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How to backtest price action trading for stocks?
There are a lot of angles to this question.
This means it’s not an easy question to answer.
Because first of all, if you backtest price action
This is Emerson Electric Company.
If I backtest my strategy on this stock from 2010-2023.
Let’s just say I get a 115% return using price action.
However, if I remove all the drawings on my chart:
And then backtest again, from 2010-2023, my results will most likely be different, okay?
Because that’s the thing with price action. Sometimes price action trading cannot be truly quantifiable.
However, price action is a concept that you can use to adapt to different market conditions.
That is the one caveat to this question with regards to price action.
In the forex market, it can be quite easy to backtest because there are only a few forex markets out there and most of them are liquid, but for stocks, there are thousands.
Out of those thousand stocks, how can you consistently pick your stocks to trade?
For example, if you backtest your strategy on penny stocks, then it’s most likely it would not have an edge on blue chip stocks, mid-cap stocks, or something like that.
The one solution you can do is.
Backtest stocks with Price Action
First of all, with stocks…
The method of your backtesting should depend on what type of market you should use.
The way you backtest the stock market should not be the same way you backtest the forex market and vice versa.
One thing you must do for the stock is to have a consistent stock selection and you need a stock screener for that.
I believe in the UPAT course, it is statistically proven that strong leading stocks for the year are most likely to continue or to be in profit for the rest of the year.
I suggest you just check that out, when it comes to backtesting, that’s the first thing you need to do.
You need to have a consistent stock selection method.
Fixed Position Size
The second thing is when you are going to backtest you want to backtest with a fixed position size. Because in the stock market, there is the portfolio allocation method.
Whereas in the forex market, we make sure we risk 1% for our trade.
So, for example, you want to buy stocks.
This means that, of course, once you have the screener, the next thing that you need to do is that you need to have a fixed position size.
I have an article with this which I will share with you will later on.
But the main takeaway of that article is that you only backtest price action, for you being proficient at executing your setups, at determining your setups.
It’s unnecessary to figure out if your setup makes the most money or how to make it lose less.
Because like I said, if you backtest this stock for 10 years, you get 100%. But if you backtest the same stock with your price action setup, the same support and resistance you draw your chart, your results would most likely be different almost all the time.
We are going to back-test your strategy after you have your screeners, market cap leaders, and so on.
Then you want to have this mindset that when you’re backtesting stocks or when you are in the forex market rather with the concepts in the UPAT course you want that kind of expectation that you’re only training your eyes how to look for the best setups.
How can you manage your trade more efficiently, until they become second nature to you on how you manage your trade and determine your setups.
So, you won’t second guess your setups.
Because once you have that high level of pattern recognition and creativity in trade management, it will help you build confidence.
When you’re backtesting with the concepts that we teach you in the UPAT course, you’re honing your confidence and your pattern recognition skills.
Once you’ve done that, train your pattern recognition skills and trade management, that’s the time when you need to do forward testing.
If you trade the daily timeframe, I suggest you start immediately with a small capital.
Because for the daily timeframe, it will take you a whole lot of time for you to play your edge.
But if you trade the 4-hour timeframe or 1-hour timeframe, then it pays for you to look at price historical data.
If you forward the 1-hour timeframe, that would mean, you would have to be glued to your screen during the day.
That’s true. Yes.
If you trade lower timeframes like the 1 hour/15 minutes, then you need to have a time blocking. You need to have a specific time on your day when you should trade the markets.
In the forex market, we have the most liquid sessions of the day.
- Sydney session
- Tokyo Session
- London Session
- New York Session
If you are trading the Forex market on the lower timeframe, then of course you want to dedicate your time to those specific market sessions.
In the forex factory, you can see it here:
It’s the London/New York session overlap, this is the most liquid session of the day, the overlapping of the London/New York session.
This means that if I trade a little more timeframes, I would have to make sure that I trade from 8:00 PM-11:00 PM Singapore time.
These are the most liquid session and then after that, during the day from 6:00 AM-7:00 AM is when I do my regular job.
If you trade the lower timeframes, you must focus on the most liquid markets.
But if you have a job, you have family responsibilities during this time, please don’t do it, because your lifestyle is much more important than forcing yourself to day trade.
Now for stocks,
I believe the first half of the session, before the lunch break, the first morning half of the session is the most liquid.
Our stock market opens at 9:30 AM, our lunch break is around noon.
I want to make sure that I’m on my screen by 9:00 AM and then I will stop trading when it hits noon.
If I have a freelance job in the evening, or my work is in the evening, but if I work in the morning, then of course, I wouldn’t do that.
I hope that gives you a perspective when it comes to this one.
Because the truth is that yes, you do have to be glued to your screen when it comes to trading the lower timeframes, but only to a certain schedule of the day.
You don’t have to be glued to your screen for a whole day.
I hope that makes sense.
Basis price action concept, I want to start algo trading, how can I start with that?
Algorithm trading is not Price Action.
Because you cannot quantify price action concepts. Even if you do, there are a lot of moving parts to it.
If you want to backtest the head and shoulders, how can you quantify the shoulder?
A left shoulder, a head, a right shoulder.
There are three major components that you have to make sure the automated software is identifying.
I could be proven wrong.
To me, backtesting price action trading in a quantitative way is almost impossible.
However, there are alternatives, such as Module 6 of the UPAT course, which is how to figure out the best trending and mean reverting markets. Where Rayner tests the weekly highs and lows of the market.
He back-tested it and shared which markets statistically trends and mean revert.
From that statistic in itself, we teach in the UPAT course, you can use that spreadsheet to your advantage to trade along the patterns or the concepts that we teach in the UPAT.
Let me direct you to it just if you are not familiar with the dashboard:
In the ultimate price action trader, go down to “understanding market behavior with statistical analysis”
You can use the module here to complement the price action concept that you use.
The second part…
‘’I want to start algo trading, how can I start with that?’’
When it comes to algorithmic trading, is a whole new field of trading. There is discretionary/systematic trading and there is algorithmic trading.
Algorithmic trading is a whole new field in itself and it deserves to have its course.
I guess it’s just me trying to give you more perspective on this.
With algo trading, you have an automated system that profited in the market.
But how do you know it’s robust?
That’s the keyword over here “Robust”
This means how do you know that your algorithmic expert advisor or trading robot not only works in the past but will also work in the future?
Because this means that once you have a working algo trading robot, you need to do your best to disprove it.
