Price Action - The Footprint of the Money

Judy MacKeigan - Buffy "What is Price Action?" is a frequently asked question by aspiring traders !raders "ho ask# feel it is a "ell kept secret "hen all they recei$e for an ans"er is% &'"ing highs# s"ing lo"s# test of top(botto)# etc # are all price action & !he ans"er still lea$es the) in the dark *nderstanding price action enables a trader to )ini)i+e questionable entries and i)pro$e e,its Price action is the footprint of the )oney -et&s start "ith the $ery basics !he bars on the follo"ing chart are labeled as traders co))only referred to the)

Up Bar: is a bar "ith a higher high and higher lo" than the pre$ious bar !he bars )arked off are in an up trend .otice ho" the close is higher than the open until "hat turns out to be the last bar of the trend "here the close is lo"er than the open !here "ere )ore sellers then buyers on the last bar Down Bar: is a bar "ith a lo"er high and lo"er lo" than the pre$ious bar !he bars )arked off are in a do"n trend .otice ho" the close is lo"er than the open until "hat turns out to be the last bar of the trend "here the close is higher than the open !here "ere )ore buyers then sellers on the last bar Inside Bar: also called a narro" range bar# is a bar "ith the high that is lo"er than the pre$ious bar and lo" that is higher than the pre$ious bar 'o)e traders do not consider an inside bar that has either an equal high or an equal lo" as an inside bar# others do /nside bars usually represent )arket indecision As on any bar# the closer the open and close are to each other sho"s 0ust ho" undecided the )arket is as neither the buyers or sellers are in control Buyers are in control on the inside bar )arked on the chart because the close is at the top of the bar

Outside Bar: also called a Wide 2ange or 3ngulfing Bar# is a bar "ith a high that is higher than the pre$ious bar and "ith a lo" that is lo"er than the pre$ious bar thereby engulfing the pre$ious bar 'ince the open and close are close together on the )arked bar# neither the buyers or the sellers are in control and the )arket is undecided "hich "ay to go When the open is in the botto) quarter(third of the bar and the close is in the top quarter(third of the bar# it is said to be bullish engulfing "ith the buyers in control When the open is in the top quarter(third of the bar and the close is in the botto) quarter(third# it is said to be bearish engulfing "ith the sellers in control Another definition used for this bar ? especially if candlestick charts are used - is that the open and close ha$e to engulf the pre$ious bars open and close and not 0ust the high and lo" of the bar With this definition# the "ide range bar or engulfing bar does not need to ha$e a higher high or lo"er lo" to qualify !he first definition )ost probably ca)e about "ith bar charts "here it is harder to notice the open and close !he follo"ing chart has the s"ing highs and lo"s )arked in both an up trend and a do"n trend Price on a gi$en ti)e fra)e is in an up trend if it is )aking a higher highs 4556 and a high lo"s 45-6 and in a do"ntrend if it is )aking lo"er highs 4-56 and lo"er lo"s 4--6 /f price is doing anything else# it is in a consolidation pattern - range# triangle# pennant# rectangle etc

!he trend is considered in place until price is no longer )aking higher highs and higher lo"s in an up trend or lo"er highs and lo"er lo"s in a do"n trend After a trend is broken# there is usually a period of consolidation that is easier to see on a lo"er ti)e fra)e With practice# you "ill be able to $isuali+e this going on "ithout looking at the lo"er ti)e fra)e

When price is in a consolidation pattern that is often referred to as chop# it is usually in a range "ith no trend pattern to the s"ing highs and lo"s

!he abo$e chart sho"s ho" an e,act test of high or lo" )ay )ean a change in trend as it failed to )ake a higher high on test of last s"ing high or a lo"er lo" on test of last s"ing lo" A B 8 9 Price "as )aking 55s and 5-s until price tested the prior s"ing high at A Price )ade a -- and -5 until price tested the prior s"ing lo" at B Price )ade a -5 4!he bar that does not touch line at 86 until price tested the prior s"ing lo" at 8 Price "as )aking 55s and 5-s until price tested the prior s"ing high at 9

/t is possible for one ti)e fra)e to be in one trend and another ti)e fra)e to be in a different trend or sho" consolidation !his is "here the phrase &trend "ithin a trend& regarding price action and the different ti)e fra)es co)es fro) An e,a)ple "ould be that "hile price )ay be rising on a daily chart# the intra-day chart "ill sho" retrace)ents# corrections of $arious types and consolidation periods !he true )eaning of this and ho" it can influence your trading# eludes )any !he follo"ing e,ercise is an e,cellent "ay to learn "hat the phrase &trend "ithin trend& )eans $isually

Pull up a 1; )inutes chart and )ark the highs as higher high 4556 or lo"er high 4-56 and the lo"s as lo"er lo" 4--6 or higher lo" 45-6 4!he note tool "as used in 3nsign to )ark these charts 6 <ou can also print out the chart and )ark it by hand *se red lines if price in a do"n trend and green lines if price in an up trend 2e)e)ber price is in an up trend if it is )aking 55 - and 5- and in a do"ntrend if it is )aking -5 and -- /f price is doing anything else# it can be a consolidation pattern - range# triangle# pennant# rectangle etc Points labeled 1-= on the e,a)ple chart are in a do"ntrend Points labeled ;-> are in an up trend .o" take the sa)e chart and change the ti)e fra)e to a ; )inutes chart# keeping the colored notes and nu)bers fro) the 1; )inute by using the padlock "ith the - to lock lines in 3nsign Mark the ne" highs and lo"s "ith green nu)bers for an up trend and red nu)bers for a do"n trend

.o" "e can see by the yello" 55 and -- "hat trend is on the 1; )inute at the sa)e ti)e "e are able to see the trend on the ; )inute Both charts are in a do"n trend until the ; )inute )akes a 55 at the first green ?1 !he do"n trend is broken "hen the -5 at black ?: is e,ceeded Price then goes on to )ake a 5- starting an up trend that continues until price )akes a lo"er high at the red ?1 !he 1; )inute 0ust )ade a 55 at the black ?; and "ill not )ake a 5- until black ?@ At this point# "e are e,pecting a 5- on the 1; )inute# and are "aiting for a long signal on the ; )inute 'o)e traders "ould take the entry on the pair of re$ersal bars at red ?7# others "ould "ait until the last s"ing high at red ?1 is e,ceeded !he ti)e fra)es are no" in agree)ent 4sho"n by green ?1-?=6 up to the black ?A 55 After the 55 at ?A# the ; )inute goes into a do"n trend 4sho"n by red ?1-?@6 to "hat is still a 5- on the 1; )inute at ?> 'o# "hile the 1; )inute price action sho"s only t"o trends# the ; )inute sho"s fi$e different trendsB While you )ay trade the trends on the s)aller ti)e fra)e# "aiting for price action to sho" it is going to )o$e in the sa)e direction as the larger ti)e fra)e is trading "ith the trend !he trend is your friendB !he follo"ing t"o setups are fro) the 7CBline syste) !he syste) is a co)bination of Buffy&s B-ine and Ji))er&s 7C 4'ee """ dacharts co) for )ore infor)ation 6 7CBline concentrates on the higher percentage "ith the trend trades by taking the )iddle out of the trend /t is fun to trade the )iddle of a trend /t is "ork to try to catch the tops and botto)s !here are t"o te)plates a$ailable to do"nload through 3nsign&s /nternet 'er$ices - 7CBline-:; and 7CB-8ircles !he settings for the indicators in the study "indo"s are the sa)e on both te)plates