Context Is King in Price Action Trading

You are always looking a “perfect” price action, you had thought that you have done everything to do that. But, you always stuck in using indicators to analysis fluctuation of prices. You did not understand why it happened and you felt angry, desperate or confused because you do not know what you did wrong. Well, it is one big piece in puzzle of the price action trading, if there have no it, in spite of waiting patiently a “good” price action setups, it can’t occur with Ice 9 Technology Review.

To be able to give a right analysis, you must understand that big piece which is the context. The price action and context are always accompany together. What i want to say that ” context” is essentially conditions of current/recent market and surrounding price action. Moreover, if you want to trade that it is a good signal of price action. You can see that it is not only the signal itself in order to set up a good trade, but also to make sense within context it formed within. In reality, I would even say so far that the context within signal forms is as very important as the signal itself.Context Is King in Price Action Trading

How to differentiate between ‘bad’ and ‘good’ price action signals

You can decide a particular setup easily that forgot all about the context it is forming in. For instance, you could have two identical pin bars, when putting in market context, just one could be worth trading and one might not be. There is a difference,. Right, let me explain a little bit about this and why do it occur?

First, ask yourself the following two questions:

  1. Does the signal make sense with the overall market picture?

Whether the overall picture of market that will help you define market trending or a particular trade signal or your market in trading range or not. For example, you have a very firm uptrend, taking a sell signal against. If you feel uptrend looks “perfect”, you must also be very carefull with that a signal. Almost, counter-trend is unsuccessfully so i want to say that you should firstly need to be a successful trend-trading then you consider counter-trend trading.

What do you do If market is range bound, as i say ,you would make ‘trading range’, by the way, you will consider price action signals near the boundary of the range (either resistance or support boundary). In a range-bound market, forms is very close or at the boundary and is false-breaking through the level that is the best type of signal, because of indicating reverse again of the price to the other side of the range.

  1. How does the signal fit in to the surrounding market structure?

How to know the elements surrounding the signal? how they are happening?. Well, example, If it’s a fakey, is the false-break very clear and obvious and is it in a trend or at a key level?; if it’s an inside bar you are considering, is it within the context of a strong trend or is it simply in chop / sideways price movement?; if it’s a pin bar, is the tail sticking out from the surrounding price action or did it just form in consolidation?

  1. Perhaps most important to ask is; Is their confluence?

If price action signal has any supporting factors like resistance and support levels, 50% retraces, event areas, moving average, etc…it is really so good. A price action pattern is sitting in the middle of consolidation without any confluence. If the pattern itself is very obvious, it can not distract my attention.

Whether you want to take the trade or not, if you want to define the context signal that is the types of questions can use to help. May be sound silly, the best price action signals which are dead clearly and nearly “jump” off the chart. You are able to wondering yourself about those signals and posting on forums about them or emailing people about. But probably, they are not worth risking your money on their not very high-probability.

What to do next…

Once, you had price action analysis skills and being developed gradually. Firstly, it is overall condition, you study to take into account a market is operating and THEN you will seek structure’s price action signals within the context. I have recognized that the beginners tend to focus much more their time on the signal itself and not enough on the context; They get all signal forms and they reckon that that is an automatic green light for trading, of course these thought will leads to over-trading and losing money.

You should be picky about the trades you take because that is the result of having learned how to trade properly and having mastered an effective trading method in the way of surely the trade signal makes sense in the context it’s forming within, and that also means you will probably turn down more trades. It is not sense that you should try to avoid losing trades, because you cannot afford avoid some losing trades, but to make defense for protecting your money in the market, you should be sticking to your trading strategy and only taking signals that agree with it; not those that you’ve justified to yourself for one reason or another.

You cannot understand market context and if a signal makes sense (or doesn’t) within it, if you don’t yet know how to read a price chart. If you are a relatively new trader or simply looking to expand your chart-reading and price action trading abilities, you need to check out my price action trading course because it will help you understand market context, price action strategies and how to trade making sure those things are in agreement with one another.

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