You need to stress test it to make sure that you don’t lose money when it is in real-time trading.
This is something that I cannot teach.
However, this is something that I can give you a perspective on.
How to start with Algo Trading
I’d love to admit that my resources and my answer may not be the best.
But I’ll just do my best over here.
If you are already familiar with MetaTrader4, you can use a website called EA Builder.
I have my account for this and it’s not free, by the way.
It’s an interactive export advisor generator and intuitive.
You just have to put your criteria. If the indicator is above this, then you exit or you can also add your custom indicators to this.
There we go…
Basically, In the end, on the source, once you put your conditions here:
By all the conditions, your exit conditions:
Your money management:
Then at the end, it will generate a source:
Which you can just download.
You don’t have to learn to code, you just have to be familiar with this platform. And there you go.
From then on, in my opinion, this is one of the best ways for you to start algo trading, it already gives you the tools, and the convenience, even if you don’t know how to code, it is a learning curve by itself.
But once you know how to make your algorithmic trading systems, then you need to find someone who has a good perspective on this field.
Within Rayner’s field, price action is pretty much my profession.
Rayner is more versed and experienced with price action and systematic trading.
I dabbled into algorithm trading but I would say that my level is not too extensive
That’s my suggestion that with algo trading, you can start with the software. It’s an investment, of course.
For me, it saves you a lot of time and gets you started almost immediately, especially if you are familiar already with MetaTrader4 and MetaTrader5.
Do you have any opinion on ChatGPT making buying scripts to automate trading? Do you think it’s worth exploring?
I don’t know. I haven’t tried ChatGPT.
I’ve only heard of it when you get to ask questions and it gets to generate, but if it works then why not?
If you want a tool to generate an expert advisor that you must, it’s better to have a dedicated website like this one:
Solely to creating indicators and expert advisors on trading algorithmic.
If you can find a similar thing like this, when it comes to Python scripts, then that’s good.
But if not, you just do have to learn how to code. But you can try.
I haven’t tried it yet. But if ChatGPT can do that, then why not?
I trade in the 4-hour time frame of gold.
- What stop loss shall I set?
- usually do I need to wait for how many hours or days until it reaches my take profit?
- Is that I look at 4 hours for the chart and then I shall trade around 4 hours?
My experience trade was I set 50 pips stop loss but most of the time it hit my stop loss.
There are principles that I do have in mind that often work in something you can narrow down to so let me start answering this on the number 3 part.
The question is, if I look at my 4-hour time frame chart then should I also trade around the 4-hour time frame the answer to that is yes.
When it comes to timeframes, you always often have two things:
We have the entry time frame, and we have the analysis timeframe.
Entry timeframe is of course this is where you make your trading decisions. in terms of risk management and trade management.
In your analysis timeframe, this is where you do your market structure analysis and also market conditions.
For the market structure, we need support and resistance and of course market conditions
Here’s the key to this is, when it comes to the entry timeframe and analysis timeframe, we try not to interchange this.
So, each of these is tied up to their purpose:
My analysis timeframe is daily, and my entry is at the 4-hour timeframe.
This means that if you have defined your market condition and market structure on the daily time frame then there’s no need for you to try to define the same thing again on your lower time frame because it only results in analysis paralysis.
Secondly, you can manage your trade on the higher time frame called transition trading but more often than not, this is where you pull out your indicators.
If you need the RSI indicator, the moving average indicator to help you with your entries and exits.
This is called management timeframe:
If you require those indicators to enter to make trading decisions, then you don’t pull them out on the lower timeframe.
Let me give you an example of how I would approach this trade.
I haven’t gone through this, I’m just going through number three just to give you more detail in depth, but you know, I’m not sure what the analysis behind this question is.
But let me analyze the goal.
We can see that the price has made a break of structure.
It hasn’t made a decent flag yet, but you know, it is currently breaking this market structure over here:
And could potentially go even lower.
So now that we have defined the market condition, which is currently in a new downtrend, we would look for support and resistance relevant to the current price.
What are the relevant support and resistance?
We have an obvious one over here:
It’s very close to the current price, we also have one over here:
And of course, we have, I would say around here:
Now let’s look at the 4-hour timeframe, this is where we apply our setups and so on. For example, what do we see?
As of now, the price is currently making a consolidation over here:
But it’s currently sloping weirdly, something like that. For example, what do you want the market to do for you to meet your trading setups?
For me, in this case, I would like the price to retrace even further lower here:
And to form a build-up and, in this case, you can have a short position:
If you use a moving average to trail your stop loss then this is the only time you would pull it out.
There we go…
If I use the 50-period moving average to trail my stop loss on my management timeframe, I don’t pull it out on the higher timeframe.
The key here is to keep things as reasonable as possible and to avoid market paralysis.
So that is the answer to this.
If your entry timeframe is the 4-hour time frame then of course you should trade on the 4-hour timeframe.
But of course, you are free to ditch this altogether and just only have one management time frame.
That is also correct.
If you want to keep things simple, you don’t want to higher timeframe and you only want to focus on a one-time frame then that is fine.
Except of course one caveat to this is that if you go down lower than the 1-hour time frame then the more it can be subject to the higher time frame structure.
That’s one thing you have to keep in mind.
But yes, having an analysis timeframe can give you more flexibility in your trade management and also give you more confidence in your market analysis.
However, if you’re new there’s a risk called analysis paralysis.
So, I’ll leave it up to you to decide but in terms of choosing time frames, that is the key.
You need to know these two timeframes, know their purpose of them, and not interchange them.
What stop loss shall I set?
As I said it depends.
It depends on your setup; it depends on your trading plan but what we do teach on the UPAT course is that we always use the average true range.
There are other ways how you can set your stop loss objectively.
But for us, this is how we do it.
We use the average true range. The ATR indicator measures volatility in the markets.
For example, we have here the 20-period SMA for calculations for the ATR
What this means is that for the past 20 days, the price has been moving around ±24 above or below:
This is the average volatility of this market based on the last 20 days around 24.
What we do is that we use that value to measure our stop loss.
For example, we have a short position, Let’s just say we enter here:
Now how do we define our stop loss first?
If you look at the ATR, it’s 25:
This means that we take the highest point of this market structure over here or the nearest swing high and then we add 25 to it:
This means that we want to make sure that our stop loss is way beyond the average volatility so that our stop loss won’t get hit by volatility, just get spiked out or what they call it.
