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How do I prevent getting in a trade too early..?
Even if you have a concrete rule, like you trade the breakout, or use limit orders, there will always be a cost of doing business where there will be times you will get into early, may it be due to slippages on your orders and gaps.
You can never really prevent it in the long run.
However, if you are entering a trade too early, maybe because you don't have a fixed rule of entering a trade, then that's already a red flag.
What’s important is your entry trigger.
What is an entry trigger?
An entry trigger can be waiting for a candle close or a breakout above the close. You can have an automatic buy stop order above the breakout.
Once you already have a rule and have executed 10-20 trades, you want to refer back to those trades on how could have optimized your entries.
Then ask yourself some questions and observations.
The only thing that’s going to answer those questions is your trading journal and that’s for discretion.
"I'm a newbie to stock. When you mention SHORT the stock, how do we execute it in TOS? Do we hold SHORT stock and sell on the same day, or we can hold as long as on paper it is profitable?”
There are a lot of variables to answer here.
I think this question is derived from not having a trading plan at the moment.
So yeah, maybe if we can narrow down this question.
When you should take profits according to your trading method?
Then they can progress from there. For now, I can’t answer this one.
Do you hold short stock and sell on the same day?
It depends on your trading plan. I can't answer that. I think it's you who will be able to answer this one.
When you mention SHORT the stock, how do you execute in TOS?
Shorting is you profiting when the stock decreases in price.
But what I do know about the term shorting is that the price is zero.
However, the downside of this one is that the trading fees are higher when shorting. Shorting is not recommended unless you are a short-term trader.
Because if you're a long-term trader, stocks tend to go up in a parabolic move.
Rayner discussed in the UST Training the "Law of Large Number and Truth About Consistency" which I think also applies to UPAT Strategy. To see the results of your system using the UPAT, it means we must have more number of trades in a certain period to determine your "Edge or Expectancy". Does this mean that it's better to develop and apply the UPAT in Day Trading or use a lower time frame where more trades are executed compared to when your trading is in a higher time frame which has fewer trades?
This is a good question. This is something I've also gone through.
I trade the daily timeframe.
But you know, I check the daily timeframe because it suits my lifestyle and my frequency of trades is quite low. Sometimes I can only have 5-10 trades in a month.
Sometimes I can't even review my trading journal and make some changes because the sample size is so small.
It doesn't mean that we need to have the same method. But as much as possible, if you're in the UPAT course I highly suggest you trade on the H8 and H4 time frame.
We are discretionary traders. We build our edge.
This means that just because you built your own price action trading plan after finishing the UPAT course doesn't mean that it already works in the long run.
That is why it is a part of the UPAT course. In module seven, we emphasize trade generally, how do we review your trades?
At the same time, we don't want to review trades if it's just two or three trades.
I suggest if you're in the UPAT course you try developing a trading routine that surrounds the H8 time frame below.
But if you're someone who wants to trade the daily timeframes or higher, you have no time for part-time trading, I highly suggest you check out the Ultimate Systems Trader.
All the systems in the UST are back-tested for 20 years. They are designed to be robust and they're optimized in a way that they work, not only in the past but will also work in the future.
The UST course is mainly for stock traders. We do have one system for forex and futures trading in the UST course. But if you trade the US stock market, then the UST course is a good investment.
When waiting for a False Break to happen on a 4 Hour (my entry timeframe), I sometimes notice there has been a clear price rejection in the 1-hour time frame. Would it be ok to still go ahead with a 1-hour price rejection since that gives a more favorable RR instead of waiting 4 hours to complete?
When there are two conflicting questions, this means that it's the first sign of inconsistency.
If you time your entries on the H4 time frame, why would you still look at the H1 time frame to time your entries?
Instead of trying to decide
“Should I enter the false break or the 4 hours or 1 hour? “
Decide for yourself
Are you more comfortable entering trades on the H1 time frame or the H4 time frame?
That's pretty much it.
Once you decide you want to enter consistently on the H1 timeframe, just use the higher timeframe to reference support and resistance or the trend.
For example, if you trade 2-3 timeframes, and all those three timeframes have identical purposes, you're going to have analysis paralysis.
The key to multiple time frame analysis is to make sure that each of your timeframes has a role.
H1 timeframe to define your entries and exits. Then H4 to check the trends and where you could base your take profits.
Entering on the H1 and basing your take profits on the H4 is called Transition trading.
You can use the daily timeframe to plot your relevant market structure or you can just trade one timeframe, which is the daily timeframe, and ignore others.
Decide what is your entry timeframe and ignore the rest.
Firstly, you shouldn't be contemplating whether you should take the false break on the H4 or H1.
Secondly, your Risk reward ratio. I don't take trades if it's below the Risk to reward ratio of one.
If your risk-reward ratio is below one then your position is best spent elsewhere in another trade. This applies whether you're in an H1 or H4.
Let’s say you wait to enter a trade on 4H TF on the next candle open but the candle is strong that it exceeded half the distance to the next area of value making your Risk Reward ratio small (<1.0) and risk that opposing pressure may step in.
- Will you still take the trade and stick to the rule
- don't take the trade,
- is there any other way to enter?
If I were to look at these choices as a trading coach, A, and B, can be correct answers. Whether you take the trade or stick to the trade or follow your rules.
The risk-reward ratio shouldn't be less than one. The risk-reward ratio doesn't give you the complete picture.
You can have a risk-reward ratio of less than one, but still, be profitable.
For example, if your risk-reward ratio is 0.5, but you have an 80%-win rate, then you can still be profitable.
The higher your risk-reward ratio is at 1 to 4, the longer it takes for the market to take profit.
Therefore, you would have a smaller win rate.
HIGH RR = LOW WIN RATE
LOW RR = HIGH WIN RATE
I don't think there is such thing as the higher risk-reward ratio with the high win rate. The principle here is that the win rate is on everything.
If I were to trade my own money, and my risk appetite as a trader, I wouldn't take a risk-reward ratio of less than 1.
Because you can be profitable with a 1:1 risk-reward ratio even though your win rate is 50%.
If you're in the forex market as most of you are here. You shouldn't trade correlated forex pairs.
If you already have two positions, NZDJPY and NZDUSD. You wouldn't want to be entering a third NZD trade because you already have two correlated trades together.
In the forex market then “B’’ leans more towards a correct answer because there's context.
In the forex market, it's highly discouraged, we trade every forex pair we see because we have to deal with correlation. Therefore, our maximum trades are limited.
In this case, don't take the trade, it can be a correct answer If your maximum open trades are limited. If you have a maximum open trade rule then then “B’’ is okay.
“A’’ is a correct answer. If you trade the higher timeframes, you trade a lot of markets and you want to diversify your portfolio.
For stock traders, we have a risk management method called portfolio allocation, for example, if our portfolio is $10,000, we don't buy stocks that are worth 10% of our portfolio.
This is not risk per trade, but this is our allocation. We will not allocate more than 10% of our portfolio per trade. This gives you a maximum open trade of 10.
The maximum of them is 10% allocation. If you have a lot of maximum open trades, you want to diversify, especially if it's a bull market.
For example, there's a bull market in the stock market, then, of course, it's okay to take trades, even though it's less than the risk-reward ratio of one as long as you are following your rules.
What about “C’’?
It is neither a right nor wrong answer.
This is where we think outside of the box. Because “C’’ is something only you must answer moving forward with your live trades.
We have to review our trading journal. Have you entered 20-30 trades?
Do you notice that most of your losing trades are derived from trades you take with a small risk-reward ratio?
Could you have avoided 60% of the loss, if you take those risk-reward ratio trade of one?
“C’’ is something you must optimize and continue to improve from your trading strategy.
This is what trading is. Trading is not black and white.
In trading, we can both be two very different traders, but we can still both be profitable.
This means that just because I say something that works for me might not work for you. That is why I answered this question in a way that I'm not trying to be politically correct or in there might be some sense these answers.
What are the forex and future system?
The forex and futures are both markets, but the futures have a mechanism wherein you are buying contracts.
If you’re going to buy a soybeans contract or the Bitcoin futures, your contract has an expiry.
In the UST, the forex and the futures are systematic trend following systems. It trades the forex and futures.
How about "C", set the market order on the next lower timeframe where you can find an area of value within the candle on the higher timeframe.
Using the Donchian Channel to check for a breakout,
Example NIO Daily
Then go back to the H1 (lower timeframe), to see if we can find a better entry. The price is breaking below the lows, but we want to catch a better risk reward.
The stop loss is set in your H1 timeframe because we want tighter and there is a market structure to reference.
Is it possible to show an example of a pattern of recognition? False break and trend continuation.
I guess you want me to look at the chart and see how to define these patterns based on your question.
A false break for me is an entry trigger. We are waiting for a false break before we enter a trade.
To determine where a false break is, we have to plot our support and resistance by finding the relevant market structure to the current market price.
Now we lookout for where the false breaks are
The price closed within the area of support and the price closed above the area of support. This is a valid false break setup.
You wait for the candle confirmation and enter on the next candle open.
Criteria for a false break.
- Price needs to close within or above the area of resistance (Vice versa for shorts)
- Price needs to close back the area of resistance, with a long body candle.
Rayner has a different classification for a breakout and a trend continuation. If you enter in the swing highs here,
Random Length Lumber Futures 1W
This is what I call a breakout. At the same time since you are entering on an existing trend, I will still consider this as a trend continuation.
The way Rayner defines these breakouts and trend continuation is you are entering a pullback in an existing trend.
A breakout can occur in a ranging market, makes a build-up, and then breaks out from that range making a new market condition.
Some charts respect the daily chart moving average, but some follow weekly or monthly, should we take the basis of that timeframe?
The forex market opens 24 hours. When you are in stocks your stick with the daily timeframe or you go below the H1 timeframe.
Whether or not a stock tends to respect the higher timeframe or the moving average, I don’t know.
If I should tell you anything on my own, I should have statistical proof on my end.
However, what I can tell you based on our statistical research, stocks tend to rise higher on market leaders.
This means during the year you look for a stock that has performed the most in volume for the past three months. There is a higher chance the stock would keep going higher.
That’s one principle you can integrate into your trading system which is to follow leaders and not the opposite.
Even if our stock market is down, there’s always one or three stocks that keep going up for the rest of the year. Those are the kind of stocks you should follow.
How do you select stocks for an Intraday and how many should we trade?
I’m not a day trader. But I can give you an answer that can help you out. You need to have these tools.
You need to have a stock filter. If you are in the Indian stock market then try to find a screener or a website you can use to screen your stock market and you must ensure it has a stock volume.
High impact news doesn’t affect price in the long run, it just spikes. The same thing with stocks. One company can have a piece of major news and it could help the stocks go higher.
You can follow “humbled trader” on YouTube. She is a successful intraday stock trader. But she trades on the US stock market and not the Indian Stock Market. You can learn something from her.
Number of open trades
Your maximum open trades should not exceed five. The more open stocks you have you might have some errors monitoring them.
I presume the buildup can happen at both the Support and the Resistance in a flag pattern. And that it is traded in an uptrend when the buildup is at Resistance? and vice versa, in a downtrend, that is it traded when the buildup is at Support?
I will share with you my MetaTrader 4 because I can easily navigate these charts.
A build-up is what happens if the price is at resistance and makes a flag pattern.
That's a buildup.
And also, a buildup is when the price makes a bearish flag pattern at Support.
If we are to classify the word “build-up” then it must be traded with the trend and be at the area of support and resistance.
However, if we are trading these patterns, it's just called a flag pattern even if there’s no resistance or support.
A buildup is essentially a flag pattern, but it's paired at the area of resistance or the area of support.
A build-up is what happens if there is a bullish flag pattern at resistance and the bearish flag pattern at support.
Would you please explain what order block is?
I might not be the best person to ask because I barely use it in my trading decisions.
Even if I were to give the basics, it might not be worth the time in this session.
I suggest you just take a look at it in some other sources because I don't look at order block in trading.
Even if I tried to explain, my answers may not be accurate as I'm not too versed in this area.
I use support and resistance lines only on 1hr timeframe to identify the move direction. What other key indicators can help me be more accurate in direction and gain good win rates?
If you think you are getting good results, on the H1 timeframe using the support and resistance, and not losing money, then just focus on what you have.
Because chances are, if you add more indicators on your trading plan, you might be trying to reinvent the wheel in taking a higher risk that it may or may not work in your next following trades.
If you're live trading, and you are already on a price action trading plan using the 1-hour timeframe, and you are already doing good, your results are good without indicators or more indicators, then just stick to it.
Let's just say you made 30-40 trades, regardless of whether you are losing or making money, after 30-40 trades on the H1 timeframe, you will now look back on those trades from your trading journals.
What indicators could I use for me to sustain my wins or cut my losses?
The main thing here is that the only indicators that can help you, depend on your trading journal, it depends on your results.
If you want to add an indicator, we want to make sure it's compatible with what we have. and compatibility is sometimes very hard to gauge or to know whether it has an edge or not, sometimes it's a hit or miss.
Win rates have nothing to do with indicators. It has more to do with your trading setups. If you want to have a higher win rate, reduce your risk-reward ratio.
That's pretty much it.
You have to remember this throughout your trading journey.
Can you please explain Fibonacci retracement using a current chart and how best to execute based on price action?
The Fibonacci ratio isn't taught in the UPAT course.
However, I have used the Fibonacci ratio for quite some time. And the Fibonacci ratio depends on how you use it.
Are you using Fibonacci ratios for market analysis purposes?
You might want to use it for confluence
I use swing high to swing low and see if there is any confluence on the chart.
There is a method where you can use Fibonacci Confluence or extensions to see where the price can go or what are some confluence depending on the swing highs and lows.
Another way to use the Fibonacci extension is for you to time pullbacks in an uptrend, there’s a good chance that the price can reverse on those levels.
How do Rayner times pullbacks in an uptrend?
Rayner uses the support and resistance or the moving average to time his pullback. The Fibonacci retracement can be a similar thing.
For example, if the price reverses from the .618 over here
You can enter at the candle close over there. Then set your stop loss below .618 and your take profit below the resistance level.
If the price reverses on a .618 level, you can take a swing trading opportunity. But if the price reverses from .318 or .236 then you can enter on a breakout.
It's similar to the concept of a strong or weak trend taught in the UPAT course on how you can take advantage of it.
Nonetheless, if you're using the Fibonacci extension to time pullbacks in the market, then make sure you are measuring the lowest low to the highest high
I don't use the Fibonacci now. But before that's how I used to use it.
Here is my trading strategy.. (1) Stock selection with fundamental analysis (2) Keep tracking on those stocks their price movement with Elliott Wave Principle and other suitable technical indicators (3) Once the price movement is in my favor, I make the trade (Buy with stop loss, hold and sell for profit as the price approaches my target. I am happy to learn a new approach from the experts like you."
Stock selection fundamental analysis
How exactly are you going to analyze stocks?
How exactly is your market stock selection?
How will you look at the disclosure of that stock?
How will you analyze it? Or which metrics are you going to look at consistently?
This is just a generalization.
I guess, this isn't the right platform for him to share his trading plan in full but for me, if you are to give this feedback to me as a coach into my email, then you need to be much more specific on what metrics are you looking at.
If you're going to use fundamental as your stock selection and keep tracking those stocks on their price movement.
I assume this is with regards to this technical analysis.
“Keeping track of those stock price movements with the Elliott wave principle and other suitable technical indicators”
If you plan to use the moving average or the Fibonacci, what scenario are you going to use them?
What scenario are you not going to use them?
What is your entry trigger?
How exactly are you going to enter the stock?
Will you wait for a bullish candle to close or will you place a buy stop order or a buy limit order?
What is your allocation per trade?
Assuming you trade stocks, how many shares are you going to buy?
How are you going to position size your trades?
What are your maximum open trades?
For example, if you want to allocate 10% of your portfolio per stock, then you would have a maximum open trade of 10.
And of course, again, a couple of factors.
When it comes to developing a trading plan, this is discussed in training module seven, the last module in the UPAT course.
Where is your maximum drawdown? How will you review your trades? So those are the things.
Trading takes a lot of preparation, and it's not as easy as it seems. But of course, we're here to make money, at the same time, prevent losing money.
I hope that helps nonetheless because as a coach, I try and make sure that I have as much as I can.
1. On the UPAT course, it is mentioned that we read the market structure on the higher timeframe and for reading price action mainly for entries should be on the lower timeframe, but I see some of the trade ideas Coach Jet posted on the telegram account he read the market structure on his entry timeframe, which timeframe should we be focusing on for reading the market structure?
The first factor when choosing your timeframe is your lifestyle. I trade the H4 timeframe because it fits my daily lifestyle.
I check my trades every 4 hours. That's why you see me posting trading ideas every four hours.
But if you're someone with a full-time job, you have a family, and you cannot consistently look at the 4-hour timeframe, then it's okay to only focus on the daily timeframe.
Myths Regarding Timeframe
Rayner looks at the market structure on the daily timeframe and enters his trades on the H8 and H4 timeframe.
But here's the thing, just because Rayner does that, it doesn't mean that you have to.
If you want to look at your market structure and your entry triggers on the daily timeframe only, then that’s all good.
You can be successful doing that.
If you choose the daily timeframe to enter your trades, look at the trend, the market structure and ignore everything else then that’s alright.
That's possible for you to succeed because the less variable there is to your trading plan, the easier it is for you to journal your trades.
I only look at the 4-hour time frame. I don't look at the daily. Sometimes I do, it depends.
Sometimes the H4 time frame is like ranging, it's volatile. The trend lines are all over the place, I don't know what the idea of resistance and support is.
That is the time where I need to look at the higher time frames for context, but more often than not, I only look at the H4 time frame support and resistance.
If you think you're comfortable trading everything on a daily timeframe, you can be successful with that.
When it comes to choosing timeframes, don't be too focused on what I and Rayner do instead focus on what timeframes you think you can be consistent on.
On the UPAT course, we are taught that for correlating pairs we must at least limit to two trades or halve the risk between two trades, I am now wondering for UST (STF) is there a limit for especially commodities like gasoline, heating oil, crude oil as these are also correlated?"
If you have trades on EURUSD and EURAUD then you will not anymore take trades on the Euro pair.
For the UST, I don't want to answer that questions now, because there might be some students here who are not in the UST course.
I'm not going to answer this in this session, but instead, feel free to email firstname.lastname@example.org
We are focusing on the UPAT course.
Sorry if this question has been answered before. Could you explain how what does the 3 values of the chandelier Kroll stop indicator does in the trading view? What are some indicators that you think are helpful? etc volume indicator, Donchian channel? Thank you!!
Going to Trading view.
We select Indicators.
For the Chandelier Kroll
The “P” is your Period
If we are measuring the volatility for the past 20-days, the Multiplier is the “X” which is the buffer to the value looking behind bars to measure the volatility of “Q”.
The Donchian channel is there to help you determine what are the breakout points. If you're a breakout trader, then the Donchian channel is helpful for you.
The 200MA helps you determine what the long-term trend is. I only use the moving average if the trend is unclear.
That's pretty much the thing as a price action trader.
You must use indicators when you think you need them. Because indicators are tools, they're not magic lines on our chart and it depends on the user, how well that tool is used.
Nonetheless, I would want to recommend a lot of indicators, but I don't use the volume indicator. But the Donchian channel is very helpful because whether you are a swing trader or trend following trader if you want to use it as a trailing stop loss, the dungeon channel is a very versatile tool.
That's pretty much it.
In the FAQ in your UPAT course, you mentioned that you were primarily trading the false break in the current market. I'm not sure when that was, but what strategy are you mostly using in THIS market?
As price action traders, we trade what we see.
If we see a ranging market, then we trade a swing trading setup, a false break approach. But if you see a trending market, then we trade a breakout approach.
As a price action trader, it's not about which strategy to pick in this current market condition, but it's about what are you seeing right now in the current market condition and what strategies are appropriate for that market condition.
Because in the end, all strategies have strengths and weaknesses.
The weakness of a trending market is a ranging market. If you see a ranging market in your chart, you wouldn't want to trade breakouts or flag patterns, because it's a ranging market condition.
Instead, you want to trade at the area of value. trade at resistance trade at support.
I don't think it's right that you should pick one strategy and restrict yourself from using the other strategies.
It depends on what do you see in this market condition and choose what strategy is appropriate for this current market condition.
Let’s take for example, based on the Russian and Ukraine conflict, the market is volatile. A lot of bearish and bull candles.
Based on what I see on my chart a flag pattern, breakout, and trend continuation setups can quite be helpful in this current market condition.
This is a comment from the FAQs for UPAT, "You’ll pretty much get filled at the price you see on the screen if you’re trading stocks with sufficient liquidity." How do we filter for that and what are the numbers that you want to see for liquidity?
You want to use a stock screener for volume and value. Luckily for you, Rayner has a screener for that in Finvis.
It's a free screener tool, and you can just access it here, I put it in the chatbox, and you can access that anytime for free.
You can make some tweaks but, in that screener, you will see that Rayner has filtered it based on market capitalization, and volume, like above $1 million.
Because in stocks, there are 1000 stocks out there, but you're not going trade 1000s of them.
You want to make sure you filter for high-quality and high liquidity stocks. And in that the link I shared with you, can filter based on market capitalization and volume in also if it's a 52-week high or low.
I'm very new to trading in terms of stock shorting though I did trade a few stocks for long before. I read quite a bit of the UPAT course mentioning the various techniques to short stock which interest me.
In the UPAT course, we do teach you a couple of trading concepts that apply both to buying and selling. In the UPAT, we don't specifically tell you to short stocks, or which stocks you should short.
We're just giving you multiple concepts that work in buying and shorting market conditions.
I understand when I trade the stock long, I am holding the stock till I sell (intraday or beyond). Can you explain when I short the stock, am I not 'owning' the stock until I 'sell', either intraday or beyond?"
This statement is true. “You are not owning the stock”
Wherein you are not owning the stock until you cover.
I'm not going to go through depth explanations of short selling but what you only need to know when short selling is that you make money when the prices go down. That’s it.
When you are long buying, you make money when the stock price goes up and when you are short selling, you make money when the stock price goes down.
That's the only thing you need to know.
Of course, there are some other factors in Forex, when you are shorting in the forex market, the mechanics are quite simpler and the spreads are tighter.
Whereas in the stock market, the fees can be extra high when shorting the market.
What are the two things you need to know?
Nonetheless, I won't be explaining in full detail how short selling works. Because it can vary from markets to markets, from stocks, from futures to Forex.
It may also vary whether you are trading leverage or without any leverage.
