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Part 1: Price Action
The most useful definition of price action for a trader is also the simplest: it is any change in price on any type of chart or time frame.
The smallest unit of change is the tick, which has a different value for each market. Incidentally, a tick has two meanings.
It is the smallest unit of change in price that a market can make, which for most stocks is a penny.
It is also every trade that takes place during the day, so each entry on a time and sales table is a tick, even if it is at the same price as the prior trade.
Every time the price changes, that change is an example of price action.
There is no universally accepted definition of price action, and since you always need to try to be aware of even the seemingly least significant piece of information that the market is offering, you must have a very broad definition.
You cannot dismiss anything, because very often something that initially appears minor leads to a great trade.
The definition alone does not tell you anything about placing a trade, because every bar is a potential signal both for a short and a long trade.
There are traders out there who will be looking to short the next tick because they believe that the market won’t go one tick higher and others who will buy it believe that the market will likely not go one tick lower.
They might be looking at the same chart and one trader sees a bullish pattern and the other thinks there is a bearish pattern that is stronger.
Chapter 1: The Spectrum of Price Action: Extreme Trends to Extreme Trading Ranges
Whenever anyone looks at a chart, she will see areas where the market is moving diagonally and other areas where the market is moving sideways and not covering many points.
The market can exhibit a spectrum of price behavior from an extreme trend where almost every tick is higher or lower than the last to an extreme trading range where everyone or two-tick-up move is followed by a one- or two-tick down move and vice versa.
Only rarely will the market exist in either of these extreme states, and when it does, it does so only briefly, but the market often trends for a protracted time with only small pullbacks and it often moves up and down in a narrow range for hours.
Trends create a sense of certainty and urgency, and trading ranges leave traders feeling confused about where the market will go next.
All trends contain smaller trading ranges, and all trading ranges contain smaller trends.
Also, most trends are just parts of trading ranges on higher time frame (HTF) charts, and most trading ranges are parts of trends on HTF charts.
Even the stock market crashes of 1987 and 2009 were just pullbacks to the monthly bull trend line.
The following chapters are largely arranged along the spectrum from the strongest trends to the tightest trading ranges, and then deal with pullbacks, which are transitions from trends to trading ranges, and breakouts, which are transitions from trading ranges to trends.
An important point to remember is that the market constantly exhibits inertia and tends to continue to do what it has just been doing.
If it is in a trend, most attempts to reverse it will fail. If it is in a trading range, most attempts to break out into a trend will fail.
Chapter 2: Trend Bars, Doji Bars, and Climaxes
The market either is trending on the chart in front of you or it is not. When it is not, it is in some kind of trading range, which is composed of trends on smaller time frames.
When two or more bars largely overlap, they constitute a trading range. The trading range can have many shapes and many names, like flags, pennants, and triangles, but the names are irrelevant.
All that matters is that the bulls and bears are in some equilibrium, often with one side slightly stronger. On the level of an individual bar, it is either a trend bar or a trading range bar.
Either the bulls or bears are in control of the bar or they are largely in equilibrium (a one-bar trading range).
The two most important concepts in trading are that there is a mathematical basis for everything and that at any moment when you are convinced of the market’s direction, there is someone equally smart who believes the opposite.
Never be convinced of anything, and always be open to the possibility that the market will do the exact opposite of what you believe.
Although the market at times is imbalanced and moves strongly up or down for many bars, most of the time it is relatively balanced, even though it might not appear to be so to a beginner.
| Author | Al Brooks |
| Language | English |
| No. of Pages | 479 |
| PDF Size | 15 MB |
| Category | Stock Market |
| Source/Credits | archive.org |
Trading Price Action Trends Book PDF Free Download