Trading Cheatsheet

Here, I will list out some of the highlights of Rayner’s book titled “The Ultimate Guide To Price Action Trading”.

Introduction

Important lesson: Price goes up because there is more buying pressure than selling pressure aka price action trading. Prices is dependent on volume of trades not quantity of buyers/sellers.

Some of the key takeaway from the book are:

• Support and Resistance
• 4 stages of the market
• Indicators of trending market
• Indicators of ranging market
• Interpret price action of market
• Forget candlesticks, 4 things to remember instead
• Advanced candlestick knowledge
• Price action strategy to capture momentum and ride trends
• Price acting trading resources

Support and resistance

Support and resistance

Support and resistance is not a single line, but an area on the chart

Role reversal

Role reversal happens when support or resistance is broken.

Dynamic support and resistance

Occurs in uptrend or downtrend. Use EMA (20 and 50) for identifying support and resistance.

Impulse and corrective moves

Impulse points towards direction of the trend. Candlestick size usually larger, signaling momentum. Corrective points against trend. Candlestick size usually smaller

Four stages of market

1. Accumulation
2. Advancing
3. Distribution
4. Declining

Accumulation

• Long period of consolidation
• Long term MA flatten
• Price ranging between long term MA

Advancing

• Price breakout
• Higher highs and higher lows
• Short term MA above long term MA
• Long term MA pointing higher
• Price above long term MA

Distribution

• Price rise over long time
• Long period of consolidation after uptrend
• Long term MA flatten
• Price ranging between long term MA

Declining

• Breakout of distribution
• Lower highs and lower lows
• Short term MA below long term MA
• Long term MA pointing lower
• Price below long term MA

Indicators of trending market

Structure of market

Downtrend: Lower highs, lower lows Uptrend: Higher highs, higher lows

Moving average

20 MA (short) 100 MA (medium) 200 MA (long)

Indicators of ranging market

Careful of range expansions/contractions

Interpret price action of market

• ** Slope of impulse getting flatter**
• ** Candlestick bodies getting smaller **
• ** Slope of corrective moves getting steeper **
• ** Candlestick bodies getting bigger on corrective moves **

Forget candlesticks, 4 things to remember instead

1. Wick
2. Length of the wick
3. Size of the body
4. Close of the candlestick

Longer wick suggests greater price rejection. More wicks suggests choppy environment. Large candle body suggest greater momentum. Close near bulls, bulls in control vice versa.

Advanced candlestick knowledge

Pinbar

The key takeaway about this pattern is price rejection. Usually links to retracement within a trend (eg. lower timeframe)

Trading strategy: Trade bullish pinbar at area of support or bearish pinbar at area of resistance. Focus on price not the pattern.

Inside bar