I don't think it's worth our time to fully explain how short selling works.
Can you please explain the difference between the green and red hammer in terms of strength?
I'll be showing you my graphic design tool.
This is paint.net
It’s a free charting tool
This is the diagrammatic representation of the green hammer and the red hammer.
In terms of strength, what are their differences?
Whether it's green, red, or gray, all of them are the same.
Because remember, a hammer consists of two things:
- A long wick, A price rejection
I think it's safe to assume that they're just pretty much the same thing. Because the story behind them is almost very similar.
It's just the closing. That’s just the difference.
No matter what color it is, as long as there is a long price rejection, and it closes higher making a Doji or a dragonfly Doji.
Because if you're to put things in perspective, candlesticks are just chart patterns in the lower timeframe, wherein chart patterns are just candlesticks in a higher time frame.
That's just that's pretty much how they correlate to one another.
The names, hammer, shooting star, etc. They are just there to generalize a market principle or a market movement of buyers’ and sellers’ characteristics.
Between chandelier Kroll stop and manually finding out what is the stop loss by calculating using the ATR, which do you find is better? Will the difference be huge? Which method are you using? Thank you!
They are the same.
The Chandelier Kroll stop and the ATR have the same calculations. What's good about the Chandelier Kroll stop is that it visualizes your ATR.
The one you see above here is the Chandelier Kroll stop while the one below is the ATR.
The bottom line is that the Chandelier Kroll stop and the ATR have the same formula. However, since the Chandelier Kroll stop needs to be visualized on the chart, there can be a couple of added calculations just to put this on the chart.
If you want to short the markets, then you want to reference your stop loss on this orange Chandelier Kroll stop.
Whereas if you want to long the markets you will reference the blue Chandelier Kroll stop over here:
To answer the first question, which is better?
Essentially, they are the same. But the better question would be,
Which indicator would be more appropriate to use?
Would it be the Chandelier Kroll stop or the ATR?
If you adopt a trend following methodology, and you trail your stop loss using the ATR, please use the Chandelier Kroll Stop.
Because it would be such a hassle if you have to calculate your ATR every single day. But if you are already at the Chandelier Kroll stop, then trail your stop-loss.
You don't have to manually compute and subtract every single day.
The Chandelier stop is a variation of the Chandelier Kroll, but it's only based on one line.
There's an added calculation though, there might be slight differences when it comes to the main calculations, but as you can see over here
There is a spike in volatility and the ATR is high.
However, if you are a swing trader, which means you trade the range, for example over here.
If you are to enter a buy with a buy order. Take profits below resistance
Where will you place your stop loss?
You can’t look at the chandelier stop, because as you can’t see the current value right now it's above here
What do you do in this case?
In this case, this is where this tool isn't effective.
When you are a swing trader, you're a ranged based so in this case, use an ATR value of the original ATR indicator.
The value over here is 67 pips.
You subtract 67 pips from the lowest. When ATR is subtracted from the lowest low, that is your stop loss. Giving you a 1:1.05 risk-reward ratio in this trade.
That's pretty much the answer to that. If you are trend-based trading, make your life easier, use a Chandelier Kroll stop or Chandelier stop.
But if you're a swing trader, you want to be more flexible on where you want to define where your ATR would be, Use the original ATR Indicator.
Why is there no special Course for TradingView, how to start?
The reason why there's no special course for Tradingview is that we don't restrict you on which platform to use.
If you want to use Meta Trader4, Meta Trader 5, Ninja Trader, Trend spider, or Thinkorswim.
There are a lot of platforms that you can use, and you can apply in the UPAT course instead that is why we do not provide a specific module or lesson for Tradingview itself.
How do I Engage in a Trade after Analyzing, like to Buy or Sell what platform do I use?
I think this is a two-part question.
“How do I engage in a trade after analyzing? (Like to Buy or Sell).”
I believe it has to do with your thought process, how do you approach a chart.
What platform do I use?
Let's start with the platform. The platform means you must choose a broker. But if you are to choose a broker, what markets do you trade because I trade the forex market.
So, currently, I am using Axi trader for the forex market and you can use IC markets as well as pepper stone or blueberry markets for forex markets.
If you're a crypto trader, you can use Binance, I've used them for quite some time or Gemini and if you are a US stock trader then you can use TD Ameritrade or Interactive Brokers
If you are looking for a CFD broker you want to trade the global markets, then CMC might be for you.
It depends on the markets you trade. If you are trading on your local stock markets or Indian stock market or Singaporean stock market, then that's where I don't have any knowledge.
With regards to the platform, know what markets you want to trade consistently.
Then from there, choose a reputable broker wherein your withdrawal and deposit do not exceed more than one week.
That's my golden standard in choosing a broker.
When you deposit, you make sure it arrives in less than a day. And when you withdraw, your funds arrive in your bank account in less than a week or three business days.
If there are any excuses, then that broker is not for you.
How do I engage in a trade after analyzing?
I will not go into too much detail on this. Because we have discussed this. I believe there's a module here on how you can apply support and resistance in technical analysis on your charts in the UPAT course.
It’s already in the UPAT course and I suggest you go through them again.
Support and Resistance
Firstly, when you see a chart, you define where your support and resistance are. You can use lines.
There we go.
When you are looking at your charts, I do suggest you plot just 1-4 so you don't confuse yourself.
Because if you're plotting Support and Resistance over here at the top
And the current price is over here
What are the odds of the price reaching there? There’s no point plotting there.
There you go.
Secondly, define your market condition.
What is the market condition right now?
An uptrend or downtrend or a ranging market.
Based on what we are seeing here, it's generally in a downtrend
But if we are to consider our support and resistance, it's currently in a range
As you can see over here, it's currently in a range.
Now you want to ask yourself.
What is an appropriate setup for this current market condition?
If it's a ranging market, you want to look for false break setups, you want to buy low and sell high and take profit before resistance.
But if the market condition is a trending market, you want to trail your stop loss for breakout trades, and so on.
That is your setup.
After you define your setup, let's say a false break setup.
Now, what would be your entry and exits?
This means you already know when you're going to enter, and you already know where your potential take profit or stop loss would be before you even enter a trade.
This is where you would then place your buy limit order and stop orders.
Manage your trades and follow your rules
Management is how you approach a chart.
I want to put $25,000 in so I can daily trade, but is there a strategy where I would invest only a portion without risking all?
This is the kind of question I cannot answer because there are a lot of variables to this. It involves financial advice.
I cannot give input on this because I am not a trading coach, I am an educator, but I am by no means suited to advise you financially, so I can’t answer this.
If you're a day trader, but you're not comfortable using that $25,000, why not start with $1,000 or $2,000 with your portfolio and apply proper risk management.
Which is just 1% risk per trade.
That’s much I can comment on for now.
How do I know which time frame to measure my charts in correlation to entry time? Is it the same period or different?
You can just choose one timeframe and not look at anything else.
If you trade the 4-hour timeframe, it's okay for you not to look at the daily and weekly timeframe unless you can't see any support on the 4-hour timeframe.
I look at the daily timeframe if there is major support.
With regards to choosing a timeframe, you must first consider what your lifestyle Is.
Because it doesn't make sense if you want to be a day trader, but you have a full-time job.
If you're trading the Forex market, and you can’t trade the most volatile sessions, which are the New York and London overlap.
Make sure you want to choose your lifestyle, and you must constantly reflect on whether that certain trading method is for you.
The second one is to choose a timeframe relevant to what you are most comfortable with that complements your lifestyle.
I trade the 4-hour timeframe, because every 4 hours, I do either have lunch, or I do my physical activities, my hobbies, etc.
The 4-hour time frame is embedded into my lifestyle, and it complements what I do. It helps me with regards to my habits which is to check my charts every 4 hours.
Yes, I can go to the 1-hour timeframe, but it's just not for me.
And if you are to trade the 1-hour timeframe and 15-minute timeframe, you need to be focused on those timeframes.
But to answer your question, let's just say you already know that you want to be a day trader.
You already know your timeframe; you want your entry timeframe to be the 15-minute timeframe.
It's weird to choose your higher timeframe, you can use the principal, a factor of 4-6.
This means that whatever your entry timeframe is, you multiply that by 4 to 6, and that is your higher timeframe.
If you trade a 15-minute timeframe, and you multiply that by 4, then your higher timeframe can be the 1-hour timeframe because 15 multiply 4 is equal to 60.
Your higher timeframe would be 1-Hour
If your entry timeframe is the 4-hour time frame, then multiplied by 6, to get 24 hours and the daily timeframe can be your higher timeframe.
Because again, if your entry timeframe is the 15-minute time frame or the 1minute time frame, it doesn't make sense if you go to the weekly.
The reason why I said that, is because the information that you are getting on a weekly timeframe may not be relevant to the time frame you are trading.
You have another trend line there in the weekly timeframe which is an ascending triangle.
Going down to the 15 Minutes timeframe
What do I see? I see a different picture. It's currently in a downtrend and it's moving away from the area of resistance
This level is not relevant, the information isn't relevant to my timeframe. That is pretty much how I would go about it. And hope that pretty much makes sense.
What are H1, H2, etc.?
This is a basic question. But, if I go on the daily timeframe, a single bar is equal to 1 day.
If I go down to the 15-minute timeframe, then every bar you see here is every 15-minutes. So currently, this candle opens and closes after 15 minutes
What is the Fibonacci retracement about weak trending markets? I was confused
The main usage of the Fibonacci tool is from the word itself.
What are retracements?
Retracements are pullbacks.
You call these impulse moves,
The hills you see below are called the retracements moves
With regards to the Fibonacci retracement, how do you go about using those tools? If you want to capture pullbacks.
You're plotting the lows and the highs over here:
I did not understand ATR with Pinbar
I think there was a module where Rayner is referring that the pin bar must be equal to 1.5 times ATR.
That can be quite confusing. Let's try to break down what he said.
What I just recently pulled out is an average true range (ATR)
What the ATR measures are the volatility of the market. The higher the value the more volatile the market is.
Based on this current ATR period, this market has moved
If the market has moved on an average of 120 pips for the past 14 days.
14 period, ATR on the daily timeframe
Then you want to make sure your stop loss is above that range. If the market tends to move 140 pips, then you want to make sure your stop loss is around 150 pips.
There we go.
It's one way to set your stop loss.
Regarding the question, the current ATR is 80 pips
Then if this pin bar has a range of 120 pips, which is quite more volatile than usual, you can quantify that it is a strong price rejection.
Because it shows that the volatility of the movement of the range of this pin bar is higher than the usual volatility of the market.
Let’s measure it.
It's 134 pips, so it's not 1.5 times. That's how we would potentially measure it.
Do we neglect the area of value and invest in the trade?
What if you spot a strong bullish market and sometimes it doesn't make any pullback, which makes sense?
In such cases, you neglect the area of value and invest in the trade.
I believe this is in the UPAT course. Rayner has mentioned that there are different types of trends.
The market is ranging and a lot of pullbacks, but it is in an overall uptrend. There are a lot of ranges and choppy markets out there.
The slope is healthy like a 70 degrees angle. The pullbacks are very clear, and it tends to respect the 50-60 Period Moving average.
The trend keeps on sloping, higher and higher. It just keeps breaking out.
In the UPAT course, we teach you how you can trade these types of different trends because not all trends are equal.
If it's a strong trend, and as you know that the character of a strong trend is it barely makes a pullback.
This means that the most appropriate method for trading strong trending markets is that we only trade breakouts.
You buy or sell the breakouts and ignore support because it’s barely going to make that anyway.
If the trend is in a strong uptrend, then yes you don’t need to neglect the area of Value
You can neglect the area of support because it's not relevant to the current trending condition that you are looking at.
That's pretty much my answer to these questions.
How do you count the pips for the various prices on the right sideline for all currency pairs like Forex, metals, etc.?
For forex, for some textbooks, it is every 4th digit of the currency pair or if it's a yen pair, it is every 3rd digit, if I'm not wrong.
But for metals, it can be tricky because sometimes metals or commodities, are traded on the futures market which gives a different measurement.
For stocks, we measure for tick value.
For forex, we measured by PIP value.
For futures, I'm not sure if it contracts.
I can only answer this by using MetaTrader 4 because, on MetaTrader 4, it's quite simple.
On MetaTrader 4, what we usually do is just click the middle mouse button, then click and hold to measure the distance.
As you can see, we have here 1875 points, but this is 187.5 pips on your MetaTrader 4 which you can easily see.
This will make things much more convenient for MetaTrader4 & MetaTrader 5 users.
This also applies to Commodities.
It’s also the same middle mouse button, click and hold.
You will see that what we have measured here shows 2,664 points but it’s 266 Pips.
The middle mouse button tool applies in any market as long as you are in MetaTrader4, as well as in Brent crude oil, and so on.
This is just it for pips.
I can only speak for MetaTrader4 but for other units, I’m not sure.
I need help with journaling, calculating pips risk, and logging it in a spreadsheet.
If you're a UST student and you're journaling your trades, you just need to capture the market by the time you entered and exit the trade.
Because in the UST course, the systems are so simple. There’s no discretion.
What you just need to do is ensure that your execution meets the rules for the UST.
How about if you're a price action trader and you buy the course How do your journal or you know all these things?
If you are a discretionary price action trader, please keep your journal as simple as possible.
Get as simple as you can.
I believe there are three questions here:
- Calculating pips and risk
- Logging it into a spreadsheet.
Let me guide you on how to do it.
In the journal, what you just need to do is the date of entry, setup profit, and loss.
That's pretty much it.
Because when it comes to journaling, as a price action trader, you must keep your journal as simple as possible.
If you want comprehensive journaling statistics, don't do that by hand. Use tools like MyFxbook.
I will show you my portfolio.
In MyFxbook, you have these statistics:
You have the profitability, pips, average, best trade, worst trade, etc.
These advanced tools should be entered automatically by systems, by platforms, like MyFxbook for free.
But if you want to do things by hand, which is also important, it's only these things, setup, profit or loss that you need.
You can input your date of trade, profit, or loss and then input the mode for your trade setup.
What do you do next?
It would help if you had screenshots separately
We could add one more called the “Emotions”
It could be pointers like you are exhausted from work, stressed from an argument, or disappointments in work. You can just keep it simple with three-pointers.
What you need to do next is to highlight the header and click on “Sort and Filter” on the spreadsheet.
Let’s take into consideration the month of May 2022 from the list.
The first question here is do our emotions correlate with our losses?
Do we tend to lose when we're happy?
You can change emotions to follow your rules.
After which, you need to do a filter once again.
In May, does following your rules correlate with your wins or losses?
As you can see these are random numbers. It will vary on an actual.
But as we can see, our losses tend to correlate when we're not following our rules.
The conclusion for May is, that I tend to lose when I don’t follow my rules.
Profit and losses
What setup tends to work?
As you can see most of our losses, as of now, we can't conclude yet because it's a small sample size.
When we have about 20 to 30 trades, we can see whether or not these trades correlate with our losses or not.
That is the concept of having a trading journal.
This is to keep it as simple as possible and to see what factors correlate with our losses.
That's pretty much it.
Other than that, please use other tools to your advantage to do the statistics.
Do we need to include the entry price?
You shouldn't include entry and exit prices.
For me, I don't think that's relevant when it comes to manually input your order.
Because look at this, In MyFxbook, you already have this here.
The opening price, stop-loss price, etc.
You don’t need to do it manually on the spreadsheet. Because the more input values on our trading journal, the less we are likely to follow it.
You're not sure how to even use those prices, in a way if they will correlate to our losses or not.
I highly suggest that you don't include entry and exit prices for this
As much as possible use tools to also do this.
In MetaTrader4, I'll show you 2 different examples. One in MetaTrader4 and one in CMC markets.
In MetaTrader4, I have what we call the mini terminal.
This is a tool that your broker might offer for MetaTrader for users.
What I usually do is just, for example, I want to enter here and this market:
I'll measure what my stop loss is approximately 44 pips, then from my entry is 78 pips.
I'll put it in the mini Terminal, 80 pips.
And I would let this calculate how many balances I want to risk. I want to risk 2-3% of my trade.
Then as we can see, we would enter the trade with 0.05 Lots:
This is automated.
If you don’t have this on your broker, we have Rayner Risk Manager on MetaTader4.
It’s also in the UPAT course.
We have a market order, and our stop loss is at the price of 1.21821 and we want to risk 1% of our risk per trade:
When we click sell, it will automatically place the order with the right position sizing so that if our stop-loss is hit, we don't lose more than 1% of our trade.
What if you don't have this? What if you're not using MetaTrader4?
Some brokers offer this as well.
In CMC markets, I'm going to enter the (EURUSD).
What is the stop loss?
Our stop loss is around 1.0403
I have an account here, and it's valued at $4,100.
If I want to risk 2% of my account per trade, then I would enter a maximum risk of $82.
I put 2500 units here.
There you go, you can see the amount of what the potential loss would be.
Thinkorswim also has this feature where you can position size and this is for stock traders.
Entering the market at the current market price.
If we want to buy this stock worth $200.
We allocate 10%. If you want to buy $200 or $500 worth of the stock you can toggle the switch as shown below.
There are different ways to position size.
But the main concept of position sizing is that you know how much you will lose, and you know where to exit your trade before you even enter it.
I hope that answers your question when it comes to trade journaling. And also when it comes to risk management and how to position the size of your trades.
How do you usually tell it's a false breakout? Do you wait for the daily candle to close? Or do you take a risk and go ahead with the trade?
I want you guys to keep this in mind.
As price action traders, we have the power to ignore trades.
Because if you're a systems trader, if it meets the 200-day breakout, you must follow the rules.
But as a price action trader if we think that this trade has a lot of uncertainties in our mind, then, of course, you know you are free to disregard them
How do you tell it is a false breakout?
It takes practice to determine what this might be.
But the main concept is this you determine if it's a false breakout assuming that it reverses from the area of resistance, or support if it made a large body candle relative to the previous candle.
Group Coaching Webinar (2021)
Please show more example or tips on identifying break of structure setup, I’m having difficulties identifying them.
Let’s say the market is making higher highs and lows on the 4-hour timeframe, into an area of key resistance on the daily timeframe.
But at that area of resistance, the price gets pushed down by sellers and only manages to retrace up a little before it makes another strong move lower. Now the price has formed a lower high and lower low—essentially a break of structure.
For example, USDNOK:
Previously the price had made a series of lower lows and lower highs, but right now the price has made a series of higher highs and higher lows.
And notice that the range of candles in the recent pullback is much smaller than the previous strong bearish candles.
This tells you that the sellers are having difficulty pushing price lower. Also, this break of structure could work well was because that break of structure was happening near an area of support, at 8.80110 (red line), which is an area of value on the weekly timeframe.
In identifying the stage of the trend, advancing, distribution, etc., sometimes you use the 50MA and sometimes you use the 200MA. When do you use the 50 and the 200MA respectively?
If you really want to look at long term trends, you can look at the 200MA. But the key thing I was trying to point at was to use the MAs as a gauge to whether it’s in an accumulation, distribution, etc.
If you want something consistent, then just look at the 200MA since that’s longer-term in nature and you’ll get fewer whipsaws in the market.
If you’re trading a shorter-term timeframe, then the 50MA is more reactive and you have to adjust to that accordingly.
I can read the price action most of the time, but my entries and exits are making me bleed!
A few tips to help you with your entries:
- Trade with the trend
- Trade from an area of value in the existing trend
For example, in a healthy trend, you can look to buy near the 50-period MA, at support or near the swing low.
As for entry trigger, it can be something like a bullish engulfing pattern.
As for exits, I recommend:
- Capturing a swing
- Look to exit before opposing pressure sets in
For example, if you went long at support then you should look to sell before the swing high.
(We’ll look at more examples later on.)
For a false break or price rejection setup would you suggest the engulfing candle to close above or below high/low wick or just the body?
For me, I don’t look at a candle, but I look at the overall context. I want to see what’s the size of that candle relative to the earlier candles.
Ideally, the candle that did a false break is much larger than the preceding candle. If that candle is at least 1.5 times the Average True Range, then that’s a valid price rejection and I would take the trade.
When I trade stocks, I am more lenient with the size of the false break price rejection candle. Because when I trade stocks, I’m usually focusing on stocks in a very strong uptrend.
You can see that for my recent trade on KIRK, the price rejection candle wasn’t as large as previous candles:
But if I trade FX or commodities, I want the price rejection to be obvious.
Look at the huge wick that has formed in USDCNH, this is a strong price rejection candle I look for in the FX market.
In essence, look at the range of the price rejection candle relative to the range of the earlier candles.
I learnt that Wedge price pattern has an opposite price breakout direction compared to a price buildup. For example, an ascending triangle buildup has a high probability of price upward breakout. But, a rising wedge pattern, it has a high probability of price downward breakdown. Both of them look like similar price patterns. May I know how do I differentiate them so I can trade in the correct direction?
For the ascending triangle, you always have higher lows forming into a horizontal area of resistance.
For a rising wedge, you don’t have a horizontal resistance level. Yes, there are higher lows, but the higher highs are getting gentler instead. You will see 2 diagonal lines on the wedge pattern.
Yes according to the textbooks, a rising wedge pattern is bearish, but I can’t agree with them. Because if you think about it, a rising wedge is in an uptrend. Even if the price breaks down from the wedge, it doesn’t mean that the entire uptrend is invalidated. It could breakdown from the wedge as a steeper pullback in the uptrend and then continue up higher.
I don’t trade rising wedge because there’s just not relevant price structure I can use to trade that. I totally ignore it as a chart pattern.
What are your favorite candlestick patterns for entries and exits?
To be honest, I don’t have any favorite candlestick patterns, but what I find myself trading often are the false break setups. I like to see strong price rejection, the longer the wick, the better. I like to see the size of it relative to the preceding candles. The larger the range, the better.
I don’t focus that much on a pattern because sometimes it can print on the chart in those forms, but sometimes it could appear in a form that has no name to it.
For this bullish price rejection pattern, I won’t call it a bullish engulfing, neither is it a hammer, but it’s still a bullish price rejection that rejected the lows and closed back bullishly.
What is the best way to use price action to decide when to enter a trade in a trend following strategy?
There are a few ways.
Setup #1: Let’s say the market is in an uptrend, then you can also look to buy when it forms a false break near the previous swing low. It’s a setup I trade pretty often to get on board an existing trend.
Setup #2: If the market is in a strong uptrend, respecting the 20-period MA, then I’ll look to buy the breakout of the previous swing high.
