Price actions at its basic, is very simple understand.
However, Transforming this basic knowledge into a tradable setup with risk management and discipline is the hard part.
Many traders fail not because they do not understand the technical, but rather the failure to convert said knowledge into an profitable action. Hence, it is no surprise that the trading community is filled with 90% "big talkers" who speaks like they know a lot (actually they do) and very few truly profitable traders.
Remember that, all technical analysis have an unwritten caveat that traders may or may not be aware of; they are probability. Trader need to accept this unavoidable fact. The consequence of this caveat is that, you will never be able to make a all-in trade without risking a huge portion of your portfolio. While you may get lucky once in a while but it is not sustainable.
Tesla Case Study
Price will move from cluster to cluster. Each cluster present majority of the buying/selling taking place. It is other wise more commonly known as consolidation. But the term "consolidation" is neutral; it neither has a bullish or bearish bias. Depending on level of demand or supply, price will either move up or down to the cluster.
Within each cluster, there are extreme point (denoted by the dotted lines). These are the extreme high and low that price can hit within a cluster. The purpose of such move is to whipped out weak holders. Thus, as a trader your stop loss need to be below the extreme low to ensure you are not "muscled out" by such whipsaw movement.
The direction of the price is very simple. It moves with the current trend. If the trend is up, price has a higher chance to go up than down. At its core fundamental, all technical analysis follow one simple rule ; follow the god damn trend. If there is too much selling happening at one cluster, price will head down to the previously established cluster below to gather more buyers/whipped out weak holders before heading back up again. This process is otherwise commonly known as retracement.
These are very basic knowledge. So how does one convert these knowledge into a tradable action? This is where where most trader fails despite their "knowledge"
Lets look at the establish facts.
1) Price previously have moved from cluster 1 to cluster 2 to cluster 3
2) There are supplies/profit taking happening at cluster 3
3) Hence price move back down to cluster 2
4) The lower end of cluster 2 is 556
Which this information lets set up a trade plan.
1) As overall mid/long term trend is up, it is much more probable for price to move back to cluster 3 than 1. Hence we will be taking the long position. Can price go to Cluster 1? Yes of course. But the probability of up is higher due to the long term uptrend.
2) As we do not want to rule out the probability of price going back to down cluster 1, we need a stop loss to take us out of the trade. However, we also do not want to get stopped out by random volatility within cluster 2. Thus our stop loss need to be below the lower end of cluster 2. Hence a stop loss price at 530.
3) The target price to take profit will be at cluster 3 which was the previously established supply zone. Thus the target is placed at 832.
4) Now that we have established a stop loss, entry price become very simple; it doesn't matter! Whichever price you chose to enter, you just have to ask yourself "can I handle the stop loss". If the current price is too high, you can wait for the retrace. If you choose to chase a higher price, then you adjust your lot sizing to account for the wider distance to your stop loss. Entry price is the least important aspect of trading.
5) Once your decision is made. You will have your entry price and stop loss price. With these two variable, you can calculate how many shares you can buy base on your capital and risk per position.
Now you have a trade plan that you have successfully converted from your "knowledge"! Don't be that all talk no action trader!
However, Transforming this basic knowledge into a tradable setup with risk management and discipline is the hard part.
Many traders fail not because they do not understand the technical, but rather the failure to convert said knowledge into an profitable action. Hence, it is no surprise that the trading community is filled with 90% "big talkers" who speaks like they know a lot (actually they do) and very few truly profitable traders.
Remember that, all technical analysis have an unwritten caveat that traders may or may not be aware of; they are probability. Trader need to accept this unavoidable fact. The consequence of this caveat is that, you will never be able to make a all-in trade without risking a huge portion of your portfolio. While you may get lucky once in a while but it is not sustainable.
Tesla Case Study
Price will move from cluster to cluster. Each cluster present majority of the buying/selling taking place. It is other wise more commonly known as consolidation. But the term "consolidation" is neutral; it neither has a bullish or bearish bias. Depending on level of demand or supply, price will either move up or down to the cluster.
Within each cluster, there are extreme point (denoted by the dotted lines). These are the extreme high and low that price can hit within a cluster. The purpose of such move is to whipped out weak holders. Thus, as a trader your stop loss need to be below the extreme low to ensure you are not "muscled out" by such whipsaw movement.
The direction of the price is very simple. It moves with the current trend. If the trend is up, price has a higher chance to go up than down. At its core fundamental, all technical analysis follow one simple rule ; follow the god damn trend. If there is too much selling happening at one cluster, price will head down to the previously established cluster below to gather more buyers/whipped out weak holders before heading back up again. This process is otherwise commonly known as retracement.
These are very basic knowledge. So how does one convert these knowledge into a tradable action? This is where where most trader fails despite their "knowledge"
Lets look at the establish facts.
1) Price previously have moved from cluster 1 to cluster 2 to cluster 3
2) There are supplies/profit taking happening at cluster 3
3) Hence price move back down to cluster 2
4) The lower end of cluster 2 is 556
Which this information lets set up a trade plan.
1) As overall mid/long term trend is up, it is much more probable for price to move back to cluster 3 than 1. Hence we will be taking the long position. Can price go to Cluster 1? Yes of course. But the probability of up is higher due to the long term uptrend.
2) As we do not want to rule out the probability of price going back to down cluster 1, we need a stop loss to take us out of the trade. However, we also do not want to get stopped out by random volatility within cluster 2. Thus our stop loss need to be below the lower end of cluster 2. Hence a stop loss price at 530.
3) The target price to take profit will be at cluster 3 which was the previously established supply zone. Thus the target is placed at 832.
4) Now that we have established a stop loss, entry price become very simple; it doesn't matter! Whichever price you chose to enter, you just have to ask yourself "can I handle the stop loss". If the current price is too high, you can wait for the retrace. If you choose to chase a higher price, then you adjust your lot sizing to account for the wider distance to your stop loss. Entry price is the least important aspect of trading.
5) Once your decision is made. You will have your entry price and stop loss price. With these two variable, you can calculate how many shares you can buy base on your capital and risk per position.
Now you have a trade plan that you have successfully converted from your "knowledge"! Don't be that all talk no action trader!
