Price Action Trading - An Introduction

1. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Introduction to Price Action Trading Varun Kumar Pothula (Quantitative Analyst at QuantInsti)

2. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Basics of price action trading ● Tools of price action trading ● Chart patterns ● Pivot Points Key Takeaways

3. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Process of studying basic price behaviour across time to make trading decisions ○ No technical indicators involved ○ Popular among retail traders ○ Intraday trading and swing trading Price Action Trading

6. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Supply and Demand Analysis ● Support and Resistance ● Chart Patterns ● Pivot points PAT - Tools

9. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Price Action $100 $200 $125 $175 $150 $115 $120 $160 Imbalance in supply and demand forces

10. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Supply ● Sell orders ● Buy orders < Sell orders ● Sellers are dominant ● Decline in prices Demand ● Buy orders ● Buy orders > Sell orders ● Buyers are dominant ● Increase in prices Supply and Demand

29. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Bearish Reversal Patterns Bearish Reversal Pattern Uptrend Trend Reversal Signals a supply zone and indicates a possible reversal of the uptrend

30. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Bearish Reversal Patterns Top-1 NECKLINE Top-2 Top-3 Head and Shoulders Double Top Triple Top

31. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Bullish Reversal Patterns Bullish Reversal Pattern Downtrend Trend Reversal Signals a demand zone and indicates a possible reversal of the downtrend

32. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Bullish Reversal Patterns NECKLINE Bottom-2 Bottom-3 Bottom-1 Inverse Head and Shoulders Double Bottom Triple Bottom

33. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Continuation Patterns Continuation Pattern Uptrend Uptrend In an uptrend, a continuation pattern signals the formation of a demand zone and indicates the continuation of the uptrend

35. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Continuation Patterns Continuation Pattern Downtrend Downtrend In an downtrend, a continuation pattern signals the formation of a supply zone and indicates the continuation of the downtrend

42. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Head And Shoulders HH HH HH HH LH HEAD LEFT SHOULDER RIGHT SHOULDER UPTREND NECKLINE DOWNTREND

43. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Indicates weakness in an uptrend ● Possible reversal of an uptrend Head And Shoulders

44. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. HEAD LEFT SHOULDER RIGHT SHOULDER UPTREND NECKLINE DOWNTREND Lower High Indicating Weakness in an uptrend Breakout of Support Indicates Strength of Sellers Price Action

45. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. UPTREND NECKLINE Stop-Loss Above the Right Shoulder Enter short at breakout of the neckline SL Entry H TAKE PROFIT H Trading Head and Shoulders Pattern

47. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Pivot Points are significant levels used to determine directional movement and potential support/resistance levels. Pivot Points

51. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Leading indicator → Has predictive power ● Helps to identify support and resistance levels in advance → Can be used for planning entries and exits Benefits of Using Pivot Points

52. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Traditional ● Woodies ● Camarilla ● Fibonacci Different Kinds of Pivot Points

53. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. Woodies Pivots PP = (High + Low + 2*Close) / 4 R1 = (2 * P) - Low R2 = P + (High - Low) R3 = High + 2 *(P - Low) S1 = (2 * P) - High S2 = P - (High - Low) S3 = Low - 2* (High - P) Traditional Pivots P = (High + Low + Close) / 3 R1 = (2 * P) - Low R2 = P + (High - Low) R3 = P + 2 * (High - Low) S1 = (2 * P) - High S2 = P - (High - Low) S3 = P - 2 * (High - Low) Different Kinds of Pivot Points

54. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. L1 = Close - Range * (1.1 / 12) L2 = Close - Range * (1.1 / 6) L3 = Close - Range * (1.1 / 4) L4 = Close - Range * (1.1 / 2) L5 = Close - (H5 - Close) L6 = Close - (H6 - Close) H1 = Close + Range * (1.1 / 12) H2 = Close + Range * (1.1 / 6) H3 = Close + Range * (1.1 / 4) H4 = Close + Range * (1.1 / 2) H5 = Close * (High/Low) H6 = H5 + 1.168 * (H5 - H4) P = (High + Low + Close) / 3 Camarilla Pivots

55. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. R1 R2 R3 S1 S2 S3 P R6 R5 R4 R1, R2, R3 S1, S2, S3 P S4 S5 S6 Woodies vs Camarilla Pivots Weekly Intraday

56. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. ● Calculated using Fibonacci series ● 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144……. ○ 0 + 1 = 1 ○ 1 + 1 = 2 ○ 1 + 2 = 3 ○ 2 + 3 = 5 ● Fibonacci ratios → 23.6%, 38.2%, 50%, 61.8%, and 100% Fibonacci Pivots

57. All rights reserved. ©QuantInsti Quantitative Learning Pvt Ltd. Not to be distributed without written permission from QuantInsti. 0, 21 / 34 = 61.8% 34 / 55 = 61.8% 55 / 89 = 61.8% Fibonacci Ratios

Price Action Trading - An Introduction

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