How do you adjust/adapt to the price when it’s almost hitting your take profit level, especially when it’s like 0.5 to 2 pips away before moving in the opposite direction?
Let me share with you a recent trade that I took on AUDCAD on the 8-hour timeframe.
You can see on the right side that there’s a false break setup at an area of support, and the trend is upwards. So I went long on the next candle open with stop loss 1 ATR below the lows of the false break candle.
The way I set my first take profit target was that I referenced this swing high over here:
But I do know that before the price hits that level, it could face trouble breaking out above these highs at 0.985:
So although I set my first target at 0.99, I am also watching the 0.985 level. If it shows signs of difficulty breaking out of 0.985, I will just take my profits at 0.985 instead.
You can see that this market eventually went in my favour but didn’t hit my target and then went against me but didn’t hit my stop loss.
When it hit the 0.985 level, I took some of my positions off since it’s showing weakness at that level.
I have my profit target and stop loss levels in place, but I would be on a lookout for levels which could pose as obstacles for the price to hit my target levels. If there’s difficulty breaking through those obstacles, then I would take some profits off first.
That’s how I pretty much adapt to how the market evolves.
Just started using Thinkorswim to scan the market. Hope you can show us some examples of using the filter rules to identify market’s that are currently in a retracement to get a swing setup.
When I trade stocks, I recommend you to just rank those stocks according to their 50-week rate of change. Rank from the highest to the lowest, chances are, those stocks are in a nice strong or healthy trend. Add them to your watchlist and look for potential setups.
You can also head to Finviz and use these filters and sort them by Perf Year highest to lowest:
Hi Rayner, seeing that there are multiple forex pairs out there, is there a way to screen them and to know which pair is potentially reaching an area of value or do you look at them manually?
I look at them manually, for stocks and also for FX.
I will create a watchlist and then highlight a few better candidates with potential setups that I will pay more attention to. I do these on the weekends manually.
How to find low volatility stocks? I am using Thinkorswim. This is to find breakout stocks. I am looking for buildup, how to find buildup stocks?
One possibility is that on Thinkorswim, you can use an ATR filter that only looks for stocks with ATR value below a certain value, like less than 1 or less than 0.7 over the past 5 or 10 days.
If that’s the case, then that would signal that there’s low volatility before the breakout.
For any trade, it is suggested in UPAT to consider 2 timeframes, one higher and other where we will take trade i.e. lower timeframe. What is the preferred lower and higher timeframe in the case of intraday trading? The trading hour for equity in India is 9:15 am to 3:30 pm (i.e. around 6 hrs 45 mins only). Should it be 15-min and 1-hour timeframes combination or 1-hour and daily timeframes combination?
As an equity intraday trader, the 5-min & 15-min or the 1-hour timeframes is a popular combination. Alternatively, you can consider the 5-min& 30-min timeframes combination as well.
Can you explain what is the purpose of higher timeframe (weekly) if we are taking trade along with stop loss and exits in the daily timeframe?
The purpose of the higher timeframe is to see what’s the big picture like. As much as possible, we want to align the trade with the higher timeframe trend.
For example, if the daily timeframe is in an uptrend, but the weekly timeframe could be in a ranging market or a downtrend.
You want to make sure that you’re not trading against the higher timeframe trend.
Hey Rayner! Been watching some of your weekly trades for a while now. (1) For trend continuation trades, assuming going long, I realised that sometimes you would buy if it breaks the absolute swing high. (2) On the other hand, sometimes you would buy if price retests support and you would exit partially at the swing high. I’m just wondering what’s the thought process between the two.
On the (1) part, that would be true if the market is in a strong uptrend and the price is consistently above the 20MA and I would consider buying the breakout of the swing high.
For (2), that’s true if there’s a valid false break set up at support.
What are the most suitable strategies, timeframes, methods of analysis, indicators and procedures that should be followed by a totally new Forex trader?
There’s a lot of trading strategies out there and I can’t say what’s the right tool for you. Because I don’t know the personality that you have as a trader. I do not know the goals you have as a trader. Thus I can’t say what’s best for you.
This is something that you got to explore on your own to see what resonates for you. It will take some time, but you will find a certain methodology that aligns with you eventually. Once you have figured that out, then you can dive in deeper to develop a trading strategy or plan around your needs.
How can we identify stocks for positional trading (stocks for 1 month holding period)?
Go with the Finviz method that I’ve shared earlier. Those are strong stocks which are likely to continue trending for a few weeks or months.
How do you know if the stock market is about to go into a recession?
To be honest, I have no idea. What I do is I’ll use a trend filter on the stock market index, for instance, the Russell 3000 which looks at the largest 3000 stocks in the US.
When the Russell 3000 goes below the 100-week moving average, that’s a signal to me that I should remain in cash as the overall stock market isn’t looking bullish.
I will look to buy again when the Russell 3000 crosses back above the 100-week moving average.
For example, during the 2008-2009 financial crisis, I don’t have to endure the deep correction as I have sold my positions and remained in cash when the price closed below the 100-week moving average:
It’s not a way to predict a recession, but rather, it’s a way to protect my downside if the market decides to go against me.
Can you share how you use the screening feature on TradingView?
I don’t use the TradingView screener, I use the one on Finviz (it’s a free tool):
Or you can use the one inside Thinkorswim to shortlist your stocks.
What’s the best market to trade?
If you look at my UPAT, a lot of my examples are on Forex, but if you look at the weekly videos over the last few months, I covered a lot of stock trades as well. You can also apply the concepts to the stock markets as well.
When I trade stocks, I am purely focusing on trending stocks, since there are thousands of stocks out there. There’s no reason for me to trade ranging markets or counter-trend trades when I can easily find stocks in an uptrend.
Compared to FX where you might have 20, 30 pairs, and sometimes you might only 2 or 3 pairs which are trending.
Yes, you can trade both FX and stocks for diversification, it’s fine.
How to decide the stop loss levels and how to calculate risk-profit ratio? Reason: I am struggling in deciding on the stop loss. When I set a stop loss, it mostly hit the stop loss and lose money. When I don’t, it also seems to be losing money or I have to hold for a very long time until it breaks even. I trade mainly gold and currently, I am in this difficult situation.
When I set my stop loss, it’s usually 1 ATR away from the price structure. My suggestion is to go and watch my weekly market analysis, where I hammer in this concept consistently. I share stop loss placements, my profit targets and how I manage my trades.
Check that out and it should help you set better stop losses. If you can’t find it then email email@example.com and we will point you in the right direction.
Is there a way to identify the 1st, 2nd and max profit target levels?
Usually, my first target is before opposing pressure sets in. If I’m long, it’s usually before resistance or swing highs.
I don’t have 2nd target, but for the remaining position that I have, I’ll trail my stop loss to ride the trend for as long as possible without any target level.
There’s no way to get a max profit target level since no one can predict the absolute highs and lows of the markets consistently.
During UPAT remember that for false break setup you like to trail using previous bar high/low. I notice that one of your trade you don't trail this way example the video on 5 Feb 2021 on AUDCAD, I also notice that after the false break setup is followed by 2 bearish candles, would like to ask why you still decided to hold on this trade?
As of now, I don’t trail my candles based on the previous candle highs or lows, because I find that I get stopped out of my trades early even before the trend could continue.
So I tweaked my approach and I have 2 targets. First one is before opposing pressure steps in at resistance or swing highs, and then trail my stop loss for the remaining position.
I do this to give it more room to breathe because I am trading in the direction of the trend. Whereas, if it’s a range market or a counter-trend trade, then I might trail my stop loss using the previous candle highs or lows.
Hi Rayner, I’ve been trading with a small trading account size of about US$5,000. If I only want to risk 1% on each trade, this means that I can only trade stocks that are below $50. Would you say that there are enough opportunities out there which would allow me to trade with a $50 limitation per trade? Some stocks can easily be over $100 and more.
If you only want to lose $50 on a stock, then let’s say you’re trading a $100 stock, then your maximum stop loss is $50, you can buy 1 of that stock.
If for that $100 stock you’re trading, your stop loss is only $10, then this means that you can buy up to 5 stocks so that your max loss is just $50.
The most important is to determine if the size of your stop loss is more than $50 or less than that, not so much on the share price per se. That said, of course, if the stock price is let’s say $2,000, then the size of your stop loss is unlikely to be only $50, then you might want to avoid this stock altogether.
What are your thoughts on position sizing?
It’s very important because, without proper position sizing, it makes it difficult for you to be a consistently profitable trader.
Sometimes when you win, you don’t win a lot because of your poor position sizing.
Or sometimes when you lose, you lose too much because of poor position sizing.
When do you think one should use leverage to grow account size faster?
It depends on the markets that you’re trading. If you’re trading forex, you’ll definitely use leverage in your trades because the volatility in FX is too small to make money without leverage.
Yes in FX you’re using leverage, but you are using it responsibly with proper risk management and position sizing.
For stocks, you may not use leverage and make decent returns because stocks have more volatility.
So, don’t think about growing account size purely based on leverage. Rather, you should consider risking slightly higher per trade at 2% or 3% instead of 0.5% or 1% per trade. Your returns will be amplified but so do your drawdowns.
Hi, Rayner. I'm just about to finish the course. Anyway, when you say high probability trade, what do you mean? What's the probability of a win? What is the percentage?
I don’t have a fixed percentage to provide, but anything above 50%.
It also depends on the number of confluence factors coming together. For example, if you trade an area of support that coincides with your 50-day MA, at the same time, you’re buying at support in a market that statistically tends to find support at a 50-week low.
The more confluence factors there are, the higher the probability of the trade working out.
There’s no fixed percentage to provide especially since there’s no way to backtest these kinds of discretionary setups.
How much volatility or ATR(20) value will be considered as low volatility?
Volatility is subjective. For Bitcoin, it could swing $200, $300 per day. But for currencies, it could just be less than 1%.
To me, what is low volatility is if you look at the 20-period ATR and you look at the weekly timeframe and you notice that the current volatility is at multi-year low, say it’s a 2-year low, then there’s a good chance that the market could be making big moves soon.
I compare the volatility to its multi-year highs or lows in that market.
When forward testing what’s a good enough sample size of trades for the 5-minute timeframe?
I recommend a minimum sample size of 100 trades. But during forward testing, you also want to test across different market conditions.
Because for instance when forward testing the 5-minute timeframe, the market could be in a multi-year trend for a few days or weeks.
So you want to make sure when you forward test, the market is in a range market, low or high volatility environments, etc. That will give you a much more accurate gauge of how your trading strategy will work out in different market conditions.
Note that 100 trades in an uptrend market will not as accurate as taking 50 trades over a few different market conditions.
Can I use the currency strength meter for the 5-minute timeframe?
Yes, you can, and you can focus on the currency strength meter of the currencies over the past 3 to 5 days, which will be more relevant to someone trading on the 5-min timeframe.
How can I identify stocks for Intraday trading?
I’m not a stock intraday trader, so if I were to give you any trader, it’s not going to be based on my experience. I don’t think it’s justified for me to give you an answer since I have no experience in that.
I really appreciate the way you teach UPAT, it is very helpful. Can you also suggest someone like you who can teach us options trading in Indian context similar to UPAT?
Unfortunately, I’m not aware of anyone who trades options in the Indian market and can teach in the same manner.
Hey Rayner, as a profitable trader with little to no capital would you say executing your trades through eToro or Zulutrade is a good way to make extra money? If so, how much could one earn considering the platform's fees?
To be honest, I’m not the best person to ask since I’ve not used eToro or Zulutrade.
I am interested to invest in newly listed companies (or new companies), what is the best way to analyze a newly listed stock to avoid having high risks?
Based on my understanding, a newly listed company, you’re probably referring to Initial Public Offerings (IPOs), when it trades initially, the chart is pretty much blank. There’s not historical price action that you can refer to.
It’s not possible to look at the charts, because the charts don’t exist before the IPOs. Technical analysis for IPOs is practically useless since there are no charts that you can refer to.
When the market is on an uptrend then decides to retrace before continuing, how do I know at what particular pivot it will choose to bounce up from? Because to me when I draw my lines I try to get as many previous resistance & support points but they both look like good spots which it can bounce up from but the market always proves me wrong. I don’t want to have a super-wide stop loss to remedy the problem. I would like to learn more precise entries (not perfect entry points) or maybe I am just wishing too much.
I will pick the level which has more confluence factors. If there are 2 support areas you are looking at.
But let’s say one of them has the confluence of the 50MA which the market has respected the last 3 times. I’ll pay more attention to that support that has the confluence compared to the support which is just a standalone without confluence.
Also, don’t trade blindly off support. I look for bullish price rejection in the form of a hammer, to get my “confirmation”.
When drawing a trend line, where should the line start from? Should it start from the lowest point of a wedge shape? Should the line be touching on the wick or the candle body? Can you provide an example?
You can learn more on my YouTube video over here: https://www.youtube.com/watch?v=BONTuuxhujk
If there’s a clean move into support or resistance and the price don’t take off the previous high and it makes a strong rejection without taking out the previous high can we take a trade or not?
You have to journal down your trades to see if this works for you or not.
But for me, I like to see the highs or lows being taken out or rejected before entering the trade.
In the UPAT, you mostly show examples on the 4-hour and daily timeframe, how can we take those concepts and apply them to the 1-hour or 15-minute timeframe?
You can use the same concepts on the lower timeframes, the way you draw support resistance, the way you trade breakouts, entering based on entry triggers like hammer etc.
Let’s say you are trading the 1-hour and the 4-hour, then the market reaches a level of resistance with a clean move on your 1-hour but it doesn’t break. But when you go on a lower timeframe like the 15-minute, you see that it is in consolidation near the highs. What can I do or what is your view on this trade?
There’s nothing to trade here because the price is at resistance, there is no bearish price rejection for me to go short.
Since it’s consolidating, it could breakout afterwards. I would do nothing and wait for bearish price rejection before I take the trade.
I won’t go down to a lower timeframe to jump the gun on the trade. Because the trading timeframe that I want to trade should be defined ahead of time.
I am currently trading on the 4-hour and daily chart; however, I want to move down to the 1-hour timeframe as I have more time on my hands. Would it still be possible to use my charts on the daily timeframe (support resistance, trendlines, etc.) and apply them to my entries on the 1-hour chart? Or should I bring everything from the daily timeframe and move it to the 4-hour to get a better gauge of the market?
The tricky part is if you’re drawing your support resistance on the daily timeframe, and you’re using 1-hour timeframe to find your entry based on the support resistance area you’ve drawn on your daily timeframe, then it’ll be very big on the 1-hour timeframe.
One way to overcome that is to draw support resistance on the 4-hour timeframe, and that support resistance will not look as huge compared to if you were to see it on the 1-hour timeframe.
How can you tell a trend has changed i.e. from an uptrend to a downtrend?
Sometimes it looks as if a trend has changed - lower lows and lower highs but it returns and breaks resistance going back up.
You can learn more about this over here: https://www.youtube.com/watch?v=R01q--5M4SA
Hi Rayner, I believe you've mentioned using the 200MA as a guide on your trend bias. If the price chart shows signs of a reversal to the upside with a break of structure, however, the price is still below 200MA, should that trade be avoided? Thank you.
For this, the context matters. If the higher timeframe is in an uptrend, then I might consider taking the trade towards the upside.
If EUR/USD has a bullish setup but EUR/AUD has a bearish setup, what will you do?
I will take the trade which has a nicer trend since I’m a trend trader.
If the price on the higher timeframe is above the MA, while the lower timeframe, the price is below the MA, which MA will take precedence to time our entries?
The timeframe that’s the most relevant will be the moving average of your trading timeframe. If you trade off the daily timeframe, then the MA of the daily timeframe is the most relevant to you, not the 5-minute nor the 15-minute.
Always take the cues from your trading timeframe.
Market uptrend: how do u determine the nearest swing high or low as your area of value? There are times that I took the nearest swing low as my area of value but the price went lower to the next swing low as its area of value.
If the market is in an uptrend, the next thing I ask myself is what the type of trend is. If it’s a healthy trend, the price usually respects the 50MA.
Usually, if the price retests the 50MA, it’s near the previous resistance which can act as support. That’s the area of value that I want to trade.
If I know that the price is respecting the 50MA, then if it touches the 20MA, I will not look to buy yet because I know that the 50MA is more relevant for this particular market.
For the USD/SGD, it’s currently at an area of value waiting for a false break setup. However, the price might not form a nice hammer and I might have to set a large stop loss because of that. My question is, should I wait for a nice price rejection?
Yes, I will wait for a confirmation like a hammer or an engulfing pattern near the 1.34 level before entering the trade.
Also, there are so many opportunities out there in the market. There’s no reason to be forcing a trade that you are not comfortable with.
Hey Rayner, when we are referring to buildup, do you typically look at the daily or a lower timeframe? I’m asking because on the lower timeframe, candles appear more frequently and you will have more candles which would make it seem like there’s a buildup whereas in the daily time frame it might take a while for it to be visible.
You have to look at the overall context. I start by finding a range that took about 80 candles or so to form. Then I look for a buildup that’s about 8-10 candles to form in the range.
I don’t blindly trade buildup in the middle of nowhere. It has to be leaning against resistance or leaning against support.
I also use the 20MA to give me some clues. The 20MA has to touch the lows of the buildup before the breakout.
If you want to learn more, you can head over here: https://www.tradingwithrayner.com/breakout-trading-explained/
PSXP (31 Mar 2021, daily), since July, the price is in the range, but there is no buildup, and also 5 Aug 2020 had the strong price rejection. But since 2014 the price hit low, should I take the breakout strategy or pending false breakout pattern (no buildup, chop move)? What is your thinking process?
I believe this is the stock you’re referring to:
Looking at the trend, it’s a downtrend so I would stay out of the market. Because there are so many other stocks out there that are in an uptrend that you can choose from instead.
Why go with a stock that’s in a downtrend? I would rather trade along the path of least resistance and not try to look for buy opportunities in a downtrend.
How often do you screen your stocks and what parameters do you use?
I do this every Sunday, I use Finviz and these are the parameters that I use:
And I’ll look for uptrend stocks. I don’t look at ranging stocks or stocks in a downtrend.
Can show some examples on how to trade stock using the 52-week low (as we know what go lower will go even lower)?
I don’t buy stocks at a 52-week low, it’s kind of a difficult way to trade. It’s much easier buying stocks at a 52-week high.
If you’re looking to short, it’s possible, but I don’t short the stock markets because:
- There may not be sufficient shares available to short.
- When there’s a dead cat bounce or short rally, you can get stopped out of your trades easily.
- In the long run, the stock market is in a long-term uptrend. I don’t want to be against the market.
I’d suggest just look for buying opportunities and hold in cash if there are no such opportunities.
I made a few futures trades with 1 in 4 success and lost money in net. Then switched to Forex to better control position size and had 3 in 8 success and lost money in net but lesser loss than Futures. Does the UPAT strategy work better for one vs the other?
The thing about price action trading is that it’s discretionary. I can’t that it works better for stocks, forex or whatsoever.
Ultimately, price action trading is taking advantage of the imbalance between buyers and sellers in the market.
Another thing to note is, 4 trades in futures and 8 trades in forex markets are very small samples size. You need to trade more and get a larger sample size to extract insights from your trades.
Is it possible to have two trading strategies, one being on the 4-hour & daily, while the other is on the 1-hour & 4-hour?
I don’t recommend it in case you get confused as to which timeframe to stick to for your trading timeframe and higher timeframe.
If you’re new, I suggest that you stick to 2 timeframes, one higher timeframe and one trading timeframe. That’s pretty much it. Don’t try to bring in too many timeframes.
Hi Rayner, is there any stock screener you would recommend for ASX stocks?
I do not know of any free ones for the ASX stocks. I am aware of Finviz, which covers US stocks.
Is there any way in which we can screen and filter stocks in the early stages of a trend as there are many to choose from?
The screener I’m using is for the stock markets, where the stocks are already trending nicely. As you’ve seen in the Pro Traders Edge, the setups and stocks I’ve shared, are already trending higher.
Does UPAT apply to Crypto markets?
Yes, you can apply the concepts and strategies to the crypto market. Especially for crypto markets, technical analysis works pretty well. Probably because it’s a new market and there’s not much fundamentals or centralised information.
How to find out potential stock to trade continuously?
You must ask yourself what’s the market condition that you want to trade in. Once you’ve defined that, then you can use a scanner to filter out the market conditions you want to trade.
A stock with a high P/E ratio, for example, a 72 P/E ratio should we avoid that stock?
I don’t look at the P/E ratio for my trading. But for stocks with high P/E ratios, like Tesla or Amazon, they are likely trending nicely now.
If you were to avoid high P/E ratio stocks, you might miss out on stocks that are trending nicely.
What is the win rate of your trades where you use UPAT? What is the % return on your investment capital per year using UPAT?
I have to be honest. There are a few things to understand. Price action trading is only one of the strategies that I trade. I also trade several systems.
When I trade using price action, I typically risk less than 1% of my account and I trade on the 8-hour and daily timeframe. So the frequency of trades wouldn’t be as high as day traders. For this, I trade the Forex and commodities markets.
But with these in mind, my annual return is around 15%-20%.
Win-rate here is subjective because it depends on how many % you’re risking, the type of exits you’re using be it trend following or swing trading.
Please I can I have the maximum drawdown of our strategies
This is not possible to tell, because there’s an element of discretion to price action trading, and drawdown is a function of a few things: the market that you’re trading, the percentage you’re risking, the timeframe you’re trading.
It’s not possible to tell you your maximum drawdown of the strategies when there so many variables that are subjective to individual traders.
If you want to have a fixed number for your drawdown, then that is possible through systematic trading.
Can you be growing your income by doing like a fixed target profit at the nearest swing low and riding the remaining one?
In trading, there will always be a period of losing streak. If you’re trading on the higher timeframe, it’s very difficult to be making money every week or every month because the number of opportunities you get on a higher timeframe is less than that on the lower timeframe.
The fixed profit target affects the consistency of your income, but what also matters is your frequency of trades and timeframe. You need to have a larger number of trades over a month for the law of large numbers to work in your favour, to have a consistent income.
If you’re trading on the daily timeframe, it’s unlikely that you’ll be taking on 100 trades per month.
This is why the day traders and prop traders are on the lower timeframe because there are more trading opportunities and they can let the law of large numbers work out in a short period.
As a day trader should u have a list of market u would be looking at for the day or you should just look at all the market?
To clarify, I’m not a day trader, I’m a swing trader and position trader.
How can I implement fundamental inside my trading cause I’m trading the 15-minute timeframe?
