Hello, I am Tang Daqian, today is the second day of Daqian sharing Price Action.
The topic I will share with you today is: PA trading structure, and the signal stick, (the stick mentioned here, you can understand it as a K line)
transaction structure (setup)
The transaction structure is composed of two parts:
1. The trading context (context) you are in is determined by the market on the left, for example: it is in the breakthrough stage, it is still in a narrow channel, it is still in a wide channel, or it is in a trading range.
2. Signal bar
Entry stick: the K line you enter the market, the signal bar can be understood as the K line that provides you with a signal before you enter the market. As shown below
signal stick
Next, let's learn more about signal sticks.
When the trading background is good, usually the best signal bars are reversal bars.
Reversal bar characteristics (taking the upward trend reversal bar as an example, it usually has one or more of the following characteristics):
1. The opening price is close to or lower than the closing price of the previous K-line, and the closing price is higher than the opening price and higher than the closing price of the previous K-line
2. The length of the upper shadow line is about 1/3-1/2 of the length of the K line, and the lower shadow line is very short or does not exist. (Like what is commonly called a shooting star line).
3. There is no overlap with the previous K-line or multiple previous K-lines.
4.good follow-through: After the signal bar, it is not a cross star or a harami line, but a strong entry K line (a negative line with a large entity and a short tail line)
5. The closing price is lower than at least the closing price and the highest price of the previous K-line, or even multiple K-lines.
In addition, there are other reversal patterns , such as double-bar reversal, three-bar reversal, IB, OB, and II, which involve many things. Due to space limitations, I will share with you again when I have the opportunity.
So can I trade when there is a good signal bar?
The answer is of course no. When there is a strong signal bar in the market, it is not enough for you to decide whether to open an order. The signal bar also needs the support of the trading background in which it is located.
• For example, when the market is in a trading range, our trading strategy is to sell at high points and buy at low points (how high is the high point and how low is the low point, we will discuss scalping in the following articles), so don’t Buy high, sell low. Because most breakouts will fail when you are in a trading range, no matter how convincing your reasons are, don't violate the principles.
• When in a strong trend, don't look for reversal opportunities, but should follow the trend, such as a strong upward trend, only look for opportunities to do long, because most reversals will end in failure.
• When the trading background is a weak trend, most of the transactions follow the direction of the trend, and only in a wide channel can two-way transactions be possible.
Example: Strong Signal Bar, Bad Trading Background
When the background of the transaction is not obvious, your best course of action is to wait!
A strong trading structure does not require a strong signal bar to trade. In the context of a strong trend, the signal bar in the direction of the trend is usually very weak, but even if there is a strong signal bar, you should not go into it. Trade in the opposite direction.
A weak trading structure requires a strong signal bar , for example, in a downtrend, you want to go long.
Then you need to wait for: 1. Strong signal bar 2. Correct trading background (strong buying pressure appears). A trend reversal usually requires a strong signal bar.
What to do when the signal bar or trading background is not very good?
The solution is to wait, what are you waiting for ?
1. Strong breakthrough and follow -through 2. Second entry (when the trading background is uncertain) 3. Confirmation of trend reversal
Case: Strong breakthrough and persistence to the end
Case: Wait until the reversal is confirmed, in this case the signal bar is weak but the trading background is good.
Wait until the second entry , case: a strong signal bar, but the transaction background is not obvious
So how to enter the market for the second time when the trading structure is not obvious? Is there any good way to do it?
Two options:
1. Normal trading (if you make two mistakes in a row, the third signal bar will not enter the market)
2. Small position trading : use a wide stop loss, if the first order stops the loss, the second order doubles the lot size
Trade with normal lot size and stop loss
Small position trading
I hope today's sharing can help you. See you next article. If you are interested in Price Action, you can follow Daqian's personal official account (same name). 3 free PA e-books from tutor AL.
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