1).

Introduction to Price Action

Price Action is about what exactly is the price doing NOW. Its very important to understand the
movement of the price NOW and go with that. There are several indicators like EMA, RSI... those
are lagging indicators. they take historical data and come up with patterns and extrapolate to NOW.
As we know market doesnt always follow the past. There are some leading indicators also, but no
body can predict what the price is going to be in future. If you use indicators, you are either too late
or too early. However if you understand what the price is doing NOW, you can try to identify the
value or lack of it with some success. Again, the trading is all about achieving higher targets than
stoplosses. With good money management, we can build a system that will be profitable even at
60% or 50% or even 40% success rate. This Price Action will help you achieve higher success rate

One good thing with this system is it works better at higher timeframes (less noice) and we are here
for value picking, not making your broker rich by day trading. Minimum time frame is Daily. We will
look at Weekly, Monthly also. We look at one higher TF to determine the trend and use current TF to
identify picks. For example you want to pick on daily chart, first we look at weekly chart to determine
the trend and then use daily chart for entry. Never go against the trend/flow. This is very very
important. Since we are doing delivery based trading, we do only LONG. We dont do SHORT.

Since we are using higher TF , this has to be combined with fundamentals, results, news. so be
careful about that. i mean to say dont take decisions around results time or major events. biggest
trade is SOH (sitting on hand) -- keep the cash with you. no trade is as much important than your
biggest trade. we are here for value picking not peanuts. I will cover more of this in Money
Management module

Using this Price Action you can monitor your long term investments also and feel comfortable or add
more quantity at appropriate points. you will get better entry points with Price Action. This is not
about timing the market, but more about doing it scintifically than blindly

2). Money Management

The reason why i chose Money Management ahead of the system rules , it is very very important
and a bad MM can ruin any good system. in fact you can make a average system look better with a
very good MM. MM is important in trading, investing. It develops certain amount of discipline and
avoids over buying and thus exposing to huge risk. at any time you should not expose yourself to get
blown out due to one mistake or a bad week in the market.

The fundamental principle in investing is not to lose money and if possible make some profits. The
main focus of MM is this. Whenever you identify a pick, you need to derive 3 figures. entry price,
stoploss (SL) and quantity. the 4th figure take profit (TP) is optional. The system will tell you where
your entry is, stoploss is and first TP is. using these we will calculate the quantity. identify what is the
maximum % of your account that you can lose. this is very important. this will keep you in the
business without getting blown out too quickly. If this number is 5%, that means you need 20
consiquitive losing trades. you can reduce the maximum drawdown with patience and value picking.

I will give an example on how to calculate this trade quantity. Lets assume your account is 100000
rs. 5% of this 5000 rs. now calculate the difference between entry price and stoploss. lets say entry
is 110 and stoploss is 100, then the difference is 10 rs. so to lose 5000 rs you need 500 shares. so
you buy 500 shares at 110 rs with SL 100. simple. but you need 500x110 = 55000 rs to buy 500
shares. your capital is only 1 lakh. so you can make one more trade simultaneously.
This is where leverage comes into picture. how nice it would be if you can take 5 lakhs exposure
with 1 lakh capital. with leverage comes other costs like interest etc. so we will not think of leverage.

with 1 lakh and 5% risk you can only take 2 positions simultaneously. so either icrease capital to 2
lakhs or reduce the quantity by half.

so it is very important you have enough capital to have max 3-5 positions at any time. or reduce qty
by half. I am comfortable with 5% risk. but you can increase it to 10% if you have high conviction of
the trade and tightly manage the trade by moving the stoploss to break even ( i will cover that later).

how about TP ? there are several options for TP. One is have a fixed risk-reward ratio and take profit
when you hit that figure. Lets say you want RRR as 2, then in this example you need profit of 20 rs
for a stoploss 10 rs. so when the stock reaches 130, close the trade. Alternatively, you can close out
half quanity at some profit and move stoploss to break even for the rest which is a free trade. But the
ideal TP figure is what the system tells you. the system identifies possible areas where you might hit
the road blocks, so take profits there.

After you enter the trade it is very important to place the stoploss order in the system. not in the
mind. if your broker allows GTC orders use that or else place the order daily. dont forget. friend of
mine forgot to place the SL order and in his area there was a power breakdown for 10 days and he
didnt have the broker phone number. after 10 days his account is liquidated as the stock crashed.

On profits, dont set any fixed annual targets. treat each trade on its merit and you take what market
gives. think for a while how many boarders here got 10 baggers. if they had monthly/yearly targets
they would have cut short the position long back. one of the main principles of MM is to let the
winners run and cut the losers quickly. if you can do this successfully you will make lot of money. its
not important how many trades you did in a year. whats important is how much profit you got with
less drawdown

In short, its very important you buy only that much quantity that you can lose max 5% (whatever
comfortable to you) of the capital. dont over buy however 'attractive'/'tempting' the signal is. there is
always another day, market does crazy things so be careful

3). Candle stick patterns and simple indicators **

It is very important to understand some simple patterns and indicators that i will be using in this
system. The more you understand and analyse these patterns and their behaviour easier would be
the system. so spend time, google and learn more.