That’s the purpose of the ATR.
It reduces your chances of getting spiked out immediately after you enter your trade.
But of course, it doesn’t prevent you from getting stopped out but it reduces the probability of you getting stopped out or spiked out.
Our stop will be 18.72 around here:
That is how we objectively define our stop loss.
If you want, you can just multiply this by two and subtract it from your entry price.
That’s also okay.
But since we take into account market structure and the price action.
For example, if you’re shorting then we add this to the highest to the nearest didn’t swing high over there.
So, the answer is that it depends.
But what we teach you in the course is to use the average to range indicator.
Usually, I need to wait how many hours or days until it reached my stop my take profit?
Before, when I was a new trader, I do not have fixed hours or days until it reaches your take profit you know because of course that’s why your take profit.
Is that for you to play out your edge and wait for the market to hit your take profit?
To have that patience.
But as I matured as a trader, there are times when I had to exit my trades prematurely.
Let me give you an example, this was like a decent flag pattern.
For example, I have a short setup over here:
I took a short there because there is a nice break of structure:
It broke down, make a flag and it broke down once again and I entered a short position over here:
For my stop loss, I will add 27 above the nearest swing high.
So, 27 so over here:
Let’s just say you know I’m keeping my take profit down here.
Very bold. so over there down there:
So of course, some traders would just wait it out.
But of course, as I’ve mentioned in the previous or the last session, is that the higher your risk-reward ratio is, the riskier your trade would be.
Because before the market reaches your take profit level, which is a risk-reward ratio of 2.75
A lot of things can happen.
You’re giving the market more room to do a lot of things before it hits your take profit.
So, you know, a lot of things can happen.
The higher your risk-reward ratio, the higher the risk it often is.
If the market makes the head and shoulder:
Which is a bullish trend continuation pattern, whenever I see market structure forming or confirming against my position and that is the only time I exit my trade prematurely.
To sum it all up, I enter a nice trade.
I have a bearish trend continuation trade a break of structure with a decent risk-reward ratio.
However, if the market forms a chart pattern or a market structure against my position, then I would exit the trade prematurely.
So that is the only time I often exit my trades.
If I’m on a trade, and the market forms a price action against my current position.
But other than that, I don’t count hours, I don’t count days until I reach my take profit.
However, if you look at your trading journal and let’s just say for the past 50 trades, you’ve noticed A consistent pattern, let’s say 70% of your losing trades happen when the trade last for more than two weeks.
So. if you can see a statistical correlation from your trading journal that indeed the longer you hold a trade, the more you lose, then, of course, you can have that rule.
You can have a rule fixed.
Let’s say if the market, if your trade lasts for more than two weeks, then you exit the trade. Because it’s what is shown in your trading journal.
Those are the answers that I have in mind for you.
To those who are here, you have to be very careful with this word.
Because how do you know that your experience is accurate?
Who knows, maybe you’re basing your data based on your previous trades based on your two or three trades.
You will only know your edge after around 20-50 trades.
Of course, in that you have losing streaks, you have winning streaks, you have win trades, you have losing trades and at the end of those trades you end up profitable, then you have an edge.
However, you cannot conclude whether your strategy makes a profit or not based on two trades, because short-term results are random.
It’s the same thing with this.
When you are using a tool, an indicator, or a trading concept and you said that it didn’t work for you.
Does that mean it didn’t work for you for the past 2-3 trades or it didn’t work for you after 50 trades?
If you say that based on your experience if that based on your experience is only three trades then of course those results are pretty much random.
If you’re setting your stop-loss to 50 pips then I suggest you keep on executing that, having that fixed rule of 50 pips, and see after 10-20 trades whether or not it is profitable or not.
If not, then, of course, you can make those changes.
That there’s just one heads up. You always want to make sure that you conclude things with a huge sample size.
Not just based on your experience or last short-term experience.
So of course, it can be costly trying to do trial and error, but that is why we have risk management.
We only make sure we risk a max of 1% of our capital in our trade for stop loss because that gives us more room or opportunity to improve our trading plan.
That is pretty much my answer to this question.
So I want to split and manage my daily mindset/ discipline/ activity to follow the process daily from:
1. PRE-TRADE MENTAL Preparation. Trading Portfolio and Business evaluation
2. MONITOR WATCHLIST Every weekend
3. SPOT – Spotting the trading opportunity 8 am, 12 pm, 4 pm, 8 pm
3a. ENTER – Enter Market and Place Trades.
3b. RISK MANAGEMENT
3c. TRADE MANAGEMENT
*Optimize your trading platform workflow (how can you do this faster).
4. POST-TRADE EVALUATION JOURNALING. Once a month (on the weekend before the first trading day)
Any advice i.e. knowing when a 4H candle opens and closes 8 am, 12, 4 pm, or 8 pm? Any advice on how to split my daily activity without getting distracted?
Normally, of course, I would like to ask you what your daily lifestyle is.
If you have a full-time job or you have a freelance job, this gives you enough flexibility to look at this 8-4 pm consistently.
This by the way is a good schedule.
First of all, it’s good of you to have defined these categories, which I think is a very big thing, a very good one at least.
The first suggestion that I have for you is that for example, on the 4-hour timeframe, you need to have a specific schedule.
Usually on your number 3:
- ENTER- Enter the market and place trades
- Risk management
- Trade management
I’m more on the daily time frame just to keep things much simpler.
Usually, I perform all of these at those specific times.
My first advice is to also segregate each of these on your time during the day or the week.
But my current advice is that you optimize your trading platform workflow or basically how can you do this process faster.
It can depend on each platform, for me, I use the Meta trader4 platform. I use this feature of MetaTrader that is tiling markets, as you can see over here:
I’m currently tiling these markets. I just have these different profiles.
If I have open trades then I would create a profile and tile them up and make sure they are in the same profile.
This is one concept of trying to optimize your trading platform to execute your trades faster or to monitor your trades faster. Is to do something like this.
To use profiling the tile your charts, which trades are open, which trades are closed, and which trades do meet your trading setup.
That’s one thing you can do, to optimize your trading platform or workflow.
For the Post evaluation or journaling, I usually perform this once a month (On the weekend before the first trading day).
As a 4-hour trader or even a daily trader now, I only evaluate my trades at the end of the month.
Because since I trade the lower timeframes and I will need a lot of sample size to make sure I evaluate accurate data.
