Slow Trader

Tag: context

  • Price action is all well and good, but context counts more

    10.45 am 15th February. After the tight channel long the market went into a narrow trading range for a couple of hours.  The close of bar 3 provided the first opportunity long as the close was slightly above the support line.

    However, we considered that bar 3 was the third push long, an embedded wedge, and therefore not a likely trade. In hindsight, computers saw this as two pushes down with higher highs and higher lows. The market went up after bar 3, without us!

    Our next opportunity was the price action provided by the pin bar marked by the yellow box. The close of the pin is above the support line (and at the 21 EMA) and gave a 60% to 70% chance of a trade long, at least to the top of the previous high and a 15 pip profit; which we are happy to say, it did.

  • Context

    There are many ways to trade. It is not important which trading method we choose as long as it works for us.

    My own method comes under the general name of ‘Price Action’. Simply, this requires the ability to read raw chart information and can be used on all timeframes. Here’s a couple of charts: can you tell the timeframe?

    Snip20151027_7

    Snip20151027_8

    The top chart is a daily candlestick chart of Gold, and the bottom chart is a 15-minute candlestick chart of Silver. The point being that it is not possible to see a difference in these charts without the timeframe along the bottom. Price Action works similarly for all timeframes.

    It is good, however, to ground ourselves on a certain timeframe and use only the neighbouring timeframes for clarification. For instance, if I were to use a daily chart to find a trade then I may venture to a weekly chart for guidance and possibly to the 4-hour, or even 1-hour chart, for final confirmation. But probably no lower. Equally, if I were trading from a 5-minute chart then the 15-minute, or possible the 1-minute, chart may provide some price clarification.

    On another point, the distinctive parts of Price Action are: firstly, knowing the meaning behind each of the candlesticks …yes, they individually tell a story and the greater the timeframe the more defined is the story. Secondly, and more importantly, is the need for context – that is the story that is told by a stream of candlesticks. We may take a trade based purely on context but we would never take a trade based only on the distinction of a single candlestick. Too many trading methods and seminars base their teachings primarily on the story a single candlestick tells, where the real ability is in reading the stream, the context.