especially in the pullback stock trading system to time my entries.

Is it possible to add lines into Risk Manager tool and make the process of placing orders more intuitive and 'visual'? Panel rolled up - lines Entry, SL and TP are visible and movable. Panel rolled down - lines are hidden.

That’s a feedback that we can consider for sure. The Risk Manager tool was an EA for MT4 developed by a third-party, but if there’s a demand for it, we can liaise with that developer to make additional features.

What brokers do you use for forex trading?

I use CMC markets for FX trading.

Hi Rayner, we know that you are using IC Markets for forex but what about for stocks trading what broker can you recommend?

I know some people use IC Markets and they loved it, but I use CMC Markets for forex. I recommended IC Markets because they also have a lot of good reviews with decent spreads and fees, so I have no issues recommending them to people.

For stocks trading, I use Interactive Brokers. Recently I have another one, which is TD Ameritrade’s Thinkorswim. Both are great as well.

What is the best book to read to fix my psychology fears?

One of the trading psychology books by Mark Douglas is really popular, it’s Trading In The Zone.

Trading psychology was something I struggled with when I didn’t know I’m trading with an edge or not. But once I can define my edge in trading, and I know I’m trading with the money I can afford to lose with proper risk management, my trading fears somehow melted away.

If you want to work on your trading psychology, you can either read the book, or you can check out this article I’ve written here.

Can you use price action trading to trade stock options or index options?

I’m not an options guru, I’ve never traded options in my life. But I do believe that price action trading can help in options trading.

Let’s say price comes into support and forms a bullish hammer. But instead of buying the stock, you can buy a call option of that stock in anticipation of higher stock prices.

In terms of stops and profit targets, I can’t comment much on that since I’m not an options guru. But you definitely can use options to express your opinion of the stock market if you don’t want to trade stocks directly.

Hey Rayner, some people are teaching institutional tools to trade the markets. Are these tools real and used by institutions?

To be honest, these days banks don’t even outright speculate the markets. There’s this thing called the Volcker Rule where banks can’t risk clients’ money to speculate the markets.

The type of trading they do is very different from retail trading. They’re providing liquidity in the markets. If a hedge fund wants to buy a certain amount of EUR/USD, the banks will help to facilitate that transaction.

Tools that institutions might be using could be depth-of-markets and order flows. You can even access these tools these days, you can just pay a subscription and read the order flows. Those are more popular among proprietary traders.

Institutions usually have different trading philosophies, they could be only mandated to take on long-only positions, unlike us retail traders who can buy and sell anything we see on the chart.

Our goals are different from that of the institutions, that means the methodologies that institutions apply are very different from us.

I’m concerned about the widening of spread during the New York market’s closing hours and Asia markets’ opening hours.

One way is to trade the higher timeframe like the 4-hour or the daily timeframe. Usually, even when the spread widens, it doesn’t really impact your trading much since your stop loss will be larger on the higher timeframe.

If you’re a day trader trading during those hours, it’s also not a good time to be trading since the market simply isn’t moving much then. You’d probably want to trade the London session or the New York and London sessions.