Trading Tip: How Well do you Read the Market? Part 1

Trading Tip: How Well do you Read the Market? Part 1

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Greetings fellow Traders!

Are you an active participant in your trading or a passive bystander?

Maybe you just “wing it”?

Maybe, you just really don’t have a “scooby doo” (clue) on what to look for or when?

This last one is very common by the way so don’t panic!

One thing we are always told in trading is that the trend is your friend but in the real world how many traders actually rebel against this & try to enter counter trend moves only to get caught in trend continuations? Thats just human nature, I’m afraid but a great starting place is my previous trading tip here.

Today I want to share with you how I stay on the right side of the market pretty much most of the time & this will also serve as a great introduction to price action for those unfamiliar with it currently.

See, in daytrading we have to be not only smart but also be able to interpretĀ the current price movements because our margin for error is a lot less than those on the higher timeframes. Thats why we often refer to daytrading as a skill & should be developed as such.

What I’m going to show you now is what I call “Buyers vs Sellers” or “Sellers vs Buyers” depending on which direction the market is moving in.

When you think of the price action in this way you can start to see there is a kind of battle occurring on your screens. A battle for control of the market direction. Once you understand this logic you too can stay on the right side of the moves.

Firstly, lets take a look at some “perfect” examples;

Note- I’m using Green for Buy candles & Red for Sell Candles

Trade Tip 24032016a

AboveĀ is an example of Buyers overcoming Sellers. The things to note here i that the buyers (green candle) have closed above the previous red candle.

The next important step is that it must have overcome the last dominant candle of the opposite candle not just any candle. A dominant candle is normally larger than those around it & is usually a healthy, full bodied candle. In this next example you’ll see that the buyers have overcome the previous sellers but it isn’t a dominant candle;

Trade Tip 24032016b

 

In this example above the first red candle would have been the last dominant selling candle which is the one that needs to be overcome to show that buyers have control of the market.

Trade Tip 24032016c

Note here that the green candle has overcome the previous dominant candle. Please understand that the candle must close above & beyond the last dominant candle in order to be classed as taking control of the market, unlike this next example;

Trade Tip 24032016d

This would be a failed attempt by buyers to take control of the market.

Before we analyse some live markets from today lets look at some other examples;

Trade Tip 24032016e

This above, would be an example of sellers overcoming the last dominant buying candle. Whereas in the example below, the sellers have not overcome the last dominant candle.

Trade Tip 24032016f

In this next example we see the sellers have overcome the last dominant buying candle;

Trade Tip 24032016g

Whereas this is a failed attempt to overcome them;

Trade Tip 24032016h

Ready for some live examples?

Click here for Part 2.

Damon

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