Whether you are a price action, a pattern, an indicator or whatever trader, if you are able to identify strong price levels on your charts, it can greatly improve the quality of your trading.
Instead of taking signals and trades all over the place, the better trades usually happen at key price levels. Those strong areas of interest show that buyers and sellers are concentrating at those levels and they can be the starting or turning points for new price moves and mark new trends as well.
If you are a breakout trader, you need to find areas that can lead to strong breakouts, if you are a trend-following trader you must identify pullback areas or trend continuation points, a reversal trader looks for key turning points and a range trader should focus on well-developed ranges with clearly defined price levels.
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Bullish engulfing, as well as, bearish engulfing are two of the most powerful price action candlestick patterns. I have mentioned them briefly in my Candlesticks article, but now I want to put more emphasis on those two. More than that- bullish engulfing and bearish engulfing patterns are deeply ingrained in my trading strategy. Let’s explore what those two candlestick price action patterns can help us achieve.
INTRODUCTION– Bullish Engulfing and Bearish Engulfing- Probably The Best Price Action Candlestick Patterns
This article will be divided into two parts- first part will deal with the bullish engulfing pattern; the second part will go over the bearish engulfing candlestick pattern. History repeats itself, so I believe that the best way to read the market is to know what happened in the past. Bullish engulfing patterns are a confirmation that more buyers want to join the uptrend. On the other side, a bearish engulfing pattern gives confirmation for more sellers joining the short side. Let’s move to the first part- the bullish engulfing candlestick pattern.
PART 1– Bullish Engulfing Candlestick and Price Action
What is a candlestick?
Before I move to the real part, I would like to remind you once again what is a candlestick.
A candlestick contains an instrument’s value at open, high, low and close of a specific time interval.
Let’s say we are looking at a daily candlestick. It does contain the value at open, high, low and close on any particular day.
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10 Reasons moving averages work as trading tools.
- Moving averages filter trends in different timeframes.
- Moving averages can create entry signals at the beginning of a trend.
- They can be used as exit signals when price dips below them.
- Moving averages can be used as trailing stops so you can exit with profits when a trend starts to bend.
- Moving averages can be used in crossover combinations for slower signals.
- Moving averages can help filter volatility.
- You can do historical back tests of price action to develop price action trading systems using moving averages.
- Moving averages are reactive technical trading tools not predictive.
- When price falls below and then breaks back over a moving average it is a great signal for a potential reversal.
- Moving averages are better gurus than talking heads on financial television.
Moving averages have a place in any trader’s or investor’s strategy. They are my favourite filter for price action.
The original post is written by Steve Burns, appears on newtraderu.com and is available here.
What is price action trading and why it does make you a better trader
Price action trading is a type of trading that allows traders to observe and study the current market. This, in turn, allows you to anticipate the market trend and make certain assumptions/decisions based on the current (and actual) price movements.
Price action trading is the purest type of trading that eliminates all noise.
It does not anticipate, it reads the market.
Price action is great!
Is price action trading better than other types of trading?
Hard to say.
It is really difficult to say if one type of trading is better than another. What matters is which type of trading fits your personality.
Another important element of trading is money management. What matters is even not that much the trading system, but the way you use it.
Profitable traders will agree with me.
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You’ll LOVE today’s lesson because…
I’m going to teach you a Moving Average trading strategy that I’ve been using for years (and no it’s not Moving Average crossover).
In fact:
It’s a “buy low sell high” trading strategy that can be applied to the Forex, Futures, and Stock markets.
I’ll reveal the full details of the trading strategy and leave no stones unturned.
This includes the exact trading setup I look for, entries, exits, and stop loss.
And how you can use this strategy to capture a swing for consistent income or, ride massive trends and grow your wealth over time.
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Trading with the trend is trading with the flow. When the prevailing trend is up, why would you want to look for short entries when buying might result in much smoother trades? Many amateur traders, even when facing a long lasting trend that has been going on for months, can’t stop trying to predict reversals, whereas they could have made so much more money by simply joining the trend.
But even if you are not a trend-following trader, you can combine the concept of trading with the higher timeframe trend with your regular trading approach: you start on the Daily timeframe and see if the trend its up, down or sideways and you use that information on your lower, execution timeframe to time your trades (read here: how to perform a multi-timeframe analysis). To be able to correctly read price action, trends and trend direction, we will now introduce the most effective ways to analyze a chart.
Intro: The different market phases
Before we start going over how to identify the trend, we should be first clear what we are looking for. Markets can do one of three things: go up, go down, or move sideways.
The picture above shows you the three possible scenarios and how markets keep alternating between the phases. But knowing what has happened after the fact is always the easy part. The hard part is finding out what is currently happening when markets are moving in real time and the space on the right is empty – that’s where this article comes in. To be clear, the article is not meant to show you how to identify trading entries, but to understand price and trends in a more efficient way.
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Most the investing establishment considers buy and hold investing the Holy Grail that always works out in the long term. For long term buy and hold investing your entry time frame matters, whether you got in at good prices and if you have time after bear markets to get back to even. NASDAQ buy and holders waited a long time from March of 2000 and buy and holders from 2007 also had to wait many years to get back to where they were. The most simple long term moving average systems can beat buy and hold by getting and keeping you in during bull markets and getting you out before big drawdowns. You are capping your downside risk and keeping your upside potential profits open by simply having an entry and exit strategy based on price action not opinions or predictions.
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