For your number 4, post-trade evaluation, I suggest you do this once a month on the weekend before your first trading day.
Then monitor your watch list. You can do this every weekend.
For pre-trade mental preparation. I am not sure what this means.
But I could suggest that you change it to trading portfolio and business evaluation.
Do it once a month as well.
You would decide whether you want to add more funds into your account or since you are losing trades consistently and you still want to evaluate your trades and even further your strategies to refine them, then you would reduce your capital, and so on.
You mismanaged your risk. But you got lucky, and you doubled your account.
What should you do?
Should you withdraw your profits, or should you keep that?
Should you keep those unexpected profits and compound them?
I suggest you replace it with that.
Because I think it means mindset preparing yourself emotionally because usually, I don’t do such routines.
Because in my mind, usually what keeps discipline, and objectivity in the markets is to be objective on how you manage your trading account and also how you manage how your emotions.
If you have a trading account, let’s say 80% of your net worth is in your account and you are new to trading.
You’re trading without any confidence
Of course, that would affect it.
What I have in mind is that your objectivity in how you deal with your trading account often ties up to training psychology.
I’m trying to do this full-time Monday to Friday, I want to build this routine and discipline daily
If you’re trading the 4-hour time frame then of course you don’t have to check.
Of course, you are trading 8 AM, 12 PM, 4 PM, and 8 PM and between those, you’re not supposed to check your charts.
There we go.
You build your watchlist every weekend and you watch your watchlist, enter risk, manage your risk, and trade management every 4 hours.
In my experience, I look at 9 PM before due to daylight savings.
That is what I do and usually, they only last for less than three minutes.
At 8 AM, I look to see if there are any trading opportunities or look and see if I have to exit my trades prematurely or scale into my trades.
Those things usually take less than 3 minutes for me.
If it’s taking more than five minutes, then I suggest you optimize your trading platform workflow or do what I suggest.
I don’t see how this is full-time.
But that’s what I do as a 4-hour trader. Before I only check at these times and I strictly do not check my open trades or if especially my open profit or loss between these times 8-12 and 12-4.
There we go.
I don’t have enough time to answer your questions so to give opportunities to other questions.
My advice is that this is important, the one that you have made.
It’s good that you have this.
But of course, I do suggest that you try to simplify them and also know which categories you have to do frequently and know which ones you don’t have to do frequently.
For number 4,
I only do them once a month because it doesn’t make sense to evaluate my trades every single day or every single week if I’m just reviewing one or two trades.
I’d rather review my trades based on a lot of sample sizes.
As much as time I can give to this question, those are the answers that I could give and I hope that helps you.
If I’m a beginner that is looking to start learning about trading. Is it good to start with paper trade?
If you are a beginner and you are still learning the concept in the UPAT course, especially the setups, then I don’t suggest paper trade but I suggest a charting platform such as Tradingview that can improve your technical analysis.
Which is determining market conditions, determining support and resistance determining setups, and so on.
Once you think you nail that down, then I suggest you paper trade.
Because once you improve your technical analysis skills, now you want to improve your risk management skills.
Can you highlight what trades you’re looking at and also the thought process that I go through it?
I’ll answer your question on how I usually come up with a lot of market opportunities for the pro trader’s edge market analysis every week and of course, you can also benefit from it.
Rayner is the one originally making the market analysis, I’m more of just a substitute.
I try to find market opportunities based on Rayner’s watch list.
That is pretty much the first thing that you need.
The question here is basically how can you look for markets to trade and then what are the thought processes through them?
When it comes to weekend market analysis.
First, you want to make sure that you have;
- Analyze one by one
- Trade Management
For global traders who normally trade forex and commodities, we go through this one by one
It can depend if you have Forex or crypto or stocks trader.
This is where we apply the concepts in the UPAT course.
This is our watch list for the Systematic Trend Following:
Analyze one by one
I usually go through the three most important things when I analyze the market.
- Market Condition
- Price is at/close to the area of value
- Entry Trigger
We are in an uptrend and it still hasn’t made a pullback.
If you are trading the 4-hour time frame, what you can do is you can wait for a flag pattern over here:
You can wait for a flag pattern to see if you can hop into this trade.
Looking at the daily:
It’s clearly at a good breakout.
But in the 4-hour time frame, there was no breakout.
But if you get a flag pattern on that time frame, then you can hop on into a trade, but no close setups there.
But that’s pretty much a template that I look for.
Here is a good break of structure:
Which can be a start of a new downtrend.
If you are a daily time frame trader, this is where you get to filter what time frame you choose.
Then you can wait for a flag pattern to touch on the downside, then, potential target profit can be below here:
There’s a quite huge profit potential there.
The same thing if you are a 4-hour timeframe trader. If it makes another flag pattern like this one:
You can hop into the trade.
What I do is analyze the market condition on a daily time frame since I trade it daily. Then see if there is a potential setup.
Because if there’s no setup, then, of course, we just pretty much skip the trade.
I want you to get the principle of that one. When it comes to the thought process, it’s just pretty much top-down.
From market conditions to set-ups and potential entry triggers.
After we’ve done those analyses, then try to think about how we can manage the trade. This can come in different ways.
Because usually when you say trade management, it’s like, trading stop loss and all those things.
But trade management means how you plan to exit your trade or manage your trade.
This can come in two ways;
- Fixed Take Profit
- Scaling In/Out
If it makes a new flag pattern, do you plan to scale in?
Do you plan to scale out when it reaches new resistance?
Do you plan to exit prematurely if the market makes a price action against your position?
I hope that answered your question.
Just to clarify, can patterns in general like False break, buildup, pull back, Pin bar, and Engulfing, how do I practice entry triggers? what I usually do is find a random chart for you and go back a few weeks behind and test myself.
I’m not sure if this is the correct way to practice or if there is a more straightforward method.
The two things that you’ve mentioned, the candle patterns, the pin bar, and the engulfing are candle patterns.
However, when you say false break, buildup, and pullback, they’re trading setups
Which can be two very different things.
However, usually, these things can be associated with entries. Candlesticks are often associated with entry triggers.
I want you to gain that perspective.
Usually, we look for a trading setup that can be either one of these breaks of structure.
Then once you have a present trading setup, you want to identify a candlestick pattern, a strong bullish candle so that we can identify our entry.
Just to clarify false break, build up, and pull back. they are no candle patterns, but they are trading setups.
