This document discusses trading patterns and techniques for identifying opportunities in the market. It emphasizes looking for repeating patterns in price movements and focusing on waves of retracement and extension. Common trader biases are outlined, and it is recommended to choose waves based on technical indicators like the 50-day and 200-day moving averages. Examples are provided of analyzing charts to identify trading opportunities based on range breaks, retests of support/resistance levels, and Fibonacci retracements.
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Wave formations and decisions
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2. Isolating, Identifying and Utilizing Simple Consistent and Repeatable Patterns
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6. COMMON NOTIONS WE
HAVE
We think we have a 50-50 shot at winning – so
in essence, we think of trading as a gambling
opportunity
That makes us treat short term trading like
purchases of lottery tickets – and we leave
almost everything to chance
‘Chance’ running the show makes us believe
we should be a little out of control – so we
become accustomed to that feeling of being
out of control – and that drives poor trading
behavior
7. COMMON HABITS WE
HAVE
Our thoughts processes stop short of being
complete
We want the easy way out - we look for short
answers when sometime we need long ones
We generalize are generally unconscious of our
cognitive biases
We overestimate our ability and underestimate
our risk
We often fail to observe simple formations to
capitalize upon
8. IT’S ALL ABOUT THE
WAVES
Every day, the market does a number of very
similar things
The market retraces, extends, expands and
contracts
The market comes into moving averages then
extends away from them, only to return at a later
date
The moves of the day are ALWAYS closely related
to the moves from nearby past days
The market moves into familiar spaces of support
of resistance
9. PREDICTABLE MOTION
Any wave at any time is either in the process of
wave retracement or wave extension
The market retraces, extends, expands and
contracts
The market comes into moving averages then
extends away from them, only to return at a later
date
The moves of the day are ALWAYS closely related
to the moves from nearby past days
10. WAVE IDENTIFICATION &
CREATING THE ‘STORY’
• What is this chart doing?
• Where is price exploration?
11. WAVE IDENTIFICATION &
CREATING THE ‘STORY’
• How many waves could we identify here?
• What can we do with this information?
• We can measure them and use what we find to trade the rhythm
12. CHOOSING THE WAVES TO
TRADE
• We’ll be trading these formations, so let’s consider the left side of the chart properly
• This allows us to estimate what the right side of the chart will deliver
• Learn to focus on what you expect and act accordingly as the chart develops
16. WITH ALL THESE WAVES,
WHICH DO WE CHOOSE TO
TRADE?
• We can choose any wave to trade - Simply choose one–
• It must be complete with an identifiable high and an identifiable low
• Because the market is fractal, you can trade any of them with reasonable
success
• The caveat is that we must have complementing
technical rules to guide the trade through
• Again, note the common levels of retracement
17. OBSERVATIONS OF RANGE OF
MOTION IS CRITICAL TO
TRADING ACCURACY
• 50 and 200 moving averages to help drill home earlier notes
• These identified ranges show us what happens through the day after the
initial ranges are created at the open
• Breakouts or breakdowns of introductory ranges are often very good trading
levels for trade initiation
18. ALWAYS KEEP YOUR EYES ON
THE COMBINATION OF TREND
DEFINED BY YOUR 50SMA AND
USE THAT IN CONJUNCTION WITH
RANGES AND FIBS
• What do we expect here and what can we trade
• Important observations
• We are extended from the 50 and the 200 ma’s
• We are over an established opening trade region but without retest
• What do we expect? What is the pattern we’ve generally identified?
• What’s the trade? Where’s relative support?
• I’ll short at the loss of the level identified- small channel would be
broken
• I’ll go long at the bounce off support that holds or the retest of the
breakout
• Get accustomed to asking yourself
questions that will assist you in
walking through the trade
19. ALWAYS KEEP YOUR EYES ON
THE COMBINATION OF TREND
DEFINED BY YOUR 50SMA AND
USE THAT IN CONJUNCTION WITH
RANGES AND FIBS
• Entry at the breakdown or entry at the retest of the breakout
• What’s the trend here?
• What do we expect with this kind of trend?
• Where should my stop be for the long? What about the short?
• Where is my first target? And the second ?
Do you design both sides of a trade when moving averages are flat/relatively
flat?
20. TRADE DEVELOPMENT
• Notice
• The retest and collision with the 50ma
• The 38.2% wave retracement that holds
• The sideways action until it meets the 50ma
• The 127.2% extension
• The hyperextension away from the 50ma
21. CHART CONTINUATION
• Here’s where that chart went
• Momentum will either dampen or
reverse so that the chart can revisit the
50ma
22. It’s Not About Trying Harder
• Because of the way our mind needs to work to
trade in the market –we have to think through
complex structures with speed - we can’t just ‘try
harder’
• It’s about
• An engaged mind – combining intuition with structure
• A focused attention to detail and nuances of change
• A lack of a rush to judgment and proper assessment of
risk
• Verification of your ‘hunches’
• Guide your mind through the trade –structure and
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