I don’t use fundamentals in my trading, I use the higher timeframe and so the stop losses are usually wide enough to accommodate the price swings during news release.
If you trade off the lower timeframe, you should look out for the news or events on Forex Factory that’s flagged as red. You might want to exit your position before the news release so that you don’t get stopped out of your trade due to a price spike.
Having a fixed target of pips every week or every month is that a good mindset or not?
I don’t think that’s good because the market will do what it wants to do.
Trading is all about probabilities because market conditions change. If you expect certain things from the markets but it doesn’t happen, then you might take actions that are not according to your trading plan, like widening your stop loss, averaging into losses, etc.
That’s why I don’t expect to make a fixed amount of pips or dollar profit each month, I simply follow my trading rule and let my edge play out.
Hi Rayner, with regards to the higher and lower timeframe, you said it should be between a factor of 4 to 6. Would there be any disadvantages if I use the daily chart as my higher timeframe and the 8-hour chart as entry and lower timeframe since it's only a factor of 3?
It’s not an issue. For me, I time my entry on the 8-hour timeframe as well and use the daily chart as my higher timeframe. A factor of 3 is the bare minimum.
Rayner, what do you look for in stocks to create your watchlist? And how do you determine what sectors to invest in?
I look for stocks that are trending higher. It must be in a nice uptrend. I usually look for a false break setup or a pullback towards the 50-day MA, or retest of previous swing low, a retest of support.
That’s the same setup that I trade in stocks over and over again.
I don’t have specific themes or sectors to look at, I simply look at trending stocks and I simply trade them if there’s a valid trading setup, regardless of the sector they’re in.
What do liquidity and range have to do with choosing stocks to trade?
Ideally, you want to be trading stocks that are not penny stocks with low liquidity. Because if liquidity is low, you tend to get slippages where slippages mean if you want to buy a stock at $100, you might end up paying $105 instead when using a market order.
On contrary, you’ll pretty much get filled at the price you see on the screen if you’re trading stocks with sufficient liquidity.
Futures vs Forex, which is better for the UPAT strategy?
You can apply the strategy to both. But if you need to choose, then stick to the Forex market because you can better manage your risk through nano lots. Futures don’t have that benefit.
Though you have micro lots for futures, usually the liquidity on the Forex market is much better than the futures market.
I've done the UPAT course and want to apply it to my investment objective which is: to make money every month from trading using weekly charts. Happy to drill down into daily charts to find a break of structure, etc., but the main thinking will be in the weekly timeframe. I like to think of this as medium-term swing trading. Do you have any advice for setups and developing an approach in this timeframe?
It’s very difficult to trade the weekly timeframe and expect to make money every week or every month because your trading opportunities are very little. You’re not going to get hundreds of trading opportunities on the weekly timeframe each month.
You have to manage your expectations in that sense. But if you want to make money every month, then you should trade on the lower timeframe to get more opportunities for trading and let the law of large numbers work out in your favour.
My biggest problem is that I sometimes trade too big positions and then I always blow my account. I am trading Indices DAX/NASDAQ in the 1 and 5-minute timeframe. I don’t know how to avoid it. I can trade prudent for weeks and then suddenly I begin the craziness. I read trading phycology books, write in my trading log, meditate etc.
I’m not a trading psychology coach, but I’ve written an article on something similar, you can check out some of my tips that I’ve shared in my blog: https://www.tradingwithrayner.com/trading-psychology-6-practical-tips-to-master-your-mind-and-money/
When you come across a situation when you want to place your stop loss and there are two almost similar market structures, how do you handle that?
I’ll usually wait for the price to come to the best market structure before I enter a trade. If it’s even at the second-best one, I might not even enter the trade.
I want to trade from the best area of value that I’ve identified on my chart.
Also, are there any ways of mitigating foreign exchange risk when trading stocks that are not in my home currency? Thank you.
You can do hedging. Let’s say you have AUD100,000 and you want to trade the US markets. So you’ll need to convert AUD to USD, which you’re technically selling the AUD to buy the USD. This means you’re bullish on USD/AUD.
You can head to the spot currency market to short the USD/AUD to hedge against your above actions.
What is scaling in and scaling out in trading? Can you explain the concept behind it and give practical examples of how it's done?
You can find out more in my YouTube video here: https://www.youtube.com/watch?v=BxCnhpvV6CM
In terms of risk management, you always share on your videos to set the stop loss of at least 1 ATR. Does this 1 ATR include the risk set by the trader, i.e. 1% of the deposit amount?
Usually, this means setting your stop loss 1 ATR below your support, such that if your stop loss gets hit, it shouldn’t cost you more than 1% of your capital.
You can find out more over here: https://www.tradingwithrayner.com/atr-indicator/
Which stop loss to use if let's say I'm trading from a 1-hour chart in combination with a lower timeframe analysis of 10-minutes? Is it the 1-hour or 10-minutes?
It depends. If you’re entering on the 10-minutes timeframe while your 1-hour chart is the higher timeframe, then you can set your stops based on the 10-minute timeframe.
I'm trading in the Forex markets with 1-hour and 4-hour as my higher timeframes and 15-minutes as my lower timeframe, and I find it difficult to place my take profit (TP) and stop loss (SL) areas. Most of the time the price doesn't reach my TP area by a few pips and then reverses back to a much higher/lower price and I get stopped out. Which timeframe should I base my TP and SL areas, and how can I know if my TP area is too far away and the market is starting to reverse?
When you set your stop loss and profit targets, ideally you want to set them at your trading timeframe. If you’re entering on the 1-hour timeframe, then your stop loss and target should be set based on the 1-hour timeframe.
You can refer to the UPAT course’s module 5 on Risk and Trade Management to learn more.
After watching videos, in the last 1 month, I made money only on 4 out of 15 trades. Net I lost money so far. I am not risking more than 1% of my capital. How long or how many trades usually it takes to start making an overall profit? Do you normally see a trading performance increase in the first few months?
15 trades are a small sample size and I don’t know if the 15 trades are of the same trading setup nor the markets that you’re trading. There’s no way to make a good conclusion based on these statistics you’ve shared.
This is where your trading journal would come into play, so you can track your performance over time.
If you’re not comfortable losing money while experimenting with what works for you, you can reduce your position size or move to the demo account to collect a larger sample size of trades. Once you’ve traded enough of a particular trading setup, then you can take it to live.
Otherwise, 15 trades are too hard to tell. And only a trading journal can help you. After recording your trades in your trading journal but you’re unable to tell how to make sense of it, you can always email John and he will help you review your journal.
Without calculating the profit factor, how can we know that stocks are mean-reverting?
I have done numerous backtests on the US stock markets and I’ve found out that whenever there’s a pullback or decline in stocks, they tend to end the pullback only to continue higher.
That’s what we mean by mean-reverting because the pullbacks are short-lived, and the uptrend continues.
That’s also kind of the entire basis of the Pullback Stock Trading System. It’s my book that teaches you to buy the dips in the stock market because of this mean-reverting nature of stocks.
But don’t assume that this applies to Forex markets.
When you were illustrating your examples in the UPAT you didn’t mention the mean-reverting market or trading of the market in the lower timeframe. I’m a bit confused on how to integrate it into my trading plus I’m mostly trading the 15-minute timeframe, would that backtest help me?
If you know that AUD/CAD tends to reverse at the previous day low from the backtest, you can look for bullish price action to confirm your hypothesis and look for buying opportunities near the previous day low.
How can I know the number of pips per day does a Forex pair moves, so if EUR/USD has reached that number of pips I shouldn’t be expecting more pips from the market?
If a Forex pair has moved more than 2 times its average true range for that day, there’s a good chance that the market is slightly exhausted for the day and is unlikely to breakout to new highs.
You can discover more about this over here: https://www.tradingwithrayner.com/intraday-trading/
How do you incorporate market behaviour into your decision making when making a trade?
I like to look at trends, if the market is trending higher in an uptrend, I simply buy the dips or the breakouts. If I know certain markets have a trending behaviour, I might be more willing to buy the breakout if there’s a valid trading setup.
I would probably place a buy stop order above the previous day high to look to enter the trade.
If I know the market is mean reverting in nature, I could look for buying opportunities at the previous day low, depending on which timeframe exhibit such mean-reverting behaviour.
What are the contact emails of the staffs at TradingwithRayner?
Here you go:
John – firstname.lastname@example.org
Tochukwu/Jet – email@example.com
Rayner – firstname.lastname@example.org
Hey Rayner, is price action trading what the old pros call "tape reading"? I see references in old trading books to tape reading all the time. Could you explain what that is and if it's the same or similar to price action trading. Thanks.
Price action trading is different from the old tape reading, which doesn’t require charts. I’m not too aware of tape reading, but I would say they are the same.
It’s probably not used as much these days anymore.
I want to be a day trader, what books can you guide me to read to be a good day trader? What are the different steps for me to have a complete view of day trading?
I’m not a day trader, but you can check out this booked called How to Day Trader for a Living by Andrew Aziz.
Which screener can I use for trend following and momentum strategy for stocks to trade? Finviz does not have a stocks list on the Indian exchange.
I do not know of any stock screener for the Indian stock market because I don’t trade Indian stocks.
I want to ask how to use the Finviz to find a suitable breakout with buildup (I choose above 200SMA for "range" + above 20 SMA + Horizontal S/R signal+ average volume over 1M), and there is no "decreased volatility" to let me search for "buildup", I nearly can't find the chart pattern I like.
I haven’t come up with a parameter to help you screen for buildup in the markets easily yet.
Does the UPAT/Resources introduce other scanners? Can I use busystock/ASX stock screener?
If you have other stock screeners then, by all means, go ahead and use them.
But the screener that I’ve shared in the Ultimate Price Action Trader is more geared towards the US stock market which is a market that I trade as well.
I can make a consistent profit for several weeks until I blow up on a single day. Can I ask you or John (the coach) for that? Because maybe it would help to be responsible to someone?
Yes, you can consult your coach, but ultimately you have to be accountable to yourself because you can’t be giving John your trading account. Probably come up with a framework and suggestion and share with him.
Which broker best to use if want to pick up all the weekly alert tips you provide. Am currently with vantage and don’t have T-Bills as an instrument to trade?
You can try CMC Markets, you can pretty much trade most of the Forex and commodities markets there. For stocks, I’m with Interactive Brokers.
What are your thoughts on trading on Order Flow analytics data?
I know what is order flow, but I’ve no idea what is order flow analytics data.
What criteria have to be considered to create a watchlist for day trading in stocks?
I don’t day trade stocks, so I’m not qualified to answer this.
Hi Rayner. Keep up the great work! I finished UPAT last year and enjoy tuning into your recent videos. I just want to ask, what is the future of UPAT? What do you plan to be teaching or offering one year from now? I'm a fan of your work and would like to know what's in store for us UPAT graduates who want to keep developing price action trading skills and knowledge. I know you have an indicators course, but I came from an indicators background, and now prefer price action as my main analysis. Also, there are so many indicators of "magic system" courses out there. Your price action trading style is what makes you unique, so keen to get more of that mate!
All that I use for my price action trading is already in my UPAT course. I didn’t hold anything back at all.
The latest addition we had was the market behaviour secrets where I share with you the statistical data in the market and how to trade with that knowledge in mind.
The future for it is whenever I come across something useful from a price action trading perspective and I find that it can help traders, I will add it into the UPAT.
But as of now, I don’t have any tools or techniques that I want to share that I haven’t already added to the UPAT.
(I don’t have any indicators course, so you might be referring to someone else. I only have the Ultimate Price Action Trader course and the Ultimate Systems Trader course. Maybe you are referring to UST. For UST, it’s not the indicators that give the systems the edge, but rather, it’s the concepts that give the systems the edge.)
Is volume based on the amount that big market makers are buying and should it be an indicator to us that we should buying when the volume is high?
To be honest, I don’t look at volume in my trading, so my comments here are limited.
Is it possible to scalp the market by just reading/understanding price action?
I’m not a scalper, but I do know of traders who scalp the markets simply by reading the price action of the markets.
How can I do backtesting of stocks listed on the Indian exchange (Nifty)? Which software? Do I need to know the programming language? If yes which language is required and how to learn that?
I have no idea since I don’t trade Indian stocks. I don’t have any input for that.
Can I rely purely on UPAT techniques? Or should I add indicators? Thanks.
I don’t condemn indicators. In my price action trading, I use moving average, I use ATR to manage my price action trading approach. There’s nothing against indicators.
But if you want to use indicators, you must know what it is for. Don’t use for the sake of using without knowing the purpose.
I use the moving average to identify the trend; I use the ATR indicator to define the buffer I should have for my stop loss.
How to hedge long term portfolios of stocks?
You can short the futures market, or you can use options. I do none of that, so this is something that you need to research further on.
I am facing a problem in screening the stocks. Can you please share the rules to be used for screening the stocks? I will look for trade setups discussed in the UPAT (false breakout, counter-trend, breakout, trend continuation) of listed stocks only.
My bread and butter setup that I look for is the false break setup, which is easy to use Finviz to screen.
For those of you who are not familiar, these are the settings I use on Finviz (technical settings):
At the top left, I’m looking for stocks that have increased at least 200% a year. This tells me that the stock is likely to be in an uptrend, and I want to focus on buying these stocks which are in an uptrend.
If the market has been really strong, I might increase that to 300%. You can play around to see if you want 200% or 300%.
Next, I look for stocks that are 5% or more below the 52-week high. This means that they’re likely in a pullback right now.
These are the settings I use for Finviz (descriptive settings):
At the top left, I’m looking at companies that are above $300 million in market cap. Volume is at least 1 million so I’ve no problem entering and exiting my positions.
You can see that the stocks are ranked according to their “Perf Year”, which is the performance for the year.
Next, I go through all these tickers one by one and see which one of them has the setups that I had taught in the UPAT.
TradingView’s screener is not as comprehensive as this, so we’re not able to use such a screener on TradingView directly.
Can you please explain to me what is ROC?
The rate of change measures the percentage of change of a stock over a period. If you use a 50-week ROC, then that measures how many per cent did the stock rise or fall over the last 50 weeks.
Do you have signals, planning to have, or would you recommend anyone?
I don’t have any signals per se, but the closest I have would be the Pro Trader’s Edge’s trade alerts where I send out potential trading setups that I’m looking at ahead of time.
Would it be useful for me to learn how to read level two data effectively for when I'm buying breakouts or would it just add confusion? Thank you.
I find that level-two data is more relevant to day traders and scalpers. If you’re a longer-term trader trading on the daily timeframe, then it’s not necessary for you.
What is trading short, and what advantage is it and do you need a margin account in most cases for this?
Basically, trading short is the opposite of trading long. When you short, you’ll make money when the price goes down. The advantage of shorting is that even in a bear market, you’ll make money.
Hi Rayner, are there any specific patterns that are particularly misleading? For example, in my own experience, I've seen a lot of descending triangles (lower highs into support), break out on the upside. But you have a broader experience than me so keen to get your comments. Thanks.
For me, the descending triangle is a sign of weakness and I expect the price to head down lower. Depending on where you get your source of information from, some people say that descending triangle is a sign of strength as it could breakout to form higher highs.
A lot of patterns are not misleading per se, but they are used in the wrong context. If someone talks about head and shoulders pattern in an uptrend, and they look to go short once the price breaks below the neckline, then that’s not something I’ll readily agree with.
Because you have to look at the context of the market and determine the trend. If the trend has persisted for the last 300 candles or so, while the head and shoulders pattern has only formed for 30 candles or so, then what are the odds that this head and shoulders pattern will reverse the entire uptrend?
To me, chances are low that the head and shoulders pattern can negate the entire uptrend.
But let’s say the uptrend is about 100 candles, while the head and shoulders pattern is 150 candles, then you can see that the head and shoulders pattern is more significant now as it takes a longer time to form.
Context matters, and you shouldn’t be using the candlestick patterns blindly.
Rule-based discretionary trader vs systematic trader, who has the higher potential to produce higher expectancy trading result? Are the best traders discretionary or systematic?
From my experience, I’ve seen discretionary traders have a high expectancy relative to systematic traders. But that doesn’t mean discretionary trading is better than systematic trading.
If you look at the richest traders in the world, they’re mostly systematic in nature.
And also, the word ‘best’ here is subjective, because do you define ‘best’ as making the most money?
Discretionary traders have do have a higher expectancy of trading results than systematic traders. But in the long run, systematic traders are the ones who make the most money.
Based on your experiences, what is the accuracy or expectancy of a trading strategy using the false break setup? You may reference your timeframe.
For me, it’s about 60-65%. But bear in mind, I trade the stock markets as well, and the stock markets have been trending upwards over the last few years and that probably skewed my results towards the upside.
For stocks, it’ll mainly be the daily timeframe. For FX and commodities markets, it’s usually the 4-hour, 8-hour and daily timeframe.
Another thing to note is, 65% is achieved from taking half my profits off before the swing high or swing low. I will hold the remaining half of my position to ride the trend.
Among the following: trade setup, entry, trade management and exit. Which is the most important? And why?
It depends. If you’re a trend follower, what’s more important is your trailing stop loss and exits, and the number of markets that you’re trading. Because the more markets you trade and if you use a trailing stop loss, it will increase the odds of you capturing a trend.
If you’re a trend follower, whether you trade breakouts of the 50-day high or 60-day high, those are not as important trading more markets and setting a trailing stop loss.
On the other hand, if you’re a mean reversion trader, if you want to buy the pullback and sell the rally, what’s important is your entry. Because if your entry is wrong and you time your pullback poorly, you’ll encounter many losses because your stop loss is usually not as wide as a trend follower.
It depends on your trading strategies.
Some argued that random entry would work with the stock market if you focus on exit management. Do you agree?
Yes, it could work if you have a trend filter and you are selecting the right stocks like the strongest stocks in the stock market. However, if you’re randomly buying stocks including those in a downtrend, then I would say that random entry wouldn’t work.
Yes, the entry can be random, but you can see that other conditions need to be met before I go with the random entry.
How long did you take to become a profitable trader?
It took me about 4+ years to be profitable, it took me a lot longer like 8-10 years to be consistently profitable.
Consistently profitable took a while as it took me time to grow the account size.
What would be your advice to traders, who are applying trading strategy with an edge in the market, right psychology and position sizing but showing below average results? How to improve for such traders? E.g. Reducing their mistakes.
My advice is that if you know that you’re trading a strategy with an edge, but your results are still not good, then reduce the position size first or reduce your risk per trade.
You might have an edge, but if you’re risking an amount of money that you’re not comfortable with, then you’ll tend to doubt yourself because the money on the line is too great for you to handle.
My suggestion is to decrease the position size or lower your risk per trade from 1% to 0.5% per trade. 1% is a good guideline but it doesn’t take into consideration the size of your account.
If let’s say your entire net worth is $100,000 yet you have all of that in your trading account and you’re risking 1% per trade, then you’re technically risking 1% relative to your net worth, and that’s a lot.
Bring that size down to something that you’re comfortable with and let your edge play out. Once you see your trading strategy start making money for you in the long run, then you’ll have the conviction to scale up the size of your trading account.
In your courses, you teach about the MAEE formula. Recently I've discovered on my own about the Volume Profile. Would you consider using the Point of Control as a possible definition of "Area of value"? If so, can you elaborate, if not why?
I’m not an expert volume profile trader, but from my understanding, the point of control is the area on the chart where the most amount of transaction volume has taken place.
That usually coincides with classical support resistance on the chart. Therefore I usually just look at support resistance and not the point of control.
Also, I find that volume profile matters more to shorter-term traders and day traders. Where they use that tool to help them make trading decisions.
How to overcome painful feeling when reviewing my trades?
I’m guessing it’s painful for you because you’re reviewing the losses on those trades. I don’t have an answer for this because I don’t experience that kind of pain when I review my trades. What I felt was enlightenment as to why I had such losses and I discover patterns that led to these losses.
About the false break strategy, I'm a little lost when you say clean move, if the price approaches an area of value, should it be 2 to 3 bullish or bearish candles? How about if the candles approaching the area of value is 5 or 6 bullish candles, is that still a clean move? Thanks in advance Rayner.
This depends, if you’re looking to go long, then naturally the clean move would be a series of bearish candles coming into support. But if it’s a downtrend then it’s going to be the opposite, where you’ll see a series of bullish candles going into resistance.
A clean move isn’t dependent on the number of the candles but rather, the size of the candles. The larger the bearish candles are when they come into support, the better it is for me. It will allow the market to swing back up in my favour when there’s a false break afterwards.
What I avoid is a series of choppy moves with lower highs into support, I don’t want that. I’d rather look for one big strong move into support to look for a false break at support or reversal at support to go long.
Noted that there are some modules such as bonus modules without video. Will you be uploading them? As I find that video helps in the learning more than the transcript. Or even an audio file works as I can listen on the go to give myself a constant reminder of finding and determining my edge and trading strategy.
The bonus modules are extra content that I’ve written that I find would be useful to the UPAT members, there weren’t videos dedicated to those and hence I call them bonus videos because they’re like additional pieces of content that I’ve written that I think will enhance your learning in the UPAT.
Is it possible to mix UPAT with UST to improve the returns?
Yes, it’s possible but bear in mind that the UPAT and the UST they’re two very different programmes. The UPAT deals with discretionary trading and there’s an element of subjectivity while the UST is completely black and white with clear, concrete rules.
Having both of them can improve your overall results because the UST focuses a lot on the stock markets and ETFs, whereas the UPAT course is used by traders more on the FX markets.
What markets do you think a beginner should start with?
There’s no specific market that a beginner should start with because there’s no such thing as a market that is easier to trade than the other market.
Do you recommend the UPAT to be applied on crypto and any recommendation on how to do so?
I don’t trade cryptocurrencies but I do see the chart of bitcoin from time to time, and you can apply the trading strategies and concepts to cryptos as well.
For cryptos, the timeframe matters a lot. Because on the daily timeframe, it could be in a downtrend, but on the lower timeframe, it could be in an uptrend. Therefore, you want to be trading the timeframe that you are on.
I have finished the UPAT course modules. What should I do next? (e.g. follow your YouTube videos? Read the books recommended in the resource section?)
I suggest that you watch the Pro Traders’ Edge weekly report, and you will see how the concepts and strategies that I’ve taught in the UPAT are being applied in the real world of trading.
Is there any advice in setting the buy limit to enter a trade to get a better entry price? Like how many cents lower from the next candle open or previous candle. Thank you.