However, we can use can patterns for us to determine our entries.
The second thing that you have mentioned is about practice…
You mentioned that you’re just finding random charts on trading view and going back a few weeks behind to test yourself.
It’s a good thing you mentioned “Test”
Because if you are trading the markets, then finding random charts to trade is a very dangerous thing.
But if you are practicing, then yes, that is good.
However, I want you to practice on the market that you consistently trade on.
When it comes to practicing, it’s very good that you should practice the two of these.
You want to practice identifying false break setups, you want to identify build-ups and pullbacks as long as you identify them on a market that you trade…
Because if you try to identify these patterns in a different market, you might be confused.
I suggest that when it comes to practicing, make sure that you practice this on the market that you usually trade, and the time frame that you plan to trade on
It’s a good skill to know what these setups and candlesticks look like in different time frames.
But I suggest you stick to the market time frame that you plan to trade on.
How to Practice
The correct way to practice is…
Familiarize yourself with the concepts in the UPAT
First of all, it’s good of you to identify the setups.
Once you’re about to practice them, make sure you look at them on the market that you trade in the time frame that you plan to trade on.
Practice to Know
The next step to practicing on knowing whether or not you are doing this, you are plotting it the correct way or the wrong way.
You want to make sure that you send screenshots to your coach for feedback
This is what you want to do because I can’t just give you a secret technique on how you can immediately know how to determine these.
It takes time and practice to identify these setups and these candlesticks.
For you to be able to practice, to identify whether or not you’re plotting the correct way, then you must coordinate with our coach John.
You must send screenshots to our coach through email and see if what you are plotting is correct or not.
I think this is pretty much the fastest way for you to improve.
I am interested in buying Oil stocks, how do I screen and “fish” good ones?
I thought it was buying oil.
Like Brent crude oil and futures, I could have some experience with that.
When it comes to sector-based investing or trading, when it comes to targeting specific market sectors, that is something I’m not experienced with.
I can’t give much thought to that.
However, when it comes to stock screening, usually we tend to use ThinkorSwim.
What we normally do is we just focus on one aspect.
Which is the rate of change indicator you see on the right side over here:
As far as screening goes, this is pretty much how I see Rayner trade the markets.
When it comes to sector based where you try to trade stocks based on their sectors, I won’t be able to give that much thought to that.
However, what’s best is that you want to make sure that specific stock is a leading market.
It must be a trending market.
This leads me to the next question.
I’m going to answer this question in the next one because I can’t answer it directly.
My question is about how to screen for stocks based on the UPAT trading strategies. It has been mentioned by Rayner in one of his YouTube videos (https://www.youtube.com/watch?v=4G1fIVPlX_w) that we need to know what the trading setup is before we can screen for the appropriate stocks. However, he did not go into details about the specific metric to use for what trading setup. I’m keen to find out then what stock screening metrics should be applied to look for stocks that fulfilled the trading strategies taught in UPAT, namely: false break, trending false break, counter-trend, breakout, trend continuation, and break-of-structure. These strategies are found in UPAT Module 5: Trading Plan and Strategy Development. Thanks in advance for answering my question!
How I see Rayner does it Is that he only has these two processes.
We’re looking at a daily time frame perspective…
How we usually do things is that we have:
- Sort and pick the top 20 stocks
We process things to a screener and in that screener, we usually only look for one thing to make sure that we use the 50-week rate of change.
We always include these criteria in our scanner.
Because what the Rate of Change indicator does is that it specifically tells you how much a stock has increased for the past 50 weeks.
We make sure that we include this in our screener.
For TradingView, a ROC indicator looks something like this:
And 50 weeks:
What we can tell is that for the past 50 weeks the momentum has been increasing steadily:
As we can see, the momentum of this stock has been decreasing.
If I were to screen this stock, as part of our screener filter, we will not even consider it because it is a low-performing stock at the moment.
Sort and Pick the Top 20 Stocks
In ThinkorSwim, it is a free trading platform, you do need to open a live account to use the screeners.
As you can see, we have all of the stocks here:
However, what you can do is insert a study filter called the Rate of change:
As discussed earlier.
We are measuring the 50-week rate of change. This is what we use to include in our whole screener results.
Once we have these results ready, we screen them from top to bottom.
These are the stocks that Rayner would consider trading.
Now that you have screened the stocks, based on their 50-week rate of change and you have sorted and picked the top 20 stocks, what do you do?
The next thing that you do is you want to make sure that you add those stocks to your watch list.
Once these 20 stocks are on the watch list, what you should do now is that you try to go through them one by one and see if any setups apply based on what we have in the UPAT course.
In this case, this is where you get to apply the UPAT setups
How do you choose which stock to trade?
There are thousands of stocks out there. In this case, S&P 500, there are 500 stocks out there.
But how do you choose which stocks to trade?
We sort the stock based on their Rate of Change value which as you know, a rate of change measures how strong a stock is.
In this case, we want to make sure we are trading the strongest stocks from top to bottom, we sort them out and then we want to make sure that those top 20 are on the watch list.
Then from there, we try to apply the concepts in the UPAT course.
In this case, we can see that this stock is in an uptrend. This stock recently made a breakout.
What you can do if the price makes a retest over here, you can consider having a long setup:
Or if you want, you can wait for a breakout for you to be more conservative and trail it with a trailing stop loss.
There we go.
From there on, you can start to apply the setups that you’ve learned in the UPAT course. Because it’s very hard to try to analyze all of the 500 stocks out there.
This screening 50 weeks is done weekly?
We do this every week. Rayner has a watchlist and from that watchlist, I rank it based on the rate of change.
It’s a 50-week rate of change.
But based on how I assist Rayner on this when we trade stocks, we do this every single week before the market opens every Sunday or Saturday
Will this platform be useful for the Indian market?
This will not be useful for the Indian market because TOS is a US-based broker.
But based on my knowledge TOS does not offer to trade Indian stocks.
I hope that answers your question.
This screener may not be suitable for you if you trade the lower timeframe.
But if you trade it daily, this is how you do it, this is the process.
Again, I want you to get the principle behind this because that’s what matters.
You need to have a screener, you pick the stocks, you build your watch list and from that watch list, you apply the concepts in the course.
I hope that answers the question in depth.
So can you elaborate on what you just remarked about the different screener on the lower time frame?
On the lower time frame, this is not my authority.
If you want, you can follow the humbled trader from YouTube because she trades full-time
She is a full-time day trader on the stock market.
