Trading Course Day 7: How to Mark Up Charts
Summary
This video explains a trading strategy focused on marking up charts and identifying trends. The presenter emphasizes using higher time frames (1-hour, 4-hour, daily) to determine the overall trend and then scaling down to lower time frames (5-minute, 15-minute) for entry execution, particularly during high-volume sessions like London. The core idea is to identify higher highs and higher lows for uptrends, or lower highs and lower lows for downtrends, and trade in the direction of the confirmed trend.
Key Insights
Price failing to reach a previous level on correction indicates strengthening sellers.
When price corrects but falls short of reaching the immediate previous resistance level before the move down, it suggests that sellers are becoming more dominant and preventing further upward price movement.
Higher time frames (1-hour, 4-hour, daily) are crucial for overall market structure.
For determining the overarching trend and market structure, it is essential to utilize higher time frames like the 1-hour, 4-hour, or daily charts. Lower time frames are better suited for pinpointing entry points.
Trading with the trend identified on higher time frames increases the probability of success.
The strategy advocates for trading in alignment with the trend established on higher time frames. This approach aims to capture larger moves and increases the likelihood of profitable trades.
Trading with volume, especially during session opens, can help mitigate noise and liquidity issues.
Trading during high-volume periods, like session openings, is encouraged. This generally means more predictable price action and can help traders avoid the 'noise' and volatility associated with less liquid market conditions.
A break below a support level after a bearish indication is a strong sell signal.
If price is showing bearish signs (e.g., lower highs) and then breaks below a key support level, especially during a high-volume session, it confirms the bearish continuation and presents a trading opportunity.
Sections
Chart Markup and Trend Identification
Start by identifying current price on the 1-hour time frame.
When looking at the 1-hour time frame, the first step is to note the current price position on the chart. This provides the immediate context for further analysis.
Identify highest highs and closest highs/lows relative to current price.
From current price, the next step is to identify the highest highs and the nearest highs and lows. These levels are crucial for understanding potential support and resistance zones.
Mark higher highs and higher lows to confirm an uptrend.
A higher high indicates that price has moved to a new peak, surpassing the previous high. When this is followed by a higher low (a low that is higher than the previous low), it confirms an uptrend.
Recognize that previous support levels can indicate where bullish momentum originated.
The support level from which bullish momentum originated is important. If price starts to sell off, this level can act as a target or a point where buyers might re-enter.
London session often shows significant momentum for currency pairs like GU.
The London session is noted for its high trading volume and significant price movements, especially for certain currency pairs like GBP/USD (GU). Trading within this session can offer opportunities.
A higher low is confirmed when it's higher than the previous low, indicating an uptrend.
The presenter points out a specific 'higher low' by comparing it to the previous low. This confirmation is key to identifying and maintaining the belief in an ongoing uptrend.
Price failing to reach a previous level on correction indicates strengthening sellers.
When price corrects but falls short of reaching the immediate previous resistance level before the move down, it suggests that sellers are becoming more dominant and preventing further upward price movement.
Mark potential support and resistance zones with boxes, waiting for breakouts.
Key levels identified as potential support or resistance (like the higher high and higher low) are marked, often with boxes. Traders wait for price to break decisively above resistance or below support.
A break below a higher low level signifies the end of an uptrend and potential downtrend.
If price breaks below the identified higher low, it signals a potential shift in momentum. This indicates that buyers may no longer be in control at that level, and sellers might be taking over.
London session often provides an 'indication' move followed by a correction.
The start of the London session can present an 'indication' move, often pushing price in a certain direction. This is frequently followed by a 'correction' phase, sometimes within the same day.
Lower highs and lower lows confirm a shift from an uptrend to a downtrend.
When price starts making lower highs (peaks are lower than previous peaks) and lower lows (troughs are lower than previous troughs), it signals a confirmed downtrend.
Higher time frames (1-hour, 4-hour, daily) are crucial for overall market structure.
For determining the overarching trend and market structure, it is essential to utilize higher time frames like the 1-hour, 4-hour, or daily charts. Lower time frames are better suited for pinpointing entry points.
Trading with the trend identified on higher time frames increases the probability of success.
The strategy advocates for trading in alignment with the trend established on higher time frames. This approach aims to capture larger moves and increases the likelihood of profitable trades.
Scaling down to lower time frames (5-min, 15-min) is used for entry execution.
After identifying the trend on a higher time frame, traders scale down to the 5-minute or 15-minute charts to find precise entry points that align with the overall directional bias.