I don’t have a fixed rule like 10 cents or 5 cents below. Because different stocks have different volatility. 10 cents might be a lot or too little depending on a stock.
Maybe a better approach is to use the ATR indicator. Maybe you want to use 0.1 ATR above the previous day closing price to place your buy limit order.
Can you share more about trading strategy in more detail when the price goes into a range market in a previous trending move? Since price often consolidates and continues trending move again, so it is difficult to tell when the trend is going to end and which is accumulation or distribution stage. For example, if there is buildup leaning against a range’s top resistance in a downtrend, will you choose to long on the breakout to expect trend reversal or go short to expect the price to continue travel back inside range? Because it seems to me both are valid setup.
When I spot a potential accumulation or distribution stage is look at the number of candles the price takes to form the range.
For example, I was looking at the USD/CNH:
To me, this chart is potentially in an accumulation stage. But we can only confirm if the price can break and close above the 6.58 area of resistance.
I see this as a potential accumulation stage because there are about 131 bars in the range.
Usually, I look for around 80 candles in a range to determine if it’s in an accumulation stage. So to me, the example above is in an accumulation stage.
I would shift my bias from bearish to bullish if the price can break and close above resistance.
Also, if there’s a buildup that could be formed near the 6.58 price level, I would then overlay that with the 20MA. If the price can break out of resistance, I will be looking to buy.
Of course, that didn’t happen for USD/CNH, the market eventually broke down and tested previous support at 6.41 instead.
Looking forward to seeing Nifty and Bank Nifty as examples.
You can see that the market is bullish and is in an uptrend, there’s no reason to be bearish. Next, you can identify the areas of value.
You can see that the 15200 area could potentially be resistance turned support while the 14400 area is likely support.
What is TradingView, and how is it used?
TradingView is basically a charting platform, I’ve done up a tutorial on that so you can check that out here: https://www.youtube.com/watch?v=Vqrkbcdmuqc
After doing a trading journal, if I have losing trades, what do I do with my trades?
When you have a trading journal, it’s very important to be trading the same particular trading setup over again.
Let’s say in your trading journal and you have 50 false break setups, and out of the 50, you have 35 losers. Then you want to ask yourself what’s wrong. The first thing you want to look for is a pattern.
What are some of the similar patterns that make you lose money?
One of the common reasons why many traders lose is because they’re usually trading against the trend.
Secondly, their stop losses are too tight and didn’t set a proper stop loss which is usually away from the price structure, like 1 ATR away from support or resistance.
When you have these two, the losses are usually reduced by quite a bit.
Any recommended brokerage accounts to trade for multiple assets?
To be honest, I use CMC to trade FX, forwards and futures. I use Interactive Brokers to trade stocks. But if you want a brokerage to trade FX, stocks and the rest, maybe Interactive Brokers might allow you to do that. I’m not sure if they offer cryptocurrencies.
If you want a one-stop-shop, you’ll likely have to go with a CFD provider because they usually offer you a variety of products to trade.
Of course, CFD brokers have their pros and cons as well. I’ve written an article about it before, so you can check it out to understand what you’re getting involved with: https://www.tradingwithrayner.com/forex-broker/
For the Finviz screener, can you list the filters we play around to screen for trending stocks, like the minimum we can play around to obtain trending stocks?
I go with small-cap because I find that I get more trading opportunities, but not all traders are comfortable trading the small caps because the gap and volatility could be higher.
I also have another rule where I have at least a million shares traded, so I can, you know, identify those stocks that can quickly get me in and out of stocks.
If you want to be safe, I'll say the mid-cap is safe for most traders because the market cap is at least $2 billion.
A far base to look at is at least 200%
But again, if the market is in a recession in a downtrend, you will get very few stocks that appreciated more than 200%.
If the market is in a downtrend recession, then maybe you might be just holding on to cash and not trading at all.
The Finviz link you just shared now, what type of pattern you're looking for?
For a Finviz link, what I usually would get is stocks that are in an uptrend. A couple of patterns I trade is primarily a false break in an existing uptrend.
That's like 80-85% of my trades.
Sometimes I could also get a trend continuation trades like a bull flag or even a breakout with a build-up but not as often as a false break setup.
Do you close your FX positions before the significant market-moving event, like major rate decisions, inflation data, etc.?
The answer is no. Because when I trade FX, the timeframe, the lowest timeframe that I'm on is usually the four-hour time frame.
I'm mainly on the eight or even the daily timeframe. My stop loss is wide enough to accommodate terrible news.
Most of the time, most of my position positions are trading in the direction of the trend, usually when there's big news coming out, more often than not.
That news helps the market push further in the direction of the trend.
To answer your question, I don't exit positions ahead of time, even before the major news release.
For false break setup, do you always recommend setting a target profit, and why?
When I trade the false break setup, let's say I buy a false break at this area of support.
I will look to at least target the most recent swing high, in this case...
If the price comes up and reaches this swing high...
I will take a half position off. But let's say what if the price doesn't get to this high?
What happens next? This is more like trade management.
If the price rises, almost reaching the swing high but didn't test it, they come down lower:
At this point, how do I shift my stop loss? Or do I continue holding the trade?
I wouldn't shift my stop loss yet, because my stop loss is slightly 1 ATR below this support, probably somewhere here...
But what I will do now is that my first target from this swing high will now be shifted to this swing high over here.
The market can now reverse up higher into the swing high; I will then exit half my position at this swing high.
In a way, I have brought down my first target to the most recent swing high.
The market can now reverse up higher into the swing high; I will then exit half my position at this swing high.
In a way, I have brought down my first target to the most recent swing high.
I have a question about stop-loss using ATR; if the higher timeframe (daily) is trending up, and I go down to the lower timeframe (H4) for entry, which ATR do I refer to?
If you're entering your trade, let's say on a four-hour time frame, then I recommend just using the ATR value from the four-hour timeframe since that's the timeframe you are using to time your entry.
Do you have a discount code for the trading view?
I don't have any discount code for trading view here. From what I know, they don't give any discount code. The only thing I know is that they tend to have a slightly better deal during Black Friday compared to any time of the year.
What broker do you use?
My forex broker is CMC, and my stockbroker is the interactive brokers.
Do you analyze your past trades based on setups?
Yes, I analyze it based on a trading setup, whether it's a false break or trend continuation trade, whether it's a breakout.
Could you recommend a broker and a platform? I'm tempted to go for the trading view as I do my testing and learning there, but I noticed that most brokers work with MT4/MT5, not trading view?
For the broker, I recommend if you trade stocks, you can look at interactive broke and TD Ameritrade.
If you want to look at forex, you can look at CMC.
You mentioned about 80 candles to estimate range or accumulation. Can I use the Donchian channel?
If you use a Donchian channel, it will identify the highs and lows right over the last 80 days. I'm not sure if that will be too relevant because the critical thing we are looking for is for the market to be in a range of at least 80 candles.
Do you prefer to use indicators like RSI and MACD or to keep it clean?
If you look at the UPAT, I use mainly price action, moving average, and average true range; that's pretty much it.
I don't use RSI and MACD.
I have YouTube videos on RSI MACD, but it's just mainly for educational purposes. For people interested in learning more about those indicators and how they work, so that's was my purpose.
In the pro trader's edge, when the market is in an uptrend, how do we know that the uptrend is over to delete them from the watch list?
When I look at a trend, I want to see that the price is above the 100-period moving average.
If it breaks and closes below the 100- period moving average, probably that's not a trend I want to be in because they are likely to be other more beautiful trends to trade.
I would likely remove the stock from my watchlist.
This is a general guideline that you can use to figure out the trend.
You have a $10,000 account, and you risk 1% on each trade. So that's about $100 on each trade. Do you adjust when the account has grown decently? Or do you change every time you make a profit loss?
To make my life easier. I don't adjust it after every trade. I only adjust it when I have made a decent amount or when adding funds. If I have $10,000, I will change it when my account gets to $15,000.
Interactive brokers are upon opening a position; how do I see the open positions to check the P&L?
This is a very technical question, and usually, I don't answer questions on brokerage because the broker is the one that can help you best.
How do I improve the quality of trade selection? I find that I always choose the wrong trade and loss quite a lot. What should I focus on when I do self-study?
My suggestion is to trade in the direction of the trend and trade from an area of value. You wait for a good entry trigger like the hammer or bullish engulfing pattern.
Have a reasonable stop loss, and your stop loss should Ideally go a distance below your area of value.
Set a target just before the most recent swing high. This should improve the quality of your trade once you are trading from an area of value and in the direction of the trend.
Do me a favor; even if the market is ranging and it's at resistance, don't take the trade yet instead, focus on trending markets.
Do a review on the EURJPY daily timeframe.
To me, it's an excellent trending market I would say is a strong uptrend. If I overlay the 20MA, the prices are above the 20MA
Usually, the daily timeframe can challenge your entry for solid trending markets because the pullback is generally relatively shallow.
I want to go down to a lower timeframe like the eight-hour time frame to time my entry.
I would say the area of value on this timeframe maybe around the 132.50 level somewhere here.
You can look for a potential setup around the 132.50 level.
My take right now is the market is bullish. But of course, when I identify the area of value, it doesn't mean that the price comes to this area of value; I will trade it.
Because sometimes, I might get a better trading opportunity on other currency pairs, and I might choose the different currency pairs.
Trading in an area of value is one thing, but when you get multiple trading setups, you always choose to pick the trading setup.
Do you exit current positions before taking on a new position? How many positions are you usually in?
This depends on my stock discretionary stock trading account; I usually have not more than eight positions.
For some systematic strategies like the systematic trend-following could be up to like 40 or 40 plus positions is possible as well also generally depends on the system but primarily for price action trading strategies for discretionary trading strategies. I have no more than eight positions.
How do you handle the up and down in a trade?
The thing about stock markets is that the market could get up higher and lower. To me, it's the cost of doing business; if it goes against you and didn't trigger a stop loss, then I will quickly bail out of the trade to prevent further damage.
Is the UPAT course more for forex or individual stocks?
The ultimate price action trader is a course for discretionary traders to apply the concepts on almost any market and any timeframe.
You can apply the concepts in any markets, crypto markets, indices, as long as the markets you are trading have enough liquidity and volume.
You will see many examples in the UPAT course regarding forex to commodities and stocks; that's what Rayner trades when making those videos.
The Ultimate System trader (UST) is a systematic trading course. If you want to use a strategy that's already proven and backtested or has survived a couple of financial crashes, then the UST is for you.
How can you know a reversal or pullback will occur, and when's the correct entry?
It depends on the context. If the market is trending, in an uptrend, I will look for entry usually near an area of value usually at support.
Check out my video here to learn more: https://www.youtube.com/watch?v=R01q--5M4SA&t=6s
How to enter with chart pattern using multiple timeframes?
When I trade chart patterns, it’s never in isolation, it always depends on the context of the markets.
Let’s say price comes into the Daily timeframe’s area of support. Then on the 4-hour timeframe, I will look for a bullish reversal chart pattern in the form of an inverse head and shoulder pattern. If the price builds up at the neckline of the inverse head and shoulder pattern, I will look to buy that breakout.
In essence, the reversal chart pattern on the lower timeframe is leaning against the area of value of the higher timeframe.
Bitcoin (Daily) market belongs to trending behavior or mean-reverting behavior?
I have not done any backtesting on it honestly. But based on my chart observations, I believe it tends to exhibit trending behavior—it bursts out in a single direction for a while, pauses, then moves in one direction.
If investing in Bitcoin, do you suggest which ETF or Fund?
I don’t have any suggestions on any ETF or fund. But if you want to buy Bitcoin, why don’t you buy the direct Bitcoin itself, instead of the ETF or fund, since the ETF would incur expenses and funds have fees to account for as well.
Can Interactive Brokers be linked to the TradingView platform? Do you use Oanda + TradingView / CMC + MT4?
I believe Interactive Brokers can’t be linked to Trading View at this point.
I don’t use any of the combinations you mentioned. I use TradingView simply for my chart and I use CMC simply to execute Forex/Commodities trade. And I use Interactive Brokers for stocks and ETFs.
In your breakout videos, you suggest using the 20MA for the "coil" part (the buildup). In the break of structure video, you specify a close above/below the 50MA. Are these guidelines regardless of timeframe or not?
The short answer is yes. But what’s important is the concept I’m trying to share.
Buildups can form over varying lengths of time and that’s why I came up with using the 20MA to let it touch the low of the buildup as a signal that the market is getting ready to make a move. I’m using the 20MA to help me define the length of the buildup.
Whereas, in the break of structure video, we wait for a close below/above the 50MA as we want to wait for the price to form a mini distribution stage where you can identify the highs and the lows, to trade the break of structure set up.
When using the ATR to set your stop-loss, do you use the ATR from the previous candle?
I use the current ATR value, the most extreme candle on the right.
I am wondering if the stock on your radar is from a previous search. I refer to "CROX," which is in the "Pro Edge" released on August 6th.
If that's the case, for how long do you keep tracking the stock from the time you find it on Finviz?
How do we know it is time to ignore it since we have "lots" of opportunities in the market?
I keep the stocks on my watchlist as long as:
- In terms of relative strength, the stocks are on par with the S&P 500, or stronger.
- If the stocks are trending in a healthy trend, which means there could be opportunities
I usually remove stocks which are:
Weaker relative strength than the S&P 500—let’s say S&P 500 is making new highs while the stock goes lower than the S&P 500
Can we feed TOS the Finviz field and give the same list of stocks? It will be easier to rank the ROC via TOS than Finviz.
They might not give you the same list of stocks if their data are slightly different, but most of the list of strong stocks should be the same.
I have been making losses in the forex market. Do you think the US stock market is a better choice since it is in a bull market now?
Yes, because for the US stock market you only need to trade in one direction, that’s to go long. And the benefit of trading the US stock market is that you can identify strong stocks relative to the S&P 500. That’s something quite straightforward compared to the FX market, but it doesn’t mean you’ll make money easily.
How many confirmations do you use before entering a trade?
The key thing I look for is market structure, if it’s in an uptrend, I will buy, if it’s in a downtrend I will sell.
Secondly area of value, third is the entry trigger.
The fourth thing I look for is market behavior:
- When it comes to stocks, I like to buy stocks that are stronger in relative strength
- When it comes to forex, I like to trade forex which has certain statistical behaviors, like AUD/CAD tends to reverse the previous week’s high or low
- I also look for a low volatility environment, as the price usually breaks out afterwards
A retest of the support resistance one or two times?
Doesn’t matter to me once or twice, I consider the other factors as well before deciding on a trade.
I found that 4-hour and Daily timeframes aren't giving me enough setups to see my edge. What should I do?
For stocks, there are many opportunities out there, so you can simply focus on more stocks while still being on the Daily timeframe.
Do gap downs from poor stock earnings represent a clean move into support?
You can look at it that way, as that means you have strong selling pressure coming into support.
I almost usually never buy when there’s a huge gap into support.
I usually buy into trending stocks. So, if there’s such a gap down, it will usually invalidate the entire trend and I don’t want to be in the trade anymore.
False break - close within 1/4 of high low. Will it be counted if there's a gap down, though?
It depends on how big the gap is, if it’s a 1-2% then yes, I will still see it as a false break. But if it’s a 10-15% or more gap down, I will likely skip the trade.
May I know how to interpret a very bearish candlestick (i.e., long upper wick) on support? Do we ignore the bearish candle since the context is not correct?
If I see a long bearish candlestick, it’s going to look like a shooting star at support. This is a sign of weakness as there’s strong selling pressure at support but don’t short just yet because I don’t want to be shorting at support. Neither do I want to buy just yet because I don’t have a valid entry trigger. So, I will stay out of the trade.
Do you still keep a trade journal after many years of profitable trading? Or are there no new mistakes to spot once we hit that stage?
For discretionary trading, I still keep a journal to keep track. But for systems trading, I don’t because it is automated.
It’s not so much about spotting new mistakes, but rather, identifying patterns in your trades that lead to winners and losers.
I found that from my trading journal, at least from a discretionary trading standpoint, it’s much more profitable to buy stocks when the S&P 500 has made a pullback of 10%. Because when the pullback ends, the bounce on the stock will be greater than the S&P 500.
What is your maximum drawdown (say for 2018 and 2019) based on your account trading UPAT? (Yes, based on your parameters, and it may vary for others.)
My maximum drawdown was about 30% in 2018, I was risking 1.5% on each trade and this was solely for the FX and commodities market. Now, my risk is back to 1%. I don’t just trade FX, I also trade stocks.
For my stocks, the drawdown is nowhere near as steep, because when I trade stocks, I have more opportunities out there and I don’t have to force trades in the currency market, because I know that there’s probably something I could find in the stock market.
That gives me more opportunities to improve my overall trading results.
Do you personally use 20 ATR or 14 ATR on stocks? Does it matter?
It doesn’t matter. If you just pull out your 20 ATR and 14 ATR, you’ll see that the difference is negligible.
If Daily is our main timeframe for stocks and I only trade the open (from 9.30 to 11 am EST), does this mean I will not be able to benefit from lower timeframe (4-hour) analysis?"
If Daily is your main timeframe, then you don’t have to be trading from 9.30 to 11 am every day. It should require very little time to execute your trades on a Daily timeframe.
Is the correct way to use RSI as an oversold/overbought indicator or a sign of strength? i.e. if RSI>80, it will boost my confidence to buy the breakout (if seen as a sign of strength).
If the RSI is consistently above 70 or 80 for example, then it is a strong stock. But I can’t say that it boosts my confidence to buy the breakout because I don’t use RSI myself. I will still want to look for a valid entry trigger before entering.
Usually, when the stock is above RSI 80, I would say that the stock is usually on a parabolic move or in a strong trend above the 10MA.
Do you mind sharing more on price vs. volume divergence? Why is it not used in UPAT?
I don’t use volume in the UPAT because I don’t use volume in my trades. Also, for my other trading courses, none of those look at trading at all, it’s only based on price. It’s because based on my own research’s data, the volume doesn’t help improve the overall trading result.
Do you care about any other form of divergence (e.g. price vs. MACD, price vs. Stochastic), or does price action override these divergences?
No, I don’t care about those.
Could you share how you managed your trades during the COVID crash in March 2020?
For the FX markets back then, I don’t remember there being huge moves in the FX markets back then. But what hit me hard was my stocks, when my stop losses got hit, I went into a drawdown as deep as 30-35% from a system trading standpoint. One of my systems went down close to 40%.
After I got stopped out, the rally happened as quickly as the collapse and I almost wanted to override my rule because I felt uncomfortable entering the trades after getting stopped out. But since I know that was my systematic trading strategy, I just had to pull the trigger and follow the rules.
I was glad I pulled the trigger because that got me out of the drawdown. It was one of the better years for my systematic trading.
Were there clear signs of a crash before it happened? If yes, what was it?
In hindsight, it’s easy to identify these signs of a crash. But I was expecting the price to bounce at the 3,225 price level but it didn’t. It closes very bearishly for 2 days straight and that to me was an earlier sign that something was not quite right.
But I wouldn’t have known for sure that it will crash so low, by more than 30%.
Is it true that high volume at market all-time-high is a bearish sign or time for a reversal?
I don’t have any data to back this up. I wouldn’t rely too much on this, because what’s high can go higher. To me, price is king.
Moderna is a good example:
You can see that the price was at an all-time high, which highest volume for a period. But what happened was that there was a follow-through afterwards and the price exploded up higher.
I won’t pay too much attention to the volume, I will trust the price and if it’s moving higher, then look for buying opportunities, rather than going to short the market when the price is at an all-time high.
Do you bother about the buying vs. selling volume ratio per day?
Is there any broker (especially IBKR or Thinkorswim) that allows us to auto-trail stop using ATR instead of updating the stop loss manually every day?
Based on my limited knowledge, I do not know. I don’t use that function as of now and I still use my trailing stops.
What is the difference between accumulation, buildup, and "price congestion"? See TDOC (daily) from May 14th, 2021, till now.
Let’s say the market is in a downtrend and goes into a range with clear highs and lows. That to me is a potential accumulation stage.
A buildup is a tight consolidation, which is much smaller in range than an accumulation stage.
Using the same chart, how do we know if this is considered a bear flag or it is in accumulation mode, hence has bottomed out and thus time to go long?
Let’s look at TDOC as an example.
Is this a chart I would trade? The answer is no because if you look at the S&P 500, it’s in a very nice uptrend. Meanwhile, TDOC is in a downtrend and has broken the $180 support level, putting it in a declining stage. I wouldn’t want to buy such a weak stock.
There are other opportunities out there and that’s the beauty of stocks because you can be picky with your trades. You don’t have to buy stock in a downtrend because there are other stocks out there in an uptrend.
Are there statistics showing how often stocks retest the resistance turned support after a breakout or is there a higher tendency not to retest in the next two weeks?
I don’t have any statistical data on that. Based on what I know, it’s near impossible to backtest something subjective like support and resistance.
What we can do as close as possible, is to test, if the price breaks out to the 52-week high, then how many times does it retest the 52-week high X no. of days ago.
Are UPAT strategies evergreen? i.e. They should still work 30 years down the road regardless of market conditions?
UPAT strategies are a methodology, where we seek to always define the market condition. I might be biased when I say this, but it will work in the long run as long as we can define the current market condition and find the right strategy to trade it.
So if the market is trending higher, then I want to buy at an area of support and use a few other confluence factors to time my entries.
It should work years down the road. And if the market stops trending, I can trade a strategy suitable for a range market.
How do we know how much headroom there is to go after seeing a three-white soldiers pattern? E.g. CTVA Daily.
Let’s look at CTVA.
Again, I always like to compare stocks with the S&P 500 in terms of relative strength. This stock is still in a long-term uptrend, but it’s not as strong as the S&P 500.
The next major swing point to pay attention to is around the $49.85 level, which is an all-time high that the stock could retest.
These are possible levels that you can reference, in terms of how much more can the stock grow, as these are levels where people might look to take profit as well.
Why do you trade false break at resistance (assume prior uptrend) since countertrend has a much lower probability? Any stats in win rate for with-trend vs. counter-trend trade in stocks?
I don’t usually trade countertrend, but there are usually multiple factors coming together, it’s not just about the retest of the highs.
I almost always trade with the trend unless there are really good reasons to take on counter-trend trades.
In case you’re wondering why I added it into the UPAT lessons, it’s because there are traders who want to trade countertrend and that’s just kind of like a way for them to trade with proper stops so there know where to get out of the trade.
Do you filter the relative strength of stocks purely based on price performance in Finviz, or is there a better method, since stocks that have run up +200% in the past year might not have more headroom to grow?
