In continuing our discussion where we left off talking about how Fibronacci retracements and Elliott Wave Theory is not tradable for most traders when trading price action, in this article well give some stock market tips when choosing to trade the market and when looking at price action.
Stock Market Tips 101
Now obviously, when we have an article about Stock Market Tips, we obviously expect many eye rolls. Are intention here is not to give the latest, HOT, stock market tips and expect you to run and buy what we recommend. But we actually want to talk about tips with reading the market in relation to price action. This section represents the notes taken from chapter 1 of Al Brooks Trading Price Action Trends. Al Brooks books are super dense and sometimes writing out checklists of what to look for when trading price action can be super helpful. Here below are our stock market tips in relation of what to look for when trading price action.
Stock Market Tips # 1 -The market Trends for a protracted time with only small pullbacks and it often moves up and won in a narrow range for hours. All trends contain smaller trading ranges, and all trading rangescontain smaller trends. The chapters that follow are arranged from the strongest trends to the tightest trading ranges, then deal with pullback, which are transitions from trends to trading ranges, and breakouts, which are transitions from trading ranges to trends.
Stock Market Tips # 2 – The Market has inertia and tends to continue to do what it has been doing. If it is in a trend, most attempts to reverse it will fail. If it is in a trading range, morst attempts to break out into a trend will fail – but at some point the price action becomes excessive. The first pullback (aka a leg) from a trend to trading range is usually referred to as a ABC move. Each leg (pullback) is also considered a push – first push, second push, etc.
Stock Market Tips 201
Continuing on with our stock market tips, these notes come from chapter 2 of Al Brooks Trading Price Action Trends:
Stock Market Tips # 3 – The market is either trending or it’s in a trading range. Trading Range consist when two or more bars largely overlap. Trading ranges can have many names such as flags, pennants and triangles. When ranges happen, it shows that the bulls and bears are in some equilibrium.
Stock Market Tips # 4 – On the level of an individual bar, the bar is either a trend bar or a trading range bar (doji). Doji’s labeling is very loose, the only purpose is to help you quickly assess whether one side is in control of the bar.
Stock Market Tips # 5 – 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, always ben open to the possibility that the market with do the exact opposite of what you believe.
Stock Market Tips # 6 – The most important skill as a trader is the ability to understand whether a trend bar is the beginning or end of a move.
Stock Market Tips # 7 – In trading, close is close enough and perfection is rare. If something closely resembles a pattern, what follows will likely be what would be expected to follow the perfect pattern.
Stock Market Tips # 8 – Larger bodies indicate strength, or can represent an exhaustive, climactic end of a trend and no trade should be taken, wait for more price action to unfold. A trend bar can be a trend bar, but with a small body, indicating weak strength.
Stock Market Tips # 9 – Every trend bar is considered – a Spike, a Breakout, a Gap, and/or a Climax (vacuum). One or more of these four characteristics might be dominant in a particular trend bar and each offer trading opportunities. Traders use overall context to determine which is more likely.
Stock Market Tips # 10 – A Climax does not mean the market it reversing, it just means it went to far to fast in one direction and now is trying the other way. The result is usually a sideways market – sideways market can be brief as a single bar, or can last for many bars. Every trend bar is a climax or part of a climax, and the climax ends with the first pause. A reversal requires a buy climax – which is the pause after the climax
Stock Market Tips Conclusion
To finish off this topic of Stock Market Tips, we wanted to mention a little bit about pullbacks. Pullbacks – are often strong spikes that makes traders wonder if the trend has reversed (depending on the context of what happen on the next bar, if it’s a reversal or just a pullback –markdown in price).
Stock Market Tips Bonus # 1 – 80 percent of reversal attempts fail and become flags/trading ranges.
Stock Market Tips Bonus # 2 – If bear bodies are starting to accumulate in a bull trend or trading range, it is a sign of selling pressure and the bears might soon be able to create a downtrend – the more bear bodies, and the larger the bodies, the more likely it is that the pressure will reach a critical point and overwhelm the bulls and drive the market down, the opposite is true of buying pressure. The cumulative effect of these strong traders (institutional traders), determines the direction on the market.
Stock Market Tips Bonus # 3 – You can rarely be 60 percent right of the markets direction – it’s usually 50-50.
Dojis don’t always mean that the market is trendless and a trend bar doesn’t always mean the market is trending.
We’ll leave off there with our stock market tips, for more information follow up with price action strategies.