Theory Flashcards
Trend
General direction which market moves
Uptrend
- Forms HH and HL.
2.Market is said to be bullish.
- An uptrend fails when price forms a new structural LL. Wait for new structural LH to confirm
DOWNTREND
1.(forms LH and LL).
2 Market is also said to be Bullish
- (Note: A Downtrend fails when price forms a new structural HH. Wait for the new structural HL to confirm the trend change)
Support
– When there are 2 or more price points at the lows (Floor) it forms a Support zone which price
can react to.
Resistance
When there are 2 or more price points at the highs (Ceiling) it forms a Resistance zone which
price can react to
Impulse
Strong and quick move in the direction of the Trend
Pullback
Weak and slow move in the opposite direction of the Trend
Fibs
61.8% Golden Ratio
All we are concerned with when using fibs is whether the Market in Premium/Discount/Equilibrium.
We are only interested in using fibs to see if price has gone past the 50% Fib line
Fair Market Value = 50% (Equilibrium)
Discount are cheap prices (fibs are BELOW 50% fib) or
Premium are expensive prices (fibs are ABOVE the 50% fib)
Wave Theory
Tip: See the Market as LINES instead of Candles
Cycles have typically 5 moves (3 Impulses and 2 Pullbacks/Corrections)
After 1 full wave cycle is complete a NEW wave cycle can start
Inside 1 wave → you can see a full market cycle in LTF
Make sure every TF is correlating with each other
4th and 5th Wave (towards end of the Trend) and ABC Correction = Harmonic Patterns
The market is fractal so you can see waves within waves on smaller timeframes.
We do not use Elliot waves but it’s good to keep in mind the fractal nature of the market.
MARKET STRUCTURE (MS)
This is THE MOST IMPORTANT PART and the basis for all our trading.
It’s very important to analyse Market Structure (MS) and look for trades once clear on the structure.
1) Our HTF (Daily/Weekly) will determine the OVERALL TREND (Bearish/Bullish)
2) H4 & H1 will determine the MOMENTUM and INTRADAY TREND
3) M15, M5, M1 will determine the MOMENTUM
We can see that the H4 Price action (in Red) is in a strong Bearish trend (let’s say the Daily is also Bearish).
However, we see the H1 price action (in Blue) is in a Bullish trend.
For a HTF chart (e.g. H4) to get a retracement or pullback, it means the LTF chart (E.g. H1) needs to be
bullish to price higher to form the H4 Lower High.
It will usually do this at a DP, Decision Point (Orange box) where Institutions have their orders sitting after
taking out liquidity.
So, when you’re on smaller timeframes, always keep in mind the bigger picture. Remember the W/D
overall direction.
The highest probability trades are the ones where you have aligned market structure (e.g. W, D, H4, H1
bearish, and we’re looking to take Sells at a key area on the lower timeframes)
If we are sitting at Premium levels of our HTF Fibs (D / W), when the smaller TF like H1 gets aligned
(meaning it goes from a bullish trend to a bearish trend to ‘align’ with the HTF trend), we can then looking
for the continuation trade (to SELL and target he HTF to make a lower low).
2 things we look for to see a change in Structure:
1) BOS (Break of Structure) – Extremely important
2) Wyckoff Accumulation /Distribution (not necessary, but you can see it)
WEEKLY CHART
Once it formed the initial HH on the W chart, we can expect the change of Momentum or Bullish Structure
of LTF e.g. H4 to form, so it can create a PB (pullback) to form the next HL on W to continue the HTF Bullish
Trend
H4 Chart
H4 Chart – you can see after HL on W created, H4 starts creating HH, HL (this is a pullback on W)
This gives us the confidence to hold the Buys for the new W highs
