How You Can Stay One Step Ahead With Price Action Mastery
Mastering price action gives you an edge to understanding how markets move.
If you can understand how markets move, then you can be one step ahead of the market, which is the heart of diagnostic trading. Price action is also one of the three fundamentals, or pillars for successful trading alongside volume, and expected movement.
By anticipating the moves of the average trader, where they are buying and selling, you will know the best places for entering and exiting to take profit.
Friday, in Crude Oil, was a perfect day of the market going back and forth, bouncing between deviation levels. You can look at this chart and see how the morning went for buyers and sellers and can see the major levels where they bought and sold. Identifying the major levels, you can get in the front of the line with your orders to get filled first. The market is going to push through to where the orders are and you don’t want to be at the end of the line. You may have experienced it in futures trading. Futures orders are filled first in, first filled. You don’t want to be behind the 800 other orders. So, by anticipating the moves of other traders, the levels where they will get in, get out and set stops, you can attempt to be ahead of them.
Watching CL Friday, July 18, we start off making a short trade right around 10:30 AM, the first circle or red arrow down at the break of the green bar. Well, where would the buyer’s stops be from the previous long trade up, just after 10:00 AM? Most likely they would be a tick below their last low, in this case just below the second green bar up or at 102.81. In order to be a step ahead, if you went short at 10:30 AM, you would want to take profit just before the level 102.81, where all the previous long traders had their stops. The market moves down right to that level 102.81. A few ticks before that level would be between 102.82 and 102.84, which would be the best chance at being filled first. Traders a step ahead were taking profit here, and traders a step behind were being stopped out here at the first green arrow up. There were a lot of orders in that area, and there was a little surge of volume showing the market moving down to fill those orders. After taking profit, you could look for the next consistency for our next trade.
The market moved on back down and hit the -7 deviation level just after 11:00 AM. It hits that level, marked by the lowest pink line, two times for a double bottom making for a long entry trade.
Again, where is the market going to go? Most likely to the last high where all the traders that just went short have their stops, and the stops are still there for the traders who were greedy. The traders that were a step behind because they wanted more, didn't take profit; they stayed in. Or, they had their take profit order so far down they were at the back of the order line and didn't get filled.
You can see the long trade entry at the second green arrow up. A trader who is one step ahead would place their take profit order a few ticks before where those stops were, right around 103.17 -103.18. The market moves up and goes through the first top pink line, which was marked as a magnet price and then to the second top pink line which was marked as a stop magnet price.
The trader one step ahead would chart these points quickly before trading. A magnet price is a price where the market hit previously with extremely high volume, making it a magnet to attract the market to come back to it. A stop magnet would be a next stop level, if it breaks a previous stop level or magnet price. In addition, 103.19 was settlement. That was four compelling reasons to take profit before 103.19. You weren't greedy taking all the ticks up; you got out because you were a step ahead.
Again you can see the market sets up for another short coming off of the stop magnet price. It’s a repetitive process. Taking a short there, where would the stops be from the previous long trades? Wait! Wasn't this just like our first short trade pattern? Yes, it was. The stops will be waiting just below that last green bar up. Sure enough. Pop! That’s where the market went. Take your profit. Rinse and repeat!
How can you know in advance where the market is going to turn? You can think like “normal traders” to figure out where the market is going, and as an “elite trader,” use that information to be one step ahead, thereby, diagnostic trading. You can also utilize volume and information like deviation, settlement and magnet levels, all easy things to identify, in our trading plans to stay a step ahead of the market. If you aren't a step ahead, then you are a step behind because there really is no in between.
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