I filter based on price performance on Finviz because what’s strong is likely to continue in the same direction in a sustained period. It may have gone up by 200% but it can still go up by 1000%. Just look at Tesla, look at Moderna.
I understand you don't do scalping these days, but can we apply the same UPAT principles for scalping?
There are many definitions. Some people scalp using order flows, looking only at bid and offer prices, then the UPAT is not going to be very relevant.
But if you talk about scalping the 5-minute timeframe on the FX markets, then the principles still apply like finding the area of value, identifying market structure. But there are more things you have to pay attention to, like a news release, because that will widen the spread of the currencies and you might get stopped out.
However, there are more things to take note of for scalping which I do not cover in the UPAT as I do not scalp the market.
The principles in UPAT do apply, but you cannot just rely on these principles, you need more tools and techniques at your disposal as the market is moving much faster.
For the entry trigger after price dips to support, is it essential to clear the previous candle HIGH?
To me, I don’t pay attention to that. Instead, I look at the size of the rejection candle, the bigger and stronger it is, the better. Sometimes it may not clear the previous day high especially if it trades down lower and then quickly reverses to close near the middle of the body of the previous candle.
Does a bullish harami have any meaningful signal since, in UPAT, it will simply look like buildup or accumulation?
I don’t pay attention to the harami pattern.
Does the 8-hour or 4-hour timeframe matter for stocks since the market opens for only 6.5 hours daily?
I don’t look at those timeframes when trading stocks. But if you want to look at an 8-hour timeframe while trading stocks, then you might as well just trade the daily timeframe.
Do you set aside a % of your portfolio for undervalued stocks besides trend following and discretionary trading? E.g. BABA stock looks terrible, but it's undervalued. In such cases, will you go long without any stop losses?
The short answer is, no, because I have no fundamental knowledge of these stocks. And it depends on what is the stock undervalued relative to, maybe based on some fundamental ratios.
What I did that cost me $100,000 was buying oil. I didn’t look at the fundamentals as it was more based on sentiments since I felt that the world still needs oil.
I went long around $15 to $20, went to zero, and now it’s pretty much at $7.
Sentiment trading opportunities, I do take part in them. For example, for Bitcoin, I was camping at $13k, but since the price did not get to those levels, I did not get into Bitcoin.
It was more of a sentiments-play, where the price has crashed a lot in a short period, but I don’t think it will stay that low for such a long period. I bought based on the belief that the commodity or that market will continue higher.
But for stocks, if I don’t understand the stock, I won’t buy it if the stock price happens to plunge. For stocks that I understand, let’s say Apple or MacDonald’s, then I might consider buying if the stock plunges by 50% and if I believe that it will still be in business for the next 5-10 years.
In this case, for Alibaba, I have heard of it but I do not know how badly China’s actions will affect these types of Chinese stocks.
Again, since I’m not a fundamentals person, I have doubts about it, I’ll just stay out.
When trading a downward break of structure with buildup, will you hesitate to take the trade if it's at a support point with a distinct bullish pin bar?
If I see there’s a break of structure and then I’m shorting into a bullish hammer on the Daily timeframe, then I would probably skip the trade since I’m selling into support.
What is the difference between trading Spot vs. Futures other than margin size?
For futures, there’s no financing charges but you have such charges for spot.
Why don't you prefer regression trendlines over standard trendlines?
Because regression trendlines are based on math and the trendline could still cut through the price. I go with standard trendlines because I can best fit them in a way for the market to respect the trendline.
In your 2019 July session, you mentioned looking for substantial bearish candles to change the market direction (ES1! on October 10th, 2018). Without hindsight, wouldn't this be considered a clean move into support?
Let’s take a look at that chart.
If there was a bullish rejection, I will be inclined to buy, since the price has come into this area of resistance turned support.
At this point, I’m still bullish on this market, and if I saw this, I’ll think the price has a good chance to retest the all-time highs. But in this case, the market subsequently collapsed down lower and I would have been stopped out at a loss.
If I am already profitable in stocks, does it make sense to trade forex too? What's the advantage other than diversification and 24/7 availability?
You’ll get more opportunities as well. If all the stocks are in a downtrend, you probably can turn to FX during that period as a form of diversification and look for trading opportunities in the FX markets.
As an advanced trader with $500k capital, what's the max position size you will recommend to trade on? Still, 1-2%, or can it increase to 5%? Assuming I can handle the drawdowns.
I wouldn’t recommend 5% risk. What I’ll recommend is for you to diversify your trading strategies. That will be the best next option available. Because different strategies perform well in different market cycles.
With $500k, I might take $100k to trade mean-reversion in the stock market, another $100k to trade systematic trend following, $100k for discretionary trading, another $100k for momentum trading in the stock market.
This way will give me a shallower drawdown with a much smoother equity curve. That’s what I do and I do recommend that to all traders as well.
Do you suggest trading the Daily or the Weekly timeframe in the forex market if I trade the 4-Hour timeframe?
If you trade the 4-hour timeframe, I do suggest the Daily timeframe as your higher timeframe. Adam Grimes shared this concept of using a factor of 4-6 as your higher timeframe.
If your entry timeframe is the 4-hour timeframe, then if you multiply that by 6, that’s essentially 24 hours which is one day. So your higher timeframe is the Daily timeframe.
You can also multiply by 4, so you’ll get 16 hours. You can use the 16-hour timeframe as your higher timeframe.
I use the MT4 platform at the MacBook; I copied the file.ex4 to the folder [ driver c--> program --> MT4 --> MQL4--> indicator] but cannot load the indicators on the MT4 (I apply a CMC demo account, via MT4 platform connect to CMC broker), is there any solution?
I believe you’re referring to the currency strength meter in the UPAT course. You have to download 2 indicators for that and put that into your “indicators” folder.
To put the currency strength meter in the correct folder:
- Open your MT4, click on File > Open Data Folder > MQL4 > Indicators
Select the correct profile:
The currency strength indicator will appear on the top left of your charts:
If it’s showing zero for the values, then switch to the Weekly timeframe, since that’s the timeframe we’re getting the data from.
If I trade the 4-hour timeframe in the forex market and enter (Long) with a valid setup (trendline reverse), but the high timeframe chart showed death cross (50 MA below 200 MA), are these trading logically?
If you use the daily timeframe to define your market conditions, then your lower timeframe should align with it.
If your daily timeframe shows a death cross, then you should look for short opportunities in the 4-hour timeframe.
But if the daily timeframe shows a golden cross, then you should look for long opportunities in the lower timeframe.
I would suggest that you use 200MA and not use the 50Ma, because if you use crossovers, this means that you are putting buffers into your trades, which might take you a while to confirm your bias. If you are more conservative, then yes you may like to use crossovers.
About risk management, if the account is $10,000, with 1% risk. For example, I use $2,000 to buy a stock, remaining $8,000, can I use the remaining fund to open a new position? If yes, the 2nd position's risk calculation is $8,000 or $9,900 ($10,000 - $100)?
Your 1% risk is dependent on where your stop loss is. If you were to lose 1% of your capital on a trade, that would be $100. Then based on this $100, you can see how wide your stop loss can be and then buy the appropriate position size based on that.
You can use position size calculators to calculate how much you should spend on your positions based on your capital and risk level.
I would like to understand the false break setup. I know that I need to treat support and resistance as an area but when the price breaks and closes (but inside the area box), can I take it as a false break setup, or should I wait for another candle close to validate it?
Let’s take Tesla for example.
Let’s say we have the grey area of support and price breaks down but closes back within the grey area, then I will not take it as a false break setup. So I will continue to wait for another bullish candle close above the area of support as a confirmation.
Because the logic of the false break setup is for the price to break below the area of value and then close back above the area of value which indicates price rejection.
I want to confirm: the higher timeframe gives a clear visual of support/resistance etc., but should my entry into a position be done on the lower timeframe?
No, because you can also just trade using one timeframe. You can use two timeframes or one timeframe and be successful as a trader. Go with what you are comfortable with and what has worked for you in the past.
When using the MA, how many touches are "required" for you to consider as good support resistance?
A minimum of two touches for the moving average. If the price touched the moving average once, then I will keep an eye out for the second touch. If you want to be conservative, you can wait for a third touch.
Thank you so much, and I'm so grateful for your teachings! Can one use the support resistance in different timeframes? For instance, when on the daily, do you use the weekly support resistance? If so, can you please explain how that works?
You have to first determine what your entry timeframe is. If your entry timeframe is the 4-hour, then you want to look for support and resistance levels on the Daily timeframe. However, if your entry timeframe is the 4-hour timeframe, it will not be too relevant to look at support resistance on the Weekly timeframe.
Try to keep it simple, otherwise, you might be overwhelmed with too many support resistance levels.
I miss many trades; any advice on how I can better execute? I pick many setups but do not take these trades as I wait and miss many trades.
If you miss trades, it probably has to do with your:
- Trading routine
- Entry trigger
If you’re someone who cannot wait for the candle to close, then just use the market order. You can also use limit orders or stop orders as those orders will help you automatically get into a position.
And if you trade the 1-hour timeframe with a full-time job and without time to check on your charts, then of course you will miss trades.
Also, no matter how good you are as a trader, there will always be times when you miss a trade. That’s why we try our best to have good trading routines and find entry triggers to reduce this from happening.
How to know when to cut your losses rather than waiting for them to hit your stop loss? Or should we wait for stop loss to invalidate the trade?
Yes, you should wait for the stop loss to invalidate your trade. Because if you manage your trades inconsistently, then you will get inconsistent results.
But instead, what you can do is, after making 20 trades, you can look at your trading journal and look at patterns to improve your results.
For example, 15 out of the 20 trades could have been winners if you had widened your stop loss, then go ahead to make these tweaks. This ensures that you’re not just making tweaks based on one single trade.
If you make a change to your strategies based on one trade, then that’s a recipe for disaster since short term results are random. Whereas basing on more trades will let your edge play out to get more accurate results.
How to know when to take profit and exit trades as there are multiple times where I was in the green till the market did a reversal, and I got stopped out. Is it because of my risk management, or my take profit target is too high?
It’s important to start by determining what’s your trading setup and your trading methodology. Because if you keep hopping from one system or strategy to another, you will get inconsistent results since each of those strategies has different ways to manage risk and to manage the trade.
Also, it depends on whether was this based on 2, 3 trades? If yes, then you should continue trading to let your edge play out while you record your trades in your trading journal. All of us manage our risks differently, and the best way to take reference from would be from your trading journal.
If I use 4-hour and couldn't find an entry but lower it to 2-hour, I could find a bullish engulfing pattern. Should I enter, and what is the difference? Since my support resistance are both drawn on the Daily timeframe.
If the 4-hour timeframe is your trading timeframe but you couldn’t find a valid trading setup nor entry trigger, then don’t enter the trade.
If you go down to an even lower timeframe, it tells me that you might be trying to force a trade there. You don’t want that to happen as it can be a bad trading habit. There are always going to be other trading opportunities out there.
Why do I enter the trade too early and too late? When I enter too early, the price goes against me and hits my stop loss. When the price goes higher, it is too late to enter the trade. How to enter trades correctly?
If you know your trading setup and you’re a trend continuation trader who trades breakouts. Let’s say you also have a specific entry trigger which is to wait for the candle to close. If you already know your trading plan, then just follow it and keep on executing your trades to let your edge play out.
Once you have collected enough sample size of your trades, then you want to start referring to your trading journal and identify the patterns where the price goes against you and hit your stop loss.
How do we know when a clean move down into support with an entry trigger will not continue moving down? Please see FDX, Daily, 3ʳᵈ August on 200SMA.
Let’s look at FDX’s chart.
We don’t know for sure if it’s going to continue moving down or not, that’s why we always need a stop loss in place.
Also, that is why you’ll need a valid entry trigger. If there’s a bullish candle that closes above the $275.41 support level, then that could be a valid entry trigger to go long. It doesn’t mean that it will go up, but it just means that it validates our trading idea.
Will a better stop loss point be at the last swing low, i.e., $273.95 on 26ᵗʰ April, or 1 ATR below 200SMA at $273.75?
I can’t answer that because I don’t know which timeframe you are at.
"On trendlines, is it ok for the lines to cut across patterns if you find a better fit than another that doesn't? See KIRK 1Y1D chart, connecting August 31st, 2020 to May 12th, 2021 Swing low. The candles in Nov 2020 are "ignored."Screenshot #1 here: https://i.imgur.com/XKOygFL.png
Alternative #2 trendline pattern here: https://i.imgur.com/jd4D822.png
Will the alternative be better, and will you short it on the break of trendline?
The #1 is a much better and cleaner trendline because it has the greatest number of touches and takes into account the break of structure, with lower lows, which means it is a transition into a downtrend.
Now you can see that the price is in a downtrend, so if you don’t want to be short, you can wait for the price to break above the $21 level before going long.
Fibonacci extension vs. projected trendlines - which one holds more weight when we decide on our profit target? (RR ratio aside)
I don’t know because I don’t use both to determine profit targets. Those are 2 different tools, to begin with.
If you are looking to trail your stop loss, then it makes sense to use a trendline to trail your stop loss.
But if you’re using the Fibonacci extension and you want a fixed profit target. You can take profit on the 1.618 level of the Fibonacci levels.
However, these are 2 different tools used in two different contexts so we can’t compare which is better than which.
Is false break limited to just one candle above resistance, and the reversal candle must come next? At which point (how many candles) do we say the false break has become a real breakout?
There are also fewer clear-cut cases of false break setups.
In this case, the price closed below the area of support and eventually closed above the area of support after 5 candles. So, I will also consider this as a valid false break setup.
That’s the essence of a false break setup, we’re looking at the rejection of prices, back above the area of value.
Will you give a 52-week low (only one touch) equal weight as a form of support compared to a regular horizontal line touching multiple points?
It depends on the trend. If you’re looking at support with the longer-term uptrend, then yes it can hold more weight than the 52-week low.
But if you’re looking at the 52-week low in an existing downtrend, then the chances of that going lower is probably high.
I suggest looking at the overall trend first and determine what your trading setup is. If you’re a swing trader then the 52-week might be a good point for you to enter if you have a valid entry trigger.
For China Education stocks like TAL, do you think it has entered accumulation mode and thus a good time to get in (since it's trading way below intrinsic value now)?
Let’s have a look at TAL.
It’s approaching zero but it doesn’t look like an accumulation stage to me, it does look like a declining stage to me.
I would say no, this is not a good time to enter long. But if you want to go short in expectation of the stock going to zero then that is a likely trade to take on.
If I want to go long, I will wait for a bullish break of structure before doing so.
When you say tighter buildup is better, do you mean the smaller candles, the better they are in the buildup phase?
Yes, the smaller the candles, the better.
Is the ATR exhaustion principle only valid for day trading? If not, could you show us how to apply it in a Daily/Weekly timeframe?
I’m not too sure what you mean by the ATR exhaustion principle, so I’ll have to skip this one.
Is it true that swing/position trading usually generates more profit in the long term vs. day trading?
It depends. If you are day trading with a million-dollar account, I think you will be scared to day trade that account. But if you’re day trading on a $1,000 account, then you will be more comfortable.
On the other hand, if you’re swing trading a million-dollar account, you will be more comfortable because you’re managing a huge amount of money and you want returns to be more stable and your wealth to be protected, then it might be better for you.
In terms of returns, day trading could be more profitable, but the question is, is it for you? Will you be comfortable day trading, or do you have the right skillsets to trade the lower timeframe?
Just because day trading is more profitable doesn’t mean it’s more suitable for you.
If both trendlines and MA lines are equally respected, which level do you give more weight to when planning your entry?
I will prioritize the trendline over the moving average. Because in the price action context, I only use indicators if I’m having a hard time determining the market conditions.
For example, if you can’t read the price action very well, then you can use tools like indicators to help you get more objective information about the charts.
But if you’re more of a systematic trader and you want to use moving average to define your entries objectively, then you will want to prioritize using a moving average over trendlines.
When developing a new strategy for yourself, how do you first know if the system works if it takes at least 30 trades to let the probability play out? Backtesting can only show the past but not the future.
If you are a systematic trader, then you want to test it out in different market conditions. You want your system to survive multiple bearish markets, bullish markets, trending or even ranging markets. If your system comes up net positive in these markets, then it’s a good system.
But for discretionary traders, it could be a little different. I started price action trading without backtests and went straight into trading directly. If you want to spot patterns in trading opportunities that help you make money, then you’ll need to backtest to get more clarity on that.
While backtesting only shows past results and doesn’t guarantee the future, but a strategy that works in the past is more likely to work in the future. If your trading strategy doesn’t even work in the past, then it’s likely not to work in the future as well.
Backtesting is to ensure that your trading strategy can survive different market conditions and that it is robust.
May I confirm that the larger the ranging pattern, the less likely the support resistance level will break?
The more times a level is tested, the more likely it is to break, not because of the larger range.
Is it reasonable to expect to make $10k/month on a $200k portfolio for 5-day swing trading?
I would suggest that you do not treat trading like this because trading is not a job where you can make consistent profits every month.
The reality is that trading is a business. While you may make $10k this month, you may be losing $5k next month as well, the subsequent month you may break even. No matter how good your trading strategy is, you will have losing streaks.
If you expect something consistent from the markets every month, you may end up being disappointed. You should not focus on how much you can earn, but rather focus on how you can get the process right to improve your results.
At which point do we decide that the false break setup has turned into a break of structure setup?
A false break has to do with entry triggers and happens around the area of value, like the area of support.
Whereas the break of structure has to do more with the market structure and market conditions.
I want to differentiate between a "clean move down" and a bearish candle with solid conviction. If it's a substantial bearish candle relative to others, will it automatically be considered a clean move down?
A bearish candle is a clean move down on the lower timeframe. Technically, they are the same, just on a different timeframe.
If using a long-term weekly line chart to draw trendlines, should I base on CLOSE or LOW?"
The answer is neither. You want to draw your trendlines based on the greatest number of touches. Also, you should be looking at areas, not just lines.You can use the Parallel Channels tool on Trading View to identify trendline as an area instead of just a line:
Trendlines, support and resistance should be treated as areas on your chart, so it doesn’t matter if you are using the Close, Open, High, or Low price of the candles. It depends on how many touches you are getting.
I choose Daily as my higher timeframe and Hourly as the lower timeframe for stock trading. Do I have to refer to the Hourly chart? Would you please give more insight on multi-timeframe analysis?
Example #1: KIRK
You can first use the Daily timeframe to identify areas of value like support and resistance:
And then you can go down to a 4-Hour timeframe to determine the market condition.
As you can see, we have broken out of the accumulation stage, where it could be a potential advancing stage. Now you can go onto the 1-hour timeframe to look for a bull flag setup.
Example #2: AUDUSD
You can use the Daily timeframe to determine support and resistance areas.
Now you can go into the 4-Hour timeframe to see that it is currently in an accumulation stage.
Then go into the 1-Hour timeframe to look at how to enter the trade.
You can look for a potential false break at 0.73981 level and consider going short:
My broker does not have 8-Hour charts, where can I get them?
Some brokers will have their charts like Oanda has its charting platform powered by Trading View and you can use that.
It’s not a must to trade on the 8-hour timeframe, you can also use the Daily or 4-hour timeframe as well. You don’t have to trade on the same timeframe as Rayner.
Does Interactive Brokers have a similar scanning tool like Thinkorswim?
Yes, I think they do have, but I haven’t used it that much.
Why do you trade stocks and not options?
Because we simply don’t trade options.
When trading on the daily timeframe for swing trading, how do you check if it’s an accumulation, distribution, advancing or declining stage? Do you look at the higher timeframe? Can you show an example using these stocks: LAKE, PLUS?
Based on what I can see on LAKE, it seems like a break of structure and a potential advancing stage.
And now I’ll wait for a breakout to confirm this advancing stage.
Then for PLUS:
It’s a break of structure towards the upside, I’ll look for a long setup.
I’ll also let the candles consolidate even more to look for a trend continuation setup. You can go down to the lower timeframe and wait for a false break setup to enter long.
Can you show an example of using the Donchian Channel to show a 40-week high?
Select the Donchian Channel indicator and change the length to 40. That’s it.
If the price is moving between the 50 and 200 EMA, or between 20 and 50 EMA, which of these trends should we obey?
The only way for you to use a moving average crossover is for you to have a trend bias. If the 50 EMA is above the 200 EMA, then you will look for long trading setups.
If you want to use it to time your entries, then you want to wait for the price to retest the 50 MA and makes a false break setup.
Similarly, if the 20 EMA is above the 50 EMA, then you want to look for long opportunities.
If you want to capture long term trends, then you should use the 50 & 200 EMA combo, but if you want to capture short to medium term trends, then you should use the 20 & 50 EMA combo. You want to ask yourself what type of trend you want to capture.
How do you tell if the resistance is at a major or minor level?
You want to start by seeing which levels are relevant and near the current price.
Major support and resistance levels are when levels at which price has been retested more than 2 times.
This is an example of a major resistance level:
A minor support resistance level would be something like this, that’s related to one swing low:
They can be useful levels for you to consider profit target levels. For example, if you enter short here, you can look to take profit before that swing low.
How do you check what market cycle stage the stock is in, based on the Daily timeframe?
It depends. You have to use what you’ve learnt in the UPAT course. You’ve learnt that the market goes from declining to accumulation to advancing to distribution stage.
However, in reality, you’ll never know how long the accumulation stage or advancing stage, etc., can last. It can go from declining to accumulation to declining again, for a long period.
That’s why we try not to predict what the next market condition will be. Rather, we try to determine what we currently see.
Can you share how you interpret the Donchian Channel? I want to see how to see the 40-week high.
Let’s say we have the Donchian Channel here on the Weekly timeframe.
If you want to use this as an entry trigger, then you can look to enter on the breakout of the Donchian Channel and then trail your stop loss.
But if you want to use the Donchian Channels to mark your support and resistance levels, you can do so:
So, these are your resistance and support levels based on 40-week highs and lows respectively.
For me, I use the 20-day Donchian Channels to time my entries for breakout trades.
If I trade on the Daily timeframe, should I ever look at the lower timeframes? For example, if the Daily is in an uptrend but the 4-Hour and 1-Hour charts are in a downtrend.
It depends on you. You can be a successful trader trading in only 1 timeframe. At the same time, you can also be a successful trader trading multiple timeframes. It depends on what you’re most comfortable with.
If you’re a full-time trader with a bit of time to look at your charts, then you can use the Daily timeframe to determine your market conditions and then use the 4-hour to time your entries.
