In my earlier posts, you’ve learned why trading indicators, fundamentals news, and black box systems actually HURT your trading results.
Then, we discussed the power of price action trading and what it can do for YOU.
In case you missed it, here they are…
Unlike what you’ve seen on the internet, trading forums, or from trading books, price action trading is not what you think.
It’s more than just trading Engulfing pattern, Hammer, Support & Resistance, and etc.
Price action trading is about reading what the market is doing, so you can use the correct trading strategy in the right market condition.
Now if you want to learn how to be a REAL price action trader, then today’s lesson is for you.
- The SECRET to trading breakouts like a pro
- How to tell when Support will break so you don’t get caught on the WRONG side of the move
- Why most traders get stop hunted and how to AVOID it
- When is the best time to trade pullback (hint: when the trend just started)
- How to profit from “trapped” traders
Are you ready?
Then let’s begin…
#1: The SECRET to trading breakouts like a pro
Trade breakouts with buildup.
You’re probably wondering:
“What is buildup?”
A build-up is a tight consolidation otherwise known as volatility contraction.
And the location where a buildup occurs gives you a BIG clue to where the market is likely to breakout.
For example, if there’s a buildup formed at Resistance, the market is likely to breakout higher.
Let me explain…
You know Resistance is an area to short the markets (after all the textbook says buy Support and sell Resistance).
But what if you go short Resistance and the price is still hovering at that area.
What does it tell you?
To an amateur price action trader, they will think Resistance is getting stronger as the price fails to break above it.
To the seasoned price action trader, this is a sign of strength from the buyers.
Because if there is a strong selling pressure, the price should move quickly away from Resistance.
The fact that price is still at Resistance is telling you there are buyers willing to buy at higher prices — and that’s a sign of strength.
And that’s not all…
When the price breaks above Resistance, it will trigger a cluster of stop-loss (from traders who are short) which fuels buying pressure.
Plus, breakout traders will long the break of the highs which adds even more, strength to the move.
Whenever you see buildup form at Resistance, it’s likely the price will breakout higher (and vice versa for Support).
#2: How to tell when Support will break so you don’t get caught on the WRONG side of the move
Old Rayner: “Oh look! The price is coming to Support, time to long this market.”
New Rayner: “Not so fast…”
Here’s the thing:
You don’t go long just because the price is at Support.
Because how the price approaches Support matters — a lot.
For example, if you see lower highs coming into Support, it’s a sign of weakness.
It tells you the sellers are willing to sell at lower prices and the buyers are unable to push price higher (than it did previously).
And this looks like a Descending Triangle on your chart:
Can you see the lower highs approaching Support?
That is a sign of weakness.
And more often than not, the price breaks down lower.
#3: Why most traders get stop hunted and how to AVOID it
Let me ask you…
Do you always get stopped out, only to see the market reverse back in your direction?
Well, that’s because you place your stop loss at the same level as everyone else, and this gives the smart money an incentive to hunt your stop loss.
So what can you do?
Don’t put your stop loss at an obvious level.
Now you’re probably wondering:
“So where should I set my stop loss?”
Well, the trick is this…
Identify the level on your chart where it’ll invalidate your trading setup — and give your stop loss a buffer away from the level.
Let me explain…
Most traders place their stop loss below Support and above Resistance (after all that’s what the textbooks and courses tell you to do).
But the problem with this is that’s where everyone else places their stop loss — which makes it easy for you to get stop hunted.
Instead, a better way is to set your stop loss a buffer away from Support and Resistance, away from the noise of the markets (or everyone else).
And this same concept applies to Trendline, moving average, and etc.
#4: When is the best time to trade pullback (hint: when the trend just started)
A pullback is when the price temporarily moves against the trend. And this provides an opportunity for traders to get on board the trend.
In my experience, the best pullback is the first pullback after a breakout.
When the market is in a long-term range, it will have to breakout eventually. And when it does, the breakout tends to be huge.
That’s why you hear… “The longer it range, the harder it breaks”.
Now when the market finally breaks out, traders who miss the move can’t wait to enter on the first sign of a pullback.
These pullbacks usually have shallow retracement as not many traders want to trade against the strong momentum.
And this offers a high probability pullback trade.
Here’s what I mean:
Now you’re wondering:
“How do I find such high probability pullback trades?”
Just follow this 3 step process:
- Identify markets which are in a range
- Let the market breakout
- Trade the first pullback
Now let’s move on to my final hack…
#5: How to profit from “trapped” traders
Has this ever happened to you?
You noticed the market broke out of the highs and you think to yourself…
“This breakout is real. Just look at the HUGE bullish green candle.”
So, you immediately go long… hoping to catch a BIG move.
But shortly after you entered the trade, the market reverses in the opposite direction!
And it doesn’t take long before you get stopped out of your trade.
Here’s what I mean…
So, what just happened?
Well, this is what I call a False Breakout.
It’s when you trade a breakout only to get “trapped” and have the market reverse against you.
Now you’re probably wondering:
“How can I profit from the False Breakout?”
- Identify the key Support and Resistance where traders will look to trade the breakout
- Wait for the breakout to fail when the price trades back into the range
- Trade in the direction of the False Breakout
Here’s an example:
So right now…
You’ve learned 5 powerful price action trading hacks that work (and it doesn’t involve Pinbars or Engulfing patterns).
With this knowledge, you can now better time your entries & exits in the markets.
Of course, there’s much more you can do if you want to improve your price action trading skill… far more than I can fit into one blog post.
That’s why I’m opening up the doors to my premium training program, The Price Action Trading Institute (PATI).
It opens on 25th April, Wednesday, and is perfect for you if you want to learn how to become a consistently profitable trader, without relying on fancy indicators, fundamental news, or black-box algorithms.
So if you want to join The PATI, then keep a lookout for my next email.
For now, here’s what I’d like to know…
Do you see the markets differently with price action?
Leave a comment below and let me know your thoughts…