A break of support on lower time frames during a bearish correction can signal a short entry.
If the higher time frame shows a bearish trend or correction, and on the 5-minute or 15-minute time frame, price breaks below a support level after a correction, it can be a signal to enter a short trade.
Targeting previous lows or significant support levels is a common exit strategy.
When entering a trade, potential targets are often set at previously formed lows or significant areas of support where price might encounter buying interest.
Risk-reward ratios like 1:3 or 1:4 are common targets for profitable trades.
Traders aim for specific risk-reward ratios, often targeting at least a 1:3 or 1:4 return on their investment for each trade, meaning the potential profit is several times the potential loss.
Trailing stop losses can be beneficial for beginners to manage risk and secure profits.
For traders new to the strategy, trailing the stop loss is recommended. This involves moving the stop-loss order up (for long trades) or down (for short trades) as the price moves favorably, locking in profits.
The strategy involves observing structure on lower time frames to exit trades.
Even if a trade is held for a long time, monitoring the price action on the 5-minute or 15-minute time frame. An exit can be triggered if the price starts forming opposite structures, like breaking a lower high.
The overall goal is to identify and capitalize on significant trends for long-term holds.
The ultimate aim of this trading approach is to identify major trends on higher time frames and hold trades for extended periods to maximize profits, rather than focusing on very short-term fluctuations.
Trading with volume, especially during session opens, can help mitigate noise and liquidity issues.
Trading during high-volume periods, like session openings, is encouraged. This generally means more predictable price action and can help traders avoid the 'noise' and volatility associated with less liquid market conditions.
Consolidation during a session can result in losses, which is a normal part of trading.
Not every trading session will be profitable. If a session involves significant price consolidation without clear direction, it might lead to a loss, and traders should accept this as part of the process.
Wait for bearish confirmation on lower time frames if the higher time frame is bearish.
If the 1-hour chart indicates a bearish trend, traders should wait for confirmation of bearish momentum on the 5-minute or 15-minute charts before entering a short trade.
Price failing to make a new lower support level after a lower high is a sign of potential trend change.
If price creates a lower high but then fails to make a new lower low, breaking instead of establishing a lower support, it suggests that the bearish momentum might be weakening.
Base trading decisions on the highest significant high and low currently visible on the chart.
When determining the immediate trading range, focus on the most recent significant high and low points that price has established. These levels define the current battleground between buyers and sellers.
A break below a support level after a bearish indication is a strong sell signal.
If price is showing bearish signs (e.g., lower highs) and then breaks below a key support level, especially during a high-volume session, it confirms the bearish continuation and presents a trading opportunity.
Safest entry is often waiting for price to retest a broken level before entering.
While it's possible to enter a trade early upon a break of structure, a safer approach is to wait for price to pull back and retest the broken level (resistance-turned-support or vice-versa) before entering.
Strong buyer reactions at support levels indicate demand, but sellers may be stronger below.
When price reaches a support level, a strong reaction from buyers is visible, pushing prices up. However, the underlying strength of sellers below that level can still lead to further downside if the support fails.
Scaling into the 5-minute or 15-minute time frame to catch structural changes provides entry points.
The process involves identifying the overall trend on the 1-hour chart, observing price corrections, then dropping to the 5-minute or 15-minute time frames to find specific points where the structure shifts in favor of the desired trend direction.
Confirmation of bearish structure on lower time frames aligns trades with the higher time frame bearish bias.
Even if the overall 1-hour trend is bearish, it's crucial to wait for the smaller time frames (5-min, 15-min) to also show bearish structure (like lower highs and lows) during a correction before executing a short trade.
An uptrend can be held long-term if the evidence on higher time frames supports it.
If the market shows clear signs of an uptrend on higher time frames, traders can look to hold these positions for longer durations, especially if subsequent price action continues to support that trend.
Use alerts to monitor price levels and manage trades without constant screen time.
Instead of watching the chart continuously, traders can set price alerts at key levels. This allows them to be notified when specific price actions occur, enabling them to review and manage their trades effectively.
Holding a trade is considered sound if price consistently stays below a key resistance level (representing a swing high).
If a trade is in progress (e.g., a short trade), a trader can feel confident holding it as long as price fails to break above a significant previous high (swing high), indicating that sellers are still in control.
Continued lower highs on lower time frames reinforce confidence in holding a bearish trade.
As price moves favorably in a bearish trade, the persistence of lower highs being formed on the 15-minute or 5-minute charts provides ongoing confirmation that the trend is intact and the trade is likely to continue lower.
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