But since I have been following her for quite some time, I can see that her market selection is different from how Rayner does it.
Because again, our market selection is based on the daily time frame.
But on the lower time frame, I can say for sure that your market selection should be more comprehensive.
But it is something I cannot provide because I’m not very experienced in the lower time frame.
It’s best for you to learn from her instead of from us when it comes to it because she has the authority.
She’s been a guest on Rayner’s Trader’s Fest.
You can get it from here:
Drawing resistance and support levels especially for crypto coins (ETHUSDT, SOLUSDT) where there are long wicks. Also, identify the area of value
The essence of this question is how you draw support and resistance in a volatile market.
This is the essence of this question.
Because whenever I answer a question, I want to make sure you get the principle behind it, not only because you should copy my support and resistance on crypto.
But rather apply them on your own and how you can apply support and resistance better on your own in volatile markets.
This is the wrong way to plot. Because if the current price is here:
And you’re plotting up here:
It’s just clutter on your chart.
The main principle before you even plot your support resistance is you want to make sure you are asking what levels are relevant based on the current price.
The current price for me is the most important thing that you should be asking all the time.
You want to ask this question so that you can avoid any analysis paralysis. You want to make sure you ask this question all the time.
Whenever you look at the chart, what levels are relevant based on the based on current price?
The current price is here:
What are the support resistances relevant to the current price?
What we are seeing is that this one is relevant to the support:
Because it’s the nearest one. We’re looking at the daily time frame. So, the nearest one is the area I would prefer to draw a box.
Because this captures, what we teach you in the UPAT course, which is an area of value, not a single line.
We have a swing high over here:
It is not by any means a major resistance, but for me, any swing high is always worth something considering.
Of course, I want to make sure that you not only know how to plot your support resistance but also how to use it.
Now that you have drawn your support and resistance, what do you do next?
The next thing that you should do is to identify your trading setups.
Are there any trading opportunities for you to look into?
Based on this swing highs and lows, this support, and resistance, it is currently in a range.
If you recall in the UPAT course, what do we do when the market is in a range?
We always want to make sure that the price is at the area of before we do something.
If the price makes a false break at this support:
Then, of course, it can be a good long setup and targets before they need resistance.
On the other hand, if the price makes a build-up at resistance over here
Then it can be a good long setup.
This is what makes plotting your support and resistance properly important. Because these are the areas of value where you can spot trading opportunities.
You want to make sure that that trading opportunity is trading within the area of value.
I hope that makes sense.
What is the key difference between the trend continuation and breakout strategy? they seem the same to me because you have to wait for a build-up.
Trend continuation means that there is already an existing trend while a breakout happens when there is a transition from range to trend.
Is the false break setup only valid when the price trades below the previous swing low/high and then quickly trades back above it?
Yeah, the false breakout is one of the most versatile setups out there, but often quite hard to get it right before you can execute it or spot it accurately.
So the question to that is ideally yes, OK.
There is a breakout
There is an area of support:
As you can see, the price broke out this area of resistance, which has been tested a couple of times, then later on, it reversed back above the area of resistance.
Now turning to the area of support.
That’s pretty much what we’re seeing here, a false breakout.
There is an established area of support and breakout and then it reversed back into the range:
And then quickly trades back above it.
In hindsight now:
The false break over here happened in the span of around fifteen candlesticks if you count this consolidation
I guess you can say that a false break can happen within three candles, five can candles.
That is why when you’re dealing with false breakouts, you shouldn’t count numbers like a fixed rule, instead, you have to look at the price action.
When I say price action, it means that price action might still be too vague.
But I guess a better term would be the principle behind the false breakout it’s in the name itself.
The principle is that the price breaks out and then it reverses back into the range, therefore making it a false breakout.
In a way, it can happen on the previous swing high or a swing low.
It can be it happened on a major support or in a major resistance and if a false break happens in a few candles then it signifies a very strong false break.
I didn’t get the meaning of being reverting market. Does that mean the market tends to revert to swing points on that the market is reverting around the daily or weekly high and low?
This is the correct answer.
Because again, we are looking at this not from a price action perspective but from a statistical perspective.
On the UPAT course, you go to:
This is a module where Rayner creates a backtest on which markets that tend to reverse statistically from their weekly highs or weekly lows, daily highs or daily lows, monthly highs, and monthly lows.
And you look at the statistics, if that specific test has made money, then it shows that the market is a trending market.
I won’t dive deep into it, this module over here is pretty much about statistical analysis.
Therefore, we look at this question from a statistical view.
“In a way, he answered his question, the market tends to reverse statistically around the daily highs or weekly high zero, depending on what statistics you are looking at”
This is the correct answer to this one based on this question.
Would you like to share any trade which you have taken recently which will boost our psychology?
I would say that psychology is personal and how it would help depends on each person.
If you have taken a trade out of boredom or you have taken a trade out of following your rules, those factors can be pretty much different.
But I think I do have a recent trade on USDJPY.
I’ve been eyeing this trade for a while early this year, I held off shorting the trade because the trend is creating channels like this.
I hesitated to trade this market because I don’t like trends creating channels like this.
Because they seem to produce trades that are much slower and can still be prone to reversals such as this.
When I saw this cup and handle pattern recently:
I still could not take advantage of this market:
Because the flag pattern isn’t obvious, I had to be left out of this trade.
For me, it’s psychologically tasking because it’s a missed trading opportunity.
But eventually, as I kept on watching, I found a very nice opportunity in this one:
There is a flag pattern here, I always wait for a candle to close. As you can see the candle closed much high.
I was almost hesitant about taking this trade, but you know what, I’ll just take it with a 1 ATR stop loss above this low:
I’m still trailing this trade as of the moment, the trade is still in its early stages. I’m still following my rules to see how this market will develop and trailing my stop loss with a 20-period moving average.
That’s pretty much my current trade at the moment.
I hope that helps.
It’s a lesson of when in doubt, stay out.
I know from the UPAT program, we enter the trade while waiting for the candle to come to support and resistance, but sometimes we still very hard to find the right entry, any suggestions to make it better?
It’s a good question. I’ll give you two answers to this.
First of all, the best way for you to get better at timing entries is for you to send your screenshots to your coach.
The trades you take, even the trading ideas, the missed opportunities, and so on.
The best way to do it is that you send a screenshot via email to your coach or even to me, and then that’s a time when we can give feedback because when it comes to coaching, we try to keep it as personal as possible.