One thing to note is, you do not want to duplicate what you have done in one timeframe onto another. Let’s say you’ve plotted support resistance on the Daily timeframe, then you don’t have to do that again in the 4-hour timeframe. Otherwise, you might end up with too many support resistance levels.
Once you have determined major support resistance levels on the Daily timeframe, you can go to the 4-Hour timeframe to look for trading setups to enter your trades.
How do we differentiate between "False Break" (for mean-reverting) vs "Pullback" (for trend continuation)?
They are essentially the same because “pullbacks” have to deal more with the trading setups while “false break” has to deal more with an entry trigger.
I won't consider this a good setup, let's just say there is an area of support over here (The black line).
If you are buying lows in an existing trend, then you are buying pullbacks. Now what we are looking for now is;
How do we enter this trade and what is our entry trigger?
If you're looking for an entry trigger, we are now looking for a false break. This means the price closes below support and rejects back up and closes back above support again.
That is a false break, a strong bullish candle rejection. When this candle closes, you would then enter on the next candle opens. You have now entered the pullback trade with a false break entry trigger.
USDCHF Ranging Market
Lower Timeframe (H4)
In a ranging market, the area of support is the black line.
We have an area of support. We are having a swing trading setup. A swing trading setup is where we buy low and sell high before resistance.
In this case, the price closes below the support and we are looking for a false break setup to go long.
I will consider this a false break setup, making a bullish candle close above the support.
This is a good setup and an entry trigger. Enter on the next day candle open.
This is a good setup and an entry trigger. Enter on the next day candle open.
Then you can sell before the highs.
A false break can happen in a trending market and a swing trading setup having an entry trigger. While a Pullback has to deal more with the market condition.
A pullback happens when you are buying the low on a trending market.
I am having a very difficult time identifying major swing levels with a high degree of accuracy.
This has to do more concerning price action. This takes practice and time.
First, you need to identify the market swing highs and swing low
The reason why this is important for you to identify the swing high and swing low sufficiently is that you can use this to reference your take profits and entry.
You can use the swing low to reference your entry and your swing high to reference your take profits in an uptrend and vice versa in a downtrend.
You can use indicators that can help you like the zigzag indicator on the trading view.
You don’t rely on this indicator but rather it helps you practice how to determine the swing high and swing low.
Are there any prevailing price action conditions/circumstances that would lead you to consider entering stocks on a lower timeframe like, 8h or 4h, etc.?
Rayner does trade the H4 and H8 timeframe. When Rayner trades stocks, he only trades the daily timeframe and not below.
When Rayner trades the Forex and Future markets, he goes to the H4 and H8 timeframes to look for entry triggers.
Essentially, he defines the trends and market structure on the daily timeframes and uses the H4 and H6 to time his entries on the market.
Do you have any sort of weekly routine?
I will answer this on how I know Rayner does his routine and how I do mine (Jet)
Rayner’s weekly routine:
Rayner has three to four brokers.
Every Saturday, Rayner looks back at his positions. And refreshes his watch list for the following week.
On Rayner’s Trading view, you can see the watchlist on the right side.
Rayner updates this once a week on the weekends when the market is closed also in stock trading.
With regards to his daily routine, Rayner looks at his chart every eight hours to see if some of his trading setups missed his entry criteria
Jets Weekly Routine:
I trade four different brokers.
- AAA Equities where I trade the local stock market.
- Axi Trader for Forex portfolio
- CMC markets for Forex and futures trading systematic
- Binance for Cryptocurrency
Firstly, I go to my Forex broker which is the Axi Trader. Compared to Rayner that updates his watchlist weekly, I update my watchlist every month.
During the month, I look back once a day to see if it hits my entry trigger and my entry condition. This takes less than 5 minutes.
After that I move to my stock trading account, I use Investagrams
Then screen which stock doesn’t meet my entry criteria with the screener on Investagrams
If there is an entry trigger, I’ll move to my broker to see if I’ll be able to execute my trades.
The way I execute my trades is for every first trade I take I always make sure it’s 10% of my portfolio and I prepare for a losing streak.
I use a different platform for charting my tools and a different platform to execute my trades.
For Binance, I always have to log in every day which can be annoying. One good thing with Binance I don’t need to log in to view my watchlist.
This watchlist is the top 20 most capitalized crypto. I don’t use leverage.
The same thing applies to the CMC market. That’s how I do my daily routine.
Please explain why you do not move your Initial Stop Loss to Entry and trail the remaining position when your first ('take half profits') objective is achieved.
Rayner does sometimes move his stop loss to entry, especially on the stock market. Rayner does at times, kills half of his trades when the first-day profits are reached and moves his stop loss to breakeven.
Hi Rayner, having difficulties trading false break setup when it happens but the next follow candle it become another strong bearish bar and went to hit my stop loss.
There is no way you can avoid this. This is part of doing business. One thing you can do is be more conservative on how you determine your false break.
You have to look for a more bullish pattern before you step into the trade.
You can also widen your stop loss on a higher period.
How do you use the risk manager to execute automatically without hitting the buy/sell?
The risk manager does the position sizing for you
It makes risk management easier. It automatically places a trade for you depending on what you put on it. It’s only for MT4.
It’s advised to use it on Demo first as we are not liable for your losses if something goes wrong.
Will you be making available statistical data analysis for trending and mean-reverting markets each year?
Yes, Rayner updates them once a year.
What is slippage and how can it affect one's trade?
If you are a Forex Trader, slippage occurs when you enter a trade here when the candle closes.
Then the next candle opens below the close of the previous candle close
Sometimes it can work with you or against you in the market
That’s how it can affect your trade when you can get a better entry or it can get you late on a trade. It’s not an issue in the Forex market. But If you are on the stock market that has lots of gaps a lot of slippages can happen.
Can I shift my stop loss to a trailing stop loss of 3ATR or 5ATR?
We suggest you don’t do that because the moment you put your trade on and change your 1ATR-5ATR, your stop loss wouldn’t be wider which is something I do not recommend.
What we suggest is you pick a stop-loss then you stick to that.
For example, if your initial stop-loss is 2 ATR and you also want to use that for a 2ATR trailing stop loss, then that is okay.
I never get to the next swing high/low as the price usually goes against me. What I'm doing wrong?
You need to look back at your trading journal. Look at your past 10-5 trades on how you take your trades.
Look what is your habit of placing taking profit. Is it always too aggressive?
Perhaps you can move your stop loss conservatively. If you notice that there’s a habit of taking profit, then you can make adjustments because when you’re doing consistent, then you have accurate data to make accurate changes.
You have to work on your persistence in how you take your profits. It’s either your behavior or the system.
How is one able to tell when the price is about to pull back/retracement before it can go on with the direction of the trend?
There's no way we can predict when the price is about to make a pullback or retracement.
However, there is a way for us to increase our probabilities of catching pullbacks on when they can potentially end.
This is by using 50 moving average Indicator for capturing healthy trends.
When you notice that the price has tested the 50 moving average twice. Then there’s a probability that when the price retest the 50MA it can bounce back from it. It’s not guaranteed but this increases our probability of when we can potentially time pullbacks.
How is one able to tell when the price has completely changed direction from an uptrend to a downtrend or vice versa?
You will never know when it will reverse
You will never know when it will reverse. But you will notice that the longer the price moves stretch away from its area of value and moving averages there is a high chance it will reverse.
But of course, you will never know when it will reverse but take it as a warning sign that it might reverse.
I'm still struggling to be a consistent trader. I can make profits in one week and the next all the gains get wiped out. What would be your advice?
That’s a red flag. When that happens, it has something to deal with your either your behavior with regards to taking profits.
As a trader, we do have a winning streak and a losing streak. Every single trader I know who knows how to manage their risk, when they are winning, they want to make sure that their winnings are substantial.
When they are on their losing streak, one thing I notice they do try to keep their losses small. What you have to do is look back at your trading journal, check if it’s regarding your risk management, position sizing or it regards with your behavior.
I have just a small capital of 2k SGD to start with, is it enough?
With regards to capital, as a discretionary price action trader, any capital is good to start. To be honest any capital is good to start because what matters is you must start as soon as you can and compound and deposit more funds as your progress is consistent.
I have gained a lot of knowledge and very useful insights from the course but somehow, I still felt "lost" or not sure where to start.
You immerse yourself with the concept that we teach you in the UPAT course. On how we teach you to manage your trades, the false break, the trend continuation, etc. and pick only one set up.
One concept that you think you understand the most out of all what we thought and then you trade that on demo, build a consistent trading plan, how you enter and exit your trades, what is your market selection, and execute your trades at least for one month so you can familiarize with your broker.
Then you can proceed to live to trade. Developing a trading plan is a journey. Just take your time, absorb and apply the concepts correctly.
How can I avoid "fake levels”?
Whenever I’m plotting support and resistance, I ask myself one question.
“Which support and resistance level is relevant to the current price?”
Determine the current price and determine the support and resistance that can affect your current price.
It is currently at the resistance that becomes support.
The concept is plotting two lines, support, and resistance relative to the current price. That is the relevant level that is worthy to plot on.
How to improve my Risk and Reward ratio?
The acceptable risk and reward ratio is 1. It doesn't matter where you are, whether you are a professional trader or a beginner. It doesn't matter.
As long as your risk-reward is one and above. You're good. Just because you have years of trading and experience doesn’t mean your RR should be bigger.
The lower the RR ratio the higher the win rate, the higher the RR ratio, the lower the win rate because you are wasting time for the market to hit your stop loss.
What is the difference between price action trading and systems trading?
A price action trading is basically how to deal with charting your trades. Wherein the decisions on how you enter your trade would depend based on the information you are looking at.
In price action, there is discretion, you have an option depending on the information to whether you should enter the trade or not.
However, Systems trading is different from algorithm trading. This is where you entirely rely on your indicator to trade. You don’t have to plot anything.
For Price Action Trading:
Pros: the rewards much actually much bigger because you can change your trading setups depending on market conditions.
Cons: is you can have analysis paralysis and price action takes time to master.
For Systems trading:
Pros: there is no discretion. It can help u become a better trader in terms of developing good trading habits. All setups are the same and there’s a high chance to be consistent
Cons: sometimes signals are hard to take, and you only have one set up for one market condition
Should your Entry and EXIT have to be on the same timeframe, or does it depend on whether you are MRT looking for opportunities
Yes, your time frame can be on the same time frame and simplify things. But the thing is you have to use them correctly.
All your trading setups have to be on one entry time frame. And choose the higher time frame to define the trends.
Just wondering whether I should try and develop one trading Plan and master one approach or condition my mindset to ensure I can recognize multiple conditions and apply multiple techniques/concepts and strategy
Master one approach.
Master the trading setups to trade. Your priority when you start to trade is to build confidence as a trader. You want to build your habits and be consistent.
Because when you become consistent on your executions, you also become consistent in your results and when you get consistently positive results, it boosts your confidence as a trader. And when you gain consistency, you can expand on more markets to trade.
I'm asking if this is a normal approach to understanding/identifying the BASIC market conditions and learning how to trade?
Yes, before we know which setups are to trade and which are not, we must understand them on a high level.
Which means we know how they work and how to execute them.
If your objective now is to apply the concept and understanding what we teach you correctly, it is normal.
But if your goal now, is you want to start live trading, you may be wasting your time. Because if you want to start live trading, your objective right now is to build one trading plan and one trading setup, it is a bad idea for you to go back to look for objectives or set up trades.
If your objective now is to build a trading plan, then you want to go back to the modules that are relevant to what is your building.
We suggest you develop a trading plan that you are comfortable with, and you master that one set up to the highest level.
Do you have guidelines for a good False Break pattern? How do I know it will form a lower high/lower low?
We will never know if it will or will not form a lower low/lower high or a false break. It is something that we cannot predict.
But of course, as long as we follow the guidelines, you can reduce it from happening. It is all about probabilities and not guarantees.
What are the guidelines?
A lot of traders use false breaks differently. Some use it to enter trend continuation trades, but some use it to capture trend reversal trades.
But a general guideline, Let’s say you are a trend follower who trades pull back, the first guideline you must use depending on your style is what is your current market condition.
General Guidelines to a good false break pattern;
Example EURUSD Daily
Inserting the 200 Day Moving average indicator.
You can see here it is in an uptrend.
The pair must have at least made a clean move to this one.
This would be considered a clean move.
Not like a choppy move, such as this one.
The cleaner the move is, it acts as a slingshot to the area of support.
Area of Value
Where is the area of support?
Based on the chart below is your support, the price must be in the area of support.
The next thing that I'm looking for is the price to close within the area or below the area of support. The way you draw support and resistance requires practice.
But as the first guideline is the trend. if it's an uptrend, then you want to look to trade at support, and if it's a downtrend, you want to trade at resistance.
The final criteria to determine a good false break setup is a huge bullish or bearish candlestick
It's not an indecision candle such as this (the one inside the red box) the body is not small relative to other candles. So, it's a huge bullish candle over there.
Once I see this, I will wait for a candle to close and open the next day open.
It didn't make a volatile wick over there but, in my eyes, this is a good false break setup.
There were instances where trade entries do not move for days ie: price fluctuated between entry and profit target (1R) for days. Price did not progress enough for me to take risks off the market. In such instances, do you apply a hard exit after certain days?"
This is a good question. Because this is usually one of the struggles if you're a pullback trader.
If you buy a pullback over here
But you notice that the stock is just moving sideways and sideways, and stays on a range for so long. What do you do?
Apply a time stop? Yes.
If you're a pullback trader, and you experience this, especially if you're on the stock market when it doesn’t move for days. Then I do suggest you have a time stop rule.
The reason why is because the money that you put in, could have been used elsewhere. It could have been used on a stock that's performing pretty well with a higher quality setup.
But if you're in the forex or crypto market that has leverage you can adjust your leverage. You can still apply a time stop for psychological purposes already at this point.
I highly suggest it if you are trading in stock markets to have a time stop. But in the forex market, if you have leverage, then it's okay for you not to have a time stop. But at the same time, it's also okay to apply the same way.
The question is,
How long should your time stop be?
There shouldn't be a fixed answer to that because it should depend on your past performance as a trader, how has your trades performed in the past, that’s what you should base it on.
Over here is my trading analytics.
This is one of my portfolios in the stuff in the Philippine stock market. As you can see, over here, based on my 50 trades, my average holding this is 22 days.
As you can see, I hold on to my winners for 33 days, hold on to my losers for 16.
If I were to apply time stop, if a trade passes 20 days, then I would exit my trade day. But it doesn't mean that you should apply 20 days, because I am a trend follower, my trades can last for days, and I trade on the daily timeframe.
If you trade on the one-hour timeframe and you are a swing trader, these metrics would be different.
You should apply a time stop. But certain days should depend on the characteristics of the system. It should not depend based on somebody’s else number.
Where do you screen your stocks? Also, what are the things that you will look out for while screening to know that those stocks are the "right" ones?
Rayner uses two platforms to screen stocks.
- Rate of change in Thinkorswim
This is Rayner setting for Finviz. As you can see, the performance is above 200% for the year, and it’s below 5% or more below the high of the 52-week high.
Rayner would choose the top 20 stocks to trade.
Rayner is a trend follower, and he has multiple setups. To be able to prioritize which stocks is that he will see which stocks have been performing the best.
Rayner uses this screener on the daily timeframe and I believe Rayner is using this for trend continuation trades.
If you are a trend follower or trend continuation trader, then this setup will benefit you because statistically, this system improves traders who are looking to capture the strength and leg of the market.
However, if you are a swing trader, you benefit from the weakness of stock, this screener will not help you.
The next thing is Thinkorswim. To those who have ThinkorSwim
You go to scan in scan in NASDAQ, 100 or S&P. But for example, we scan on S&P, there are no studies, there is no codes or anything, just click Scan.
On the right side over you can click on the tiny gear icon and click on customize.
Then search for the rate of change.
Then on the rate of change, Rayner uses the 50 Week ROC.
Prioritize the stocks based on their rate of change for the past 50 weeks and prioritize trading them. That's how we usually do it on Thinkorswim.
It's what we do to execute the systems in the UST, this is something you can apply as well.
The rate of change measures how fast a stock has increased for the past 50 weeks.
We're looking to capture the strength behind the stock. That’s the principle behind this.
After the Market changes direction to the upside should we place more emphasis on the new up leg of the support and resistance line or the previous downtrend support and resistance line for a pullback into the new uptrend?
I do think that one of the main purposes of support and resistance is basically to identify relevant levels based on the current price which means that if a stock is or a market is in a transition to an uptrend and you don't see any near resistance in the past few weeks, but instead in the past few months there is so yes, you will still consider that.
Microsoft Corp MSFT H1
Downtrend and transition into an uptrend.
There is a downtrend and there is a break of structure into an uptrend
The question is when it’s already an uptrend do you still consider support and resistance?
As long as it is relevant to the current price then you must consider it.
Support and resistance like this one
Now that you have your levels into play, how can you take advantage of this market?
Since it's already broken out and made a break of structure,
Let's just say you have an entry; you can see a relevant resistance area over there.
What you want to do next is take your profit before the area of resistance, just before the opposing sellers come in.
But then we still see the relevance of the resistance area over here that you must take into account.
Alright, from the downtrend, now break of structure and breakout over here. You potentially enter at the candle open. Having your stop loss in place.
What would you do next?
Having past choppy moves in the market, you should still consider them.
Firstly, you zoom out, then consider your area of resistance since the market is in a transition to an uptrend
If I am a swing trader, what I would do is take my profits before the area of resistance, what you can do is take partial profits, when it hits the area of resistance then trigger the remaining half
What do you mean when you say market structure? Is it a major trend at the higher time frame or it includes other parameters?
Yeah, the market structure has to deal more with the market condition whether it’s trending or ranging, also the price action of the market support and resistance.
The market condition, the support and resistance, it’s like when you look at the building, what is the structure of it. How you pretty much look at the structure of the building at first glance.
Is it the Eiffel Tower or is it a square apartment building?
So similar to the market you first need to identify what the current market condition is.
Do you see a break of structure?
Possibly going into a range or trend continuation.
Then you want to look for relevant support and resistance. It is currently at the resistance area over there.
The parameters, if you're talking about indicators, I don't think it's a part of market structure. But I think that indicators can help you identify the market structure.
I hope that pretty much makes sense.
How do we find trades via Trading view or any scanner as I don’t have a TOS account? Does UPAT work on Indices on a lower timeframe like 15mins?
Yes. the concepts in the UPAT course can work in most markets and in most timeframes. It can work on 15-minute, 1 hour, 4 hours, daily, weekly, and so on. However, what you need to ask yourself now is how well you will be able to manage your portfolio as a whole?
Because as a trader, we're stuck on how to manage our trades, what’s our indicators, but what's more important is how you will manage your portfolio and your markets to trade.
If you try the lower timeframes and you're only trading one market, such as the index, if you trade the indices market as a whole such as the China E50, Hang Seng Index, etc. then yes, the UPAT will work
Although what I do suggest is for you to have a maximum open trade of less than five. However, from a portfolio perspective, if you trade the higher timeframe such as the daily timeframes 4-hour timeframes, then sticking to one market may limit your performance.
I guess the forex market is okay because the forex market has a lot of experienced liquidity but the higher the time frame you go, the more markets you should engage on.
Of course, there are some exceptions such as the stock market because there are 1000s of stocks out there, but you don't need the scanners to find good stocks to trade.
I (Jet) haven’t personally used trading view to screen so I cannot give a comprehensive comment with regards to trading view but yes, you can use trading view to screen for market opportunities other than Thinkorswim, Rayner also uses finvis.
Is it true that forex is a tougher market to trade? I saw a discussion on Telegram on whether the forex or stock is a harder market to trade in and I realized many people agreed that the forex market is tougher to trade.
I believe I have already shared my thoughts on it, with Rayner, I’m not sure.
For those who are curious, I have a trading portfolio for our local stock market.
I also have a forex trading portfolio as well. After reflecting on my journey, that answer is not as straightforward as it seems.
Because if the stock market is in a bull market, it's easy to trade, but when the stock market goes correction or into a bear market, then that stock market would be hard to trade.
Not to mention that the stock market can have some penny stocks, like a lot of people hype there is the risk too.
Meanwhile, in the forex market, there are also times where the forex market is ranging, it's has a lot of volatility, and not to mention the forex market has leverage.
Yeah, it can be tough to trade, and also you will deal with leverage. The bottom line is that the difficulty of the markets to trade in the long run lies within the market condition.
That is why as a trader, especially if you trade higher timeframes, you should be open-minded enough to also explore other markets that are trending.
If the stock market is in a downtrend, there are times when the crypto market is in an uptrend, and when the crypto markets are in a downtrend, sometimes that commodities market is in an uptrend. It's always a trend.
That's pretty much in a long-run perspective that there is no such thing as a tough market to trade. It just depends on what market condition you're trading.
However, if you are a beginner, meaning you haven't traded yet you're still not sure how to position size your trades.
You're not sure what a pip is, and all those things, then I do suggest that you stick first with the stock market, because the stock market doesn't offer leverage.
The stock market pretty much has some popularity, if you don't know which stocks to trade, you would most likely pick the most common ones like Tesla, Microsoft, Apple, etc. that are already common and trending stable in the long year.
The chances of you blowing up your account in less than one hour is lower in the stock market compared to the forex market.
For beginner traders, I suggest you stick to the stock market, especially if you're not sure what position sizing is and trade management.
But in the long run, if you're already an experienced trader, you already have extensive knowledge in trading, then it doesn't matter.
Just choose some market that you can trade consistently if you want you can allocate some portfolio for the forex market.
You can trade both, which is what I'm currently doing right now.
Is it possible to mix UPAT strategies with UST? Or is it a completely different setup for both of them?
Yes, I have gone through the UPAT and UST. It was only one course called the trend following and mentorship program where it combined both price action and systematic trading but it's only one system and one concept.
Until Rayner had to split them into two courses and expand them into different systems and setups.
After going through them, I can say that yes, you can incorporate some ideas in the UPAT course and UST to trade discretionary in the markets.
To be honest, even though you are presented with a trading system that works, a back-tested trading strategy, it doesn't mean that you will trade them.
Because the concepts have to make sense to you, you will ask them questions like,
Why not trade this market?
Why not trade the lower timeframe?
Why not use this indicator?
All these questions will go through your mind when you glance through the UST course.
But if you have the UPAT and UST you can incorporate some trading ideas
You can incorporate the trade management and entry management in the UPAT course and the money management and market selection from the UST course.
