Today, we’re going to continue the series of short, but powerful, video lectures on day trading using price action. We will produce longer, more detailed and thorough videos for you later, but I want to introduce the topics in short and simple videos first.
Last time I told you about how I came in contact with day trading using price action and how I became successful with technical analysis some 25 years ago. There are many different topics in the “field” of price action that we will need to go through one-by-one. Today, I want us to focus our attention on TRENDS. I don’t know if this is the obvious topic to start with. It might not be, but at the end of the day, trends are going to be the thing that makes you the money in trading, so I think it is a good choice of topic to begin with.
So, if you look at a chart – whether it is a candlestick chart, a simple line chart or an OHLC bar chart – you will see that the markets always move in waves. It doesn’t matter if you chart the S&P 500, futures, commodities, currencies or stocks – you will see that the price goes up for a while, then starts moving down and then moves up again. And that kind of movement continues all day, every day. It does not matter if you look at a minute chart, a 5-minute chart, or an hourly chart – you can even analyse daily charts or weekly charts they will all look and act more or less the same. Sure, there will be some differences, but the cool thing about price action is that once you learn it, you can apply your knowledge from the most minute intraday charts to long term charts – daily, weekly or even monthly charts.
In this series of videos and articles on price action trading you are going to learn principles that apply to all markets and all time frames. So that’s pretty COOL.
I have been both an equity options trader at an american trading firm, and a private day trader. I’ve been a swing trader and an investor. And I have used the same knowledge, the same techniques all the time for the past 25 years. So what you are going to learn is truly universal, so it is not something that will work sometimes on some specific stock or futures contract.
So we know that the markets move in waves the price goes up for a while and then down for a while, then up again, and then down again. I call these “up waves” and “down waves.”
Sometimes the market moves upwards longer and with more force, more power when it is in an “up wave”, and then just moves down a little when it turns into a down wave and when that happens during more and more up waves and down waves this price action will form an “up trend“. So each “up wave” is another leg in the trend, and the down waves are shorter, weaker intermediate pullbacks. The trend is still up even though the market is currently experiencing a pullback – a down wave, or even a few down waves – back to back.
You can say that the chart is a “battleground” between buyers and sellers between bulls and bears. If the bulls are winning the battle, then the market moves upwards. An uptrend is formed. We will go through this “battle” between bulls and bears in a later video.
So in the uptrend the bulls are winning the battle, but the war will continue – that’s for sure.
And that means if the bears start winning you will get a downtrend. You will have the same principles at play in downtrends. The down waves are bigger and stronger than the up waves, so this time the trend is downwards. So in other words, when you have a series of stronger up waves or stronger down waves, the market will establish a trend.
If the trend is downwards, you can have up waves forming “rallies” upwards, but as long as the major trend is downwards (stronger down waves), those rallies will fade and the market will reverse and continue downwards.
So if the bears are more and stronger than the bulls, then you will have a down trend. At some point in time all trends will come to an end. When that happens, sometimes the market will just consolidate and move sideways for some time. That means you can also have sideways trends, where the up waves and down waves are similar in size and force, or you can have two small down waves, and one big up wave.
So each up move and each down move take each other out it is a tie between bulls and bears. In “Wyckoff method” theory (“The Richard D. Wyckoff Method of Trading and Investing in Stocks: A Course of Instruction in Stock Market Science and Technique“) – these sideways channels are called areas of accumulation or distribution. Meaning that either the buyers are accumulating their positions – they’re buying stocks or contracts that they want to sell later at a profit. Or sellers are distributing their holdings, that they bought earlier. So these are ideas and methods developed by Richard Demille Wyckoff in the 1920-1930s, and that is a foundation in my analysis and trading. I will go through more of the Richard D. Wyckoff method in this series.
Anyway, The great thing about up trends, down trends or sideways trends is that you can profit regardless of the direction that the market is going. As we move forward in this series you will learn techniques to use in up trends, down trends and sideways markets. This was the first lecture on trends. Next time, we will look at a little bit more advanced trend analysis and I will introduce some ideas how you can gauge and measure the force of the trends. How you can determine if the stock market trend is healthy and likely to continue, or if the price trend appears to be reversing soon?
So please subscribe to our YouTube channel to get access to the next video. I’d love to hear comments and feedback on this series, so please comment and like the videos, and make sure you subscribe to our YouTube channel.
Our next 8-week day trading Mentorship Program starts soon, so please visit our main website https://www.daytradetowin.com to learn more, and check out our software – our strategies are based on price action. All of our day trading strategies, day trading software, day trading courses and day trading mentor are included in the Mentorship Program.