That’s one of the best ways to improve your entries, which is to share your training ideas with us, and we’ll give feedback with regards to that one.
Now my second answer is that it’s okay for you not to only focus on pullbacks or timing your entries at support and resistance, you can also time your entries on breakouts.
You see a flag pattern. But there is a very nice bullish breakout over here:
What I share with you is that this could be a good kind of close opportunity instead of a pullback to time a support resistance, you can time a breakout.
There could be a couple of factors. It could also be the market that you are watching.
The stock market right now is trending.
As far as I know, the stock market is currently in an uptrend, so it can depend on the market condition that you are looking at.
If I were to answer the question, maybe perhaps a better question would be;
“Any suggestions for you to find more trading opportunities and for you to time your entries better?”
I think that’s a better question.
The answer to that is to watch more markets. It doesn’t mean that you have to watch the stock market crypto market and so on.
If you’re a forex trader, you can also watch the major pairs, minor pairs and cross currency pairs, and even the exotic pairs because sometimes it can depend on the market.
Some markets are ranging; therefore, they can be good for timing your entries as support resistance:
This is a good entry. The price closed within the support and the price closed back above the support.
The next candle opens, and there you go, you’re in the trade;
This is because it is quite a ranging market, but for strong trending markets, you would have to look for breakout trades and not pretty much just support resistance.
Nonetheless, it’s good to have both tools, and both entry methods in your arsenal.
I hope that answers your question.
I wanted to arrange a short call with the UK FX chart, but it may be, I just want to adopt the correct thinking when I’m looking at the chart in terms of selling-buying pressure, how to interpret impact when price approaches the area of support, it is likely to be buying pressure. I want to understand the impact of traders who are short together with the impact of their stock losses and how to interpret it, and vice versa.
I want to be able to better interpret price action conditions when they are random and when price action conditions are more predictable, applying the correct interpretation and thinking about the psychology of traders who are either long or short by looking.
I’m trying to get an understanding on your end of why you wish to know the buyers and sellers to predict and so on.
To me, it seems like you’re trying to have more clarity towards price action, and the in-depth when it comes to volume.
On our end, everything you see on the UPAT course is already everything that we know about price action.
When analyzing price action, we try to keep it as simple as possible because the thing is, the more information that we attach to our trades, fundamentals, indicators, commitment of traders, the economy, and so on. The more we will be attached to our trades.
What happens when our trades don’t work out?
It will affect us psychologically.
So as much as possible, we always keep the analysis much simpler as possible.
To be honest, this is a question that I can’t answer.
However, what I can share with you is that there are ways that you can make your analysis much more subjective.
Could I ask you to look at AUDJPY?
In the meantime, I’ll try to analyze this on a daily chart;
On the daily, it seemed to breakout of its range.
There is a weak trend, eventually, it went into a range and now it went into a breakout:
Now this is the information that we have to focus on, which is this one over here:
What we are seeing right now is a nice flag pattern:
Based on this movement, we can see that the price is currently in a valid uptrend and it’s currently making a consolidation of the flag pattern.
There’s a chance that this trend can potentially continue.
If I was to enter this trade, I’d identify the market condition and where the market is at, then I try to hone down to how is this information relevant to me.
How can I make money out of this?
How can I diversify my portfolio?
The more it becomes more relevant to you into your capital.
In this case, if it makes a breakout, 1 ATR above the lows and then you can take your target profit, perhaps a partial take profit over these highs over here:
Then you can scale in trailing your stop loss along the way.
That’s how I would see this trade.
But again, this is how I see the trade as of the moment.
Basically, how do you interpret the traders from the left of the flag pattern?
I think a good example would be on USDJPY
There is a very clear poll over here and then there is a consolidation over there. That’s how I think it’s how we can interpret it.
Can you give me a simple day trading for day trading strategy based on price action, which one can monitor in a busy working day schedule at a workplace?
This is an interesting one because you mentioned day trading and a busy working day schedule at the workplace.
In this case, it will be very hard for me to recommend.
However, one thing that I can share with you, depending on your time zone, it is possible for you to day trade if your time zone needs the most liquid art of the Forex market.
You can go to Forex Factory over here:
As you can see the most liquid times to trade the forex market is in the London and the New York session overlap. I’m not sure which country you are in.
But in this case, allocate your time.
If this London and New York overlap are already in the evening, in your time zone, you’re done with work, then you can dedicate your time to only focus on this time zone.
From then on, you can try to find some day trading opportunities.
When it comes to day trading, no matter what it is, stocks, crypto, or Forex, you always have to focus on specific time zones that are most liquid.
You don’t need to trade every single day, all the time, or whenever you feel like it.
You must trade at this one.
In this case, if the London and New York session overlap does not hit your working schedule then that’s your first step in, trying to day-trade the Forex market.
How to differentiate a pullback and reversal.
The thing is you will never know whether it is a pullback or a reversal.
A reversal would be if the trend reverses.
A pullback is a brief pause in the market.
There are pullbacks such as this one:
Besides moving average, which indicator do you always use for the Forex market, and how to implement it in different time frames?
You need to know your indicator very well. When to use them and you know when not to use them.
I used the 20-period moving average. However, I do not pull out my moving average unless I’m having a hard time identifying the trend.
If I can identify the trend very easily, then I don’t pull out my indicators. You only pull out your indicators when you know you need them.
However, some indicators are pretty helpful.
It pretty much visualizes the highs and the lows.
What the Chandelier exit does is that it visualizes your ATR into an indicator.
Those are the two indicators I can recommend to you the channel and the chandelier exit.
But once again, you need to know why this indicator works, how it’s meant to be used, how it’s not meant to be used, and so on.
It’s knowing how you trade first, knowing what you believe the market is first.
In this case, if I’m on this trade and I want a trailing stop loss that can accommodate this strong trend, then as the time I will pull out my 20-period moving average.
That’s how you can use indicators to your advantage regardless of what trading style and time frame you use.
What is the best time zone and indicator for XAUUSD?
This means what is the best time to trade the XAUUSD?
If you are going to ask this, then I assume that you are trading the lower time frames because the only reasonable way to know what the best most liquid time to trade Gold is with the time zone.
Unfortunately, I am not sure because I’m only familiar with Forex and stocks.
For stocks, I believe the most liquid time to trade is during the first few hours of the opening before lunchtime, before the break time of the stocks.