However, if you incorporate some idea in the UPAT and UST course we can’t guarantee that it would work because in the UST course we tested the system just as they are.
We can give you statistics of data as they work in the long run for 20 years.
If you are to make some tweaks you make your own but we can’t guarantee.
What I can tell you now as a student myself who trades the UPAT and UST strategies, I can tell you they can work together.
If I am trading using the weekly setup, do I focus more on entering the trade using the weekly time frame? Also, do I check on my trades weekly?
Yes, this is true, if you are a trader who only wants to check your trades once a week then you have to check your charts before the first market session of the week (Mondays)
However, your entries should also be on the weekly timeframe. What I do suggest is that if you are trading on the weekly timeframe then I do suggest using a tighter period and tighter trade management.
Example XAUSD Weekly
You enter here
What you will do is that you will not exit unless the price closes below the previous low.
You would only exit the trade over here. It's pretty much a bad example like it ended up in a loss but that's pretty much the concept where you would have tighter trade management if you trade on the weekly timeframe.
You would also have tighter entry parameters example the Donchian Channel.
It’s one of the tools that can help you determine your entries.
What the Donchian channel does is it determines the highest high and the lowest low for the past 20 days or 20 weeks in this case and projects it into the future until the next 20 day high and low.
Hi Rayner, understand that the more support is tested, the more it will likely break, especially if there’s a descending triangle into the support level. But I often see many trades describe the descending triangle as a potential breakout to the upside which is somehow contrary to what has been taught in the UPAT. (I have the chart example but can’t attach it in the google forms) They will draw a downward trendline and if it does break, the price will likely have a breakout. What is your opinion on this? Maybe I’m missing out on something?
What you're missing out here is just because some trader gives you an example of one trade.
It doesn't mean that in the next 100 trades, the concept is true and has an edge.
Even as a trader, you still have to be open-minded with things. There's no 100% guarantee chart pattern.
Trading is all about probability
Using weekly high/low strategy, I should see the ‘’Daily or Weekly’’ statistical data of market behavior? Or do the daily and weekly data have the same behavior?
It depends, If you use price action to plot your support and resistance using module 6 in the UPAT (Understanding market behavior and statistics)
As you can see here if the market is below one from the excel sheet
It means that these are the markets suitable for pullback setups, which means that these are the markets that tend to reverse on daily highs and daily lows.
In the meantime, on the markets with one and above, these are the markets that tend to break out from the daily highs and the lows.
Therefore, these markets are more favorable for trend following setups.
If you trade the four-hour time frame and below, you should look at the statistics on the daily because you are referencing the daily highs and lows to the lower timeframe.
If you try the weekly timeframe, and you still use price action, you define your support and resistance and indicators, I suggest you look at the monthly timeframe.
From the question, if you want to use the same rules that we use to test the market behaviors, we don't suggest you do it, because those parameters are meant for just testing and not for the trade directly.
What you can do is use the statistics to complement your price action trading plan on the lower timeframe.
For me, I trade the daily timeframes, so I look at the weekly high low statistics over here.
Would request you to help me on identifying market structure and confluence
We are plotting market structure to identify support and resistance, where to set our stop loss and take profits including the trend so to know whether we are buying or selling.
The next part is the confluence, sometimes confluence can work in your favor or can hinder your decision making, having more confluence, like the RSI is oversold, the stochastic is oversold as well and it’s in support.
The more you try to add confluence on your chart, the fewer trades you will have, and it will limit you from achieving better performance.
When we talk about confluence, I just keep a maximum of one or two confluence and we make sure that each of them is relevant.
Example: Moving average.
We have a false break setup over here.
The first confluence is the price is below 200 MA which means we are looking for a short position.
The second Confluence here is the support and resistance, which means that the price is currently at the area of resistance.
The one thing we are looking for is a false break setup that occurred over here
That's a specific entry trigger by the way and exit at the nearest swing low which is over here
Going back to the main question, before we enter the trade, we have two confluences:
- Moving Average
- Support and Resistance
But at the same time, these two confluences have a purpose for your trading.
The reason why we have a 200MA on our chart is to determine whether we should look for long setups or short setups. It has a purpose on your trading process to which direction to take.
The next Confluence here is the support and resistance. The reason why we have this is to determine where we should time our entries.
As you can see each tool on your chart should have a purpose in your trading process because if you add multiple indicators the more unnecessary information you would have.
Example: Wheat Futures
A while ago, we pick a swing trading approach. Let's try to have a strength of a momentum trading setup.
Momentum means that you only try to capture a short brief move of the market. Unlike swing trading, you capture one leg.
In momentum, you only capture one strength like one power of the market.
Let's put in the moving average here and the ATR
The 10EMA would serve as our trailing stop loss and our trend filter.
Finally, when do we define our entries?
I'm just making a system on the fly but it's up to you whether you will use it, but of course, if you will use it, please do the backtest.
The next is the Donchian channel.
First of all, the 200 moving average is our trend filter.
The Donchian channel only represents the highs, I put the 20-period Donchian channel
This circle over here represents the highest high over the past 20 bars:
That's pretty much it. Simple indicator.
Our entry rule is we will only enter the trade if it makes a 20 day higher close.
The 10MA moving average will serve as our trailing stop loss
The ATR will serve as our initial trailing stop loss.
Long set up over here, the price above 20MA. We wait for the close, we enter the next day candle open.
The Confluence is not just some random indicator you put on your chart, but each of them serves a purpose.
For a false break setup, what is a good target exit? I know in your tutorials, it is sometimes the most recent swing low/high - not taking into consideration previous S/R. This could allow a favorable risk to reward. Sometimes we consider both swing low/high and also previous S/R and this makes it difficult to define a favorable risk to reward. It would be great if you can illustrate with an example. Thanks
The main dilemma of this question is sometimes should we base our target profit on the nearest swing low swing high or should we base our target profit based on respected support and resistance?
This is the question over here.
Example: XAUUSD (Daily Timeframe)
Above is the area of resistance and area of support and not a single line. Then the nearest relevance swing low is over here at the blue arrow
A false break set up over here. The price closed above the area of resistance and then closed below.
Enter on the next candle open.
Where should you take profit?
On a valid area of support and resistance or the swing low?
To me (Coach Jet), both concepts are valid. Whether you take profits on support or near a swing low, they're both correct trading concepts.
If you want to take a profit, you must decide which one should you use. You take profits only if there is respected support or a swing low. So, you only choose which one you can be consistent with.
Do you trade false breakout with the trend? or if the price is trading sideways, does the HTF trend matter?
The concept of the false breakout itself is an entry trigger.
Whether you want to enter a false break with a trend or swing trading or you want to enter the false break against the trend that’s the counter-trend trading, that's also correct.
But the way I see Rayner uses the false break, he always trades it with the direction of the trend. There are also times when Rayner also uses the false break as a counter-trend set up against a trend.
Example: Trending Market
This is a valid uptrend. You can use the uptrend valid area of support.
I would consider this candle a false break
Relative to the previous candle, it has made a bullish candle. You can use it with the trend.
Example: Ranging market.
You can also enter a false break around here as well.
When it's a ranging market you can use the false break. You can use the false break setup at resistance and or support.
To answer this question directly, you can use a false break with or against the trend. You can use a false break on the sideways market because the false break is pretty much universal.
But one takeaway that you should have is that just choose the setup you can be consistent with because if you're trading the false break with the trend or against the trend or in a ranging market, your setups will be all over the place.
Your results may be inconsistent. That is why we always recommend traders master one trading setup first.
The word Master is subjective.
To put some objectivity in it, if you've been trading a setup for more than one month consistently, then you can start adopting a new setup.
Because instead of trying to pick trading setups all at the same time, you're not accustomed to them yet. It's going to be hard.
That is why I want you to see trading as more of like stacking levels, you want to stack your skills together.
Does the higher timeframe matter?
The higher time frame matters. Because if you trade on the daily timeframe, it is less influenced by algorithmic traders, day traders, the more the lower the timeframe you go, the more you need to refer to the higher timeframe.
But the higher the timeframe you go, there's not much influence. You only choose one timeframe, which the daily.
That is why the crypto market tends to respect technical analysis concepts quite often because there are not many fundamentals affecting crypto right now.
That is why whether you're in any timeframe, technical analysis tends to apply more to the crypto because there are not many factors involved.But usually on the stock and forex markets, the lower your timeframe, you need to refer to the higher timeframes.
When analyzing stocks Market Structure and finding entry/exit zones on hourly time frames, there are different pictures, when you watch it with extended hours and without them. Which one we should use to have the right perception of the trends and areas of value?
If I trade the hourly timeframe, which timeframe should I look at?
Don't waste your time on choosing which time frame because there are more important things you should focus on when choosing which time frame to use. I’ll give you a framework to go with.
Choosing your timeframe
First of all, when choosing a time frame, you must consider your lifestyle. Because if you are a full-time employee it doesn’t make sense for you to go down to the H1 timeframe.
Even if you are a full-time employee and you trade the 15-minute timeframe, the way you check your charts will not be consistent because you have to go to the bathroom, or you only look at your charts when you have free time.
If your time frame doesn't match your lifestyle, the chances are, it could either make you a slave to the market.
We trade for us to have freedom and why not practice it now.
You want to choose a timeframe that matches your lifestyle. Don't choose the timeframe because that's where the profit is.
There's only so much you can do for money. You can indeed make a lot of money in trading the lower timeframes compared to the higher timeframes, but it will make your life miserable like having eye bags.
2. Trading style
In our entry timeframe, this is where we have our entry trigger decision-making tools present.
This means that if you are using the RSI to time your entries on the one-hour timeframe, then don't pull it out on a daily timeframe because you are already using that indicator on your entry timeframe.
The higher timeframe is where you can determine your trend bias or take profits levels.
Lower Timeframe: H1
Your entry time frame is the 1hour. If your entry time frame is your H1, you will have your entry trigger tools here. It can be your ATR to determine your initial stop-loss.
It can be your RSI to determine your entries or your Donchian Channel to determine your breakout trades. Any indicators that would help you in your entries.
Higher Timeframe: H4
This is where you can determine your trend bias, support, and resistance and take profits.
In your higher time frame, the concept is that we use a factor of 4-6. A concept from Alexander elder
Since we are looking to capture short-term trends on the lower timeframe, then we can use the 20MA.
The price is above the 20 moving average is your trend bias. Now we want to go down to the 1-hour timeframe.
We will remove the 20MA because we are done with it unless you use it as a trailing stop loss, then that’s okay.
Since the on the daily timeframe, if the price is above the 20MA, you can now go down to the H4 timeframes. You can use now the Donchian Channel indicator.
The name isn't complicated, but it only represents the highs and lows. That's pretty much what this indicator does.
If this price breaks up 20 bars high, then you would enter a long trade setup
On the daily timeframe, what is our relevant resistance which may hinder our take profits around in this area?
So now, we’re going to go to the H4 time frame. We can set our potential targets before this area
Unless you want to follow the trend on the H4, then you don’t need the support and resistance anymore.
You can just use the 20 moving average to trail your stop loss because when we trail our stop loss, we let the market dictates what our take profits will be.
I (Coach Jet) may be giving technical examples but again I just want you to get the principles of why I put out these tools, why I choose this timeframe, how I use those tools, and how I combined those trading tools because that’s what matters.
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How do you do a trade review of your journal after the trade has been closed? What questions should I ask myself if a trade is a good or a poor trade? Thanks Rayner.
Before we do a trading journal, we must first have a trading plan which includes the market condition, entry triggers, stop loss, managing your winning or losing trades, and risk management.
So your trading journal has to be aligned with your trading plan. You have to record trades in the trading journal according to your trading plan.
Some of the metrics I record down are:
- Entry point
- Stop loss
- Exit point
- Whether that trade is a winner or a loser
- Profits & losses in terms of R (if I risked $5 to make $20, that’s a profit of 4R)
- Type of the trading setup (breakout, break of structure, false break, etc.)
To me, a good trade is one which you follow your trading plan. A bad trade is one which you didn’t follow your trading plan.
When you execute good 100 trades, it means that you’ve executed according to your trading plan 100 times. If you look at the stats, wherever you record them, you’ll know if that particular trade or setup actually yields a positive expectancy in the long run, or after 100 trades.
A good trade isn’t determined by the P&L, it’s determined by whether you’ve followed your plan or not. Because once you’ve followed the plan, then you can have a meaningful trade review.
Hi Rayner! What is the difference between the 4 stages of the market (taught in the Ultimate Price Action Trader) and Elliott Wave Theory?
The 4 stages of the market are for me to access what the current market condition is and where is the path of least resistance.
The first stage is the accumulation stage, which is a range market in an existing downtrend. This is where the smart money is accumulating their position to prepare for the second stage, the advancing stage where the price breaks out higher.
But of course, price doesn’t go up forever. So the third stage is the distribution stage, where the smart money unloads its position and the price forms a range within an uptrend.
When the price breaks below that range, it moves into the last stage, the declining stage.
Here’s the thing:
The 4 stages of the market are not meant to predict what the market will do next. Instead, it helps you classify the current price action of the market and then trade along the path of least resistance.
If I know the price is in an advancing stage now…
Then it’s clear that I don’t want to be selling because it’s an uptrend. I’ll either stay on the sidelines in cash or look for buying opportunities. I’m not looking to predict when’s the market going to decline or go into the distribution stage.
If the price is in a distribution stage…
My mindset would be, the market is in a range now after a rally, I’m not sure whether it will breakout higher or breakdown lower.
So if the price hits resistance on the higher timeframe, then if the price is on a distribution stage on the lower timeframe, I might look to sell at resistance since I have this multi-timeframe confluence.
Alternatively, I could wait for the price to breakdown from the support of the range and look for selling opportunities in the declining stage.
Again, you can see that I’m not looking to predict when the distribution stage is going to be over or when the market is going higher or lower. All I can do is to access the current market condition, read the price action, and then find the right trading setup to trade.
I’m not a pro at Elliot Wave Theory, but I believe that Elliot Wave Theory is something along these lines. It describes the market as wave counts, and when it hits the fifth wave, that’s when the market could reverse.
To me, I find that the Elliot Wave Theory is a lot of subjectivity and predicting what the market could do. So to me, it doesn’t really resonate with me. I would rather use the 4 stages of the market to trade as it’s slightly more objective and easier to define.
What is the best timeframe to trade in Forex, and why?
There’s no best timeframe to trade forex. If there’s a best timeframe, then everybody would be trading that timeframe and the opportunities would have been eroded.
It really depends on your trading objective. If you have a full-time job and you want to trade part-time, then you want to trade on the 4-hour timeframe and higher.
If you are a fresh graduate looking to enter proprietary trading, then the best timeframe is the shorter timeframe like the 1-minute, 5-minute timeframes. Because you need to get large enough number of trades for the law of large numbers to work out in a short period of time.
Let’s say you should not risk more than 1% of your trading capital per trade for systematic trend following, if I will be spreading my bets to cover 4 markets, does this mean I need to divide my risk to 4? Meaning each trade has a risk of 0.25%? Or it is fine to allocate a 1% risk for each market?
You’ll allocate 1% risk to each market.
Do you trade currency pairs based on their activity/volume in different sessions (e.g. open and close of London & US markets)?
No, I don’t, because I’m a medium to longer-term trader, and I trade the 4-hour and daily timeframes. So the daily opening and closing sessions are quite irrelevant to me.
However, if you’re a day trader trading off the 5-minutes or 15-minutes timeframe, then yes that would matter to you. Because you want to be trading during the most volatile sessions of the forex market.
The open of the London session is when you want to be trading, especially if you’re trading currencies like the Euro and US dollar.
Do you set your lot size differently for the Forex market?
Yes I do, I position size according to my stop loss, and the pip value of 1 pip. All these are covered in the risk management section of the Ultimate Price Action Trader covering things like risking 1% of capital on each trade, how to calculate your position size for different stop loss.
For Power Stock Trading, will a $10,000 capital work if I am trading US markets? Or can I apply the same strategy to other stocks other than the US?
For Power Stock Trading, you’ll be holding 8 positions. So each position is worth about $1,250. So with USD 10,000, yes it’s possible, especially if you have brokers like Interactive Brokers, with commissions for each trade at around $1 or less.
Yes, you can apply the same trading principles for the other stock markets.
However, I can’t tell you how the annual return and drawdown is going to be like if you follow the exact rules. Because I’ve not done any backtesting on those markets. I’ve only done backtesting on the US markets because that’s the most liquid market which most people can access.
At what time (GMT+8) do you normally analyze and scan the market on the daily timeframe?
For me, I like to do my homework on Fridays and over the weekends. When I produce my market analysis for the upcoming week, it’s usually on Friday morning or afternoon.
I create watchlists on Trading View, according to the types of trading setups that are potentially being formed. And out of those markets in the watchlist, I highlight a few that I want to focus on, for the upcoming week.
How do I use price action give me a better and timely assurance of prices having fallen to a bottom instead of catching a falling knife? Pin bar? Volume? I know we can use trend following method (wait for next higher Low, as a trigger) to identify bottom, but then, the price would have definitely moved higher and possibly the next higher low could occur much later. Thank you.
If you want to time your entry and not catch a falling knife, you could look for a false break setup by using candlestick patterns like the bullish/bearish engulfing candles, hammer, shooting star, etc.
You want to see strong price rejection at support or resistance areas, where the range of those candles are large. This allows you to enter the trade earlier.
Yes, the trend following method of identifying higher lows (or the break of structure technique) might not put you in the trade as early as trading off the price rejection directly. But the benefit is that you can have a tighter stop loss by referencing the previous swing low instead of the lows of the price rejection.
Can you explain leading versus lagging indicators? What are they and how reliable are they?
To be honest, most things that you see on your chart, the candlestick patterns, moving average, RSI, these are all lagging tools, because it has already happened after that fact. The market has to close lower before it tells you that it’s a bearish engulfing pattern.
The market has to go up over the last few candles before the moving average slopes up higher. They’re all lagging, and are based on what has happened especially for indicators, which are mathematically derived from the price.
So what about leading indicators? They are tools like trendlines, trend channels, support or resistance, and Fibonacci extensions. Because when you plot those levels or areas on the chart, it can help you identify future buying and selling pressure.
I won’t use the word reliable, but rather, I’ll consider the objective you’re trying to achieve, and then use those tools to help you achieve those goals.
If you have difficulty defining the trend, then you can use moving average to help you define the trend. You can use the 200MA to help you define the long-term trend. Is it reliable? I won’t say it’s foolproof, but it can help you define a long-term trend.
So don’t just look at how reliable it is, because any tool on its own is unreliable. You use technical tools because you have certain needs or purpose that you want to achieve.
If you want to trail your stop loss, you can use the Chandelier Kroll Stop. Is it reliable? Well, it helps you trail your stop loss, but it doesn’t mean it’ll help you catch a good trend. But if you do it long enough, you’ll eventually catch a trend.
Sometimes market trends are not clear cut; it doesn’t consistently follow higher highs and lows during uptrends, nor do they follow lower highs and lows. Similarly, they don’t always follow the conventional market cycle which you talk about. Is there any indicator that distinctively tells us which cycle market is in?
I agree, sometimes trends are not as clear cut as higher highs and higher lows.
For instance, even in a downtrend, there are bound to be higher highs and higher lows being formed. That’s why you must understand the big picture, don’t just pay attention to the microstructure of the market, because you can be misled easily.
If you have difficulty identifying the trend, you could use a tool like the 200MA to help you identify which direction you should be trading in. If the price is below the 200MA, you’ll look for selling opportunities.
Again, back to the 4 stages of the markets, we are not trying to predict the next stage of the market. What we are trying to do is to identify the current stage of the market and trade in the path of least resistance.
If the market is in a declining stage, I’ll look to sell, that’s it.
If the market is in a distribution stage, it’s in a range, I’ll want to be selling the highs and buying the lows of the range.
Lastly, I do not know of any indicator that tells distinctively which cycle the market is in. If it’s not clear which stage the market is in, then move onto the next market that is clearer. There’s no need to force that market to fit into 1 of the 4 stages.
How to find out the long-term momentum and short-term momentum?
First, let’s define what’s momentum. Momentum measures the change in price over a given period.
A useful indicator is the Rate of Change (ROC) indicator. On the daily timeframe, the 9-period ROC measures the change in price over the last 9 days. For instance, if it’s showing -0.77, it means that the market has dropped by 0.77% over the last 9 days.
If you want to define a shorter-term momentum, you can use a 5-period ROC if you deem that to be short term. If you want to define a longer-term momentum, you can change it to 200-period ROC. That’s one way to define momentum.
Do you recommend using technical indicators combined with price action or should we focus on the price action only?
Yes, you can use trading indicators together with price action trading. Because trading indicators help you summarise historical data.
For example, the Average True Range (ATR) indicator shows you how volatility changes over time. It’s very useful to set your stop loss or trail your stop loss. Personally, I do use indicators with price action trading.
But your analysis and biases should be based on price action. Indicators are just tools to assist you with entries and exits. That’s about it. You have to understand what the indicators are for, but the basis is still understanding the price action of the markets.
What’s the best way to determine a change in trend?
I use the 4 stages of the market to detect a change in trend. When the price breaks out of an accumulation stage, that to me is a change from a downtrend to an uptrend.
Similarly, in a distribution stage, if the price were to break below the area of support (the “last line of defense”), I will change my analysis from a distribution stage to a potential declining stage where I will look for selling opportunities.
So to me, understanding the market structure is the best way to determine a change in trend.
Is the 40-week EMA same as the 200-day EMA?
Yes, they are similar. I won’t say they are exactly the same because one is based on the weekly closing price, while the other is based on the daily closing price.
Which indicator do you use the most often and find the most reliable?
As discussed earlier, I’m not really a fan of the word “reliability” in trading, but rather, it depends on the function of the indicator.
The indicators which I used the most often are the moving averages, the ATR indicator and the Chandelier Kroll Stop (another variation of the ATR indicator).
Can you analyse the AUD/JPY?
I’m looking at the daily timeframe here, where the market is still in a downtrend:
I want to look for selling opportunities. Next, I want to find an area of value which I can trade from. Currently, the price is not quite at an area of value.
If you look at the lower timeframe, the latest price action here could be previous support turned resistance to go short, but the move is so choppy that I would rather stay out of it altogether.
But my bias for this market is towards the downside.
Can you give examples of indicators that we can use for different categories like trend, oscillator, volume?
Yes, I’ve made a video about that, and you can find it over here at the Academy.