While for Forex pairs, Gold is Forex but I’m not sure if it’s gold, it’s a part of it.
But for Forex, the most liquid time to trade, the market is between the London and New York overlap as you can see in the Forex factory.
A good time zone to trade the gold for the lower time frame is around 8 PM-12 AM:
For your indicator, it depends on what’s very clear to you.
It depends on what indicators you clearly understand.
Secondly, it depends on the current market condition we are looking at now.
Over here, without plotting any indicators… We can see that gold is developing a ranging market:
The reason why I say that is because it is currently contained between the highs and the lows.
Right now, it’s currently in a range.
But if you look at the longer-term movement, it is currently in the long-term range.
In this case, you want to ask yourself, now you know the market condition.
What indicator would you need to identify a setup?
I’m not sure if I’m going to look for shorting opportunities or long opportunities.
In this case, you can use a handy indicator called moving average:
Specifically, a long-term moving average period like the 200MA
Because it gives you a clear indication:
The price is above the 200MA.
It gives you an indication that the long-term uptrend is still intact.
Normally I only pull this out when I’m having a hard time identifying the trend.
But if I can identify clearly, there’s no need for that.
There is a potential break of structure happening around here:
A bullish setup and the price are above the moving average:
Which could be a risky setup because you are trading within the range.
But then you are looking at a valid break of structure.
Let’s just say, there is a valid breakout flag pattern breakout over here:
How would you measure your stop loss?
If you measure your stop loss all the way:
Then it’s way too big unless you can use an indicator called the Average True Range:
It’s one of the indicators for teaching the UPAT.
It gives you information on what the volatility is for the past 20 periods.
In this case, what we can do is subtract that 1ATR below the lows, and our stop loss could be around here:
There is an indicator for everything.
An indicator to define a trend, an indicator to define your stop loss, and an indicator to define your take profit or trading stop loss.
When it comes to this question, the best indicator doesn’t tie to a specific market.
It just depends on the market condition in general.
I hope that helps you out.
Please go through an example of energy created by traders from the left of the chart and it’s possible and its possible impact on the right side of the chart.
The left is here:
What we are seeing with the candles.
The right is here:
We don’t know yet what’s going to happen.
The word energy is quite expounded on by the books of Mark Douglas in the Market Wizards.
Not only it deals with the energy of buyers and sellers, but it also deals with the energy on your end as a trader, on your mental capacity.
But of course, we only look at the technical aspects of this because I want to make sure I’m I won’t be as abstract as I would answer this question.
Let’s try to make this as objective as possible because based on how I understand this question, it’s like you’re trying to figure out a way how you can analyze the charts your way, which is not wrong.
Which is how can you interpret a chart on your end.
Some traders interpret the charts through Elliot waves through Elliott waves.
Some with harmonic patterns which are not right by the way:
Some with the Fibonacci, some with price action, which is what we do.
Now, if you go through this kind of concept, it can be a combination of price action and a little bit of training psychology in play.
How can we make this more objective, which is created by critics on the left and the right?
I could just name it like energy analysis:
This is the most important part. Usually, what signifies momentum or one direction in the market?
A dominant direction in the market is when we see moves like this:
That continues to go up.
The momentum or energy of the buyers can produce a slow and steady trend with healthy pullbacks.
Some momentum of the buyers can go way up higher.
There are some weak trends where they are ranges between them like we saw a while ago.
But they’re still in a general uptrend.
In this case, when it comes to defining momentum for a trend. We have a healthy trend, a strong trend, and the weak trend.
Going back to this question, essentially when it comes to this, it depends on just the momentum, how strong the trend is, and how big or small the range is, some ranges can even go volatile just like a sound wave.
While some ranges are very slow, some ranges are pretty compact, similar to what you have seen over here.
That can mean a couple of things.
I hope that helps, nonetheless.
Let’s just see if the market is going to break down to the downside of natural gas. For example, Buyers on the left who have gone long. Does this mean that their stop laws are going to create selling energy to the right?
Let’s try to look at the chart.
Here is the support and resistance.
We have a buying position over here:
Let’s just say our target is still up here, the trade is still not there.
However, the market eventually decides to reverse back lower
What if you have a position, it just smells your take profit but then eventually the market goes down once again and your stop loss is hit?
The question is will that develop further and move into the markets? That goes into the area of volume I would say.
There are a lot of buyers and sellers in the market. However, we don’t know how big the pockets of those buyers and sellers are.
Some buyers have billions of dollars in a hedge fund and some buyers only have $100 on their stop loss.
Let’s just say a couple of traders who have stop loss are here:
There’s this one trader who has like a 1$ million position or billion around here, I think to move the market;
That stop loss of that big buyer can affect the market movement.
Where the money flows in.
The question is if the price moves down and hits the buyers stop loss:
Will that further fuel the rejection of this market?
The answer is we don’t know.
A lot of hedge funds in oil markets may want to be contrarian.
They think the trend is going to move up.
Based on looking at the volume eventually, the price breaks down and hits its stop loss fueling down the selling pressure, which is true.
It potentially can happen.
However, as a trader, we shouldn’t expect it to happen.
It’s a possibility but not something that should happen because the market can continue its range.
That’s pretty much a normal thing that the market does.
I hope that answers your question.
Which one is better horizontal support resistance or parallel channel?
The answer is that it depends on the market condition.
Because horizontal support resistance is good for ranging markets, finding areas of value in ranging markets.
If you want to find areas of value in a ranging market.
Horizontal support is the right tool to determine your areas of value in this market condition, which is a support resistance potentially a minor support.
That’s the keyword
However, on a parallel, it’s a tool designed for you to look for areas of value in a weak trend, I would say so similar to this one:
This means that in this case, you can consider buying over here.
Then sell over here:
It gives you areas of value to buy and also areas of value for you to sell.
The parallel channel is moving downwards, you want to look for selling opportunities in the resistance parallel line.
You can consider a good place to short when it reaches the channel, the parallel line you can consider it to cover.
I want you to take note always that everything is an area, they are not a specific line on your chart but they are in an area.
Horizontal support and resistance in a ranging market is an area.
The boxes consider the wicks too.
The Parallel support and resistance also have areas;
Remember that they’re always an area no matter how it is.
I hope this answers your questions that using horizontal and parallel depending on the market condition.
Remember there are tools and you should use those tools depending on when you need them.