I will cover only very few basic stuff. not a great fan of advanced system

1). Candle stick patterns

2). Supply and Resistence (SR)

3). Trend Lines (TL)

4). Fibonacci retracement

5). Moving Averages (SMA, EMA)

Candle stick charts and patterns

Let me start with charts. There are 3 types of charts. line , bar, candle stick. i will use candle stick as
it has more info (open, close, high, low) and more popular. candle stick tells so many things that
other charts cant. What is candle stick ? look at this picture. it has high, low, open, close. if close is
above open then its a green bar. profitable one. otherway is black bar and losing bar.

Pin Bar

This is THE most important candle stick pattern that we will be using in this system. This looks like a
pin with head and a long tail. If the head is on top and has a long tail, thats Bullish Pin. If the head is
at bottom and tail is at top (its actually wick) then its Bearish Pin.

In a continuous down trend, when you get a Bullish Pin, that means possible reversal of trend. the
price pulled back and closed at almost top of the candle, that means more buyers than sellers.
perfect pin is without wick, but small wick is fine.

Similarly Bearish Pin in a continuous up trend signals sell.

Remember these pin bars must be visible clearly and from a distance. if you open daily chart and
zoom to last 1 year, the pins must be visible clearly and obvious. not every tiny pin is of importance
to us. we are interested in pins that are of bigger size compared to previous bars. and these pins
must be at the swing high or low. not in the middle of a channel. we will cover more on the
LOCATION part later

for now understand pins must be big and obvious and at swing high, low

Bullish Outside Bar, Bearish Outside Bar (BUOB, BEOB)

These are also called Bullish Engulfing Bar and Bearish Engulfing Bar. Outside bar means the high,
low of this bar engulfs the previous hi, lo of the bar. its high is higher than prev high, low is lowers
than prev low and is a bullish bar. it would be good if the body also engulfs prev bar body. if this bar
is bullish then its bullish outside bar, similarly bearish outside bar.

this is also reversal signal just like pin but not much powerful. again the size matters. the bigger the
better and should be at swing high,low.

Doji

Doji is a indecision bar. the open and close are almost same and in the middle. that means there are
equal buyers and sellers. we dont know who will win and change the direction. this is more of a
indecision. however if there are 2 or 3 dojis continously and the next bar breaks out in one direction
with great size, then thats a continuation of the trend. some times doji at swing high , low followed by
a reversal bar is a good sign for break out

Big Round Number

This is a psychological barrier at big round number like 100, 1000, 500 etc. price action around BRN
will tell you the direction. if price is rejected by BRN, then it could be a reversal. lets say we are in
continuous down trend, price is falling from 130, 120, 110 and comes near 100 and doesnt break
100 convincingly, then we could get a uptrend or atleast reversal. not every round number is big
round number. market respects big round numbers. more as psyche level. for 2 digit stock, i
consider 50, 100 as BRN . not every multiple of 10. similarly for 3 digit stock.

Support Resistence Zone (SRZ)

By now you must be aware of support, resistence lines and identify swing high, lows. price action is
not linear , it moves up and down. identify where the up move started and where it ended. the low,
high of the move are called support , resistence lines. market finds bottom at the support and finds
resistence at the resistence point.

you should take a 1 year chart and draw all the major SR lines. this is important. if you can identify
SR lines properly, half the job is done. we are interested in major swings. not tiny, intermittent
swings.

SR Line is about exact line of support, resistence. but price action never works so much precisesly,
so we take a band and call it zone. we will feel more comfortable with a band than exact line. some
times we get false signals, if we use zone, then we can eliminate the noice to some extent.

in a up trend, resistence forms next support. lets say price started moving up from 100 and went up
to resistence zone around 120 and breaks convincingly and goes to 130. now 12o becomes support.
because we broke that resistence point (120 level), we won that battle. now the battle is shifted to
next resistence zone aound 140. so ppl dont want to sell at 120. so it forms a base or support.

not every bottom is a support line for us. the more number of times its 'tested' , 'visited' the more
strong it becomes. same thing with resistence. if price is rejected at 140 several times (atleast 2-3
times), then 140 becomes a strong resistence. between each rejection price should retrace atleast
30% (we will talk about fibonacci retracements later) and try to break again.

SRZ is the most important entry rule of this system, so we need to spend more time understanding,
identifying this zone. pay attention to major SRZ than every minor SRZ.

just because SRZ is broken, it doesnt mean the signal has arrived. some times market gives false
signals. if you are a conservative investor, dont immediately buy, try to buy little bit above the
support level, let price action convince you its not a false breakout. always add a buffer. also the
candle should close above/below SRZ. it should pirce through SRZ but close above/below SRZ.

normally price action gives you a second chance to enter. i always enter on second chance. to avoid
false break outs. lets say price is going down and comes near SRZ 100. price pierces 100 level,
goes up to 103 and comes back again to 100 and starts going up again, now i will catch it at 102-14
area. with this i feel more comfortable its not a false break out. ofcourse in some strong reversals it
wont give you second chance, in that case you can buy at little higher rate.

Trend Lines

in a up trend, find out the support areas and draw a line connecting the support lines/zones. in
simple terms its a diagonal version of horizontal support, resistence lines. the behaviour of price
action around TL is same as SR. But most ppl dont pay as much attention to TL.
to draw TL you need atleast 2 points, but to confirm 3 are needed. like SRZ, the more number of
times TL is tested the stronger the signal is. similarly resistence becomes next support. all the
behaviour is same except we are in diagonal instead of horizontal

the steeper the trend line, most likely it will fail or get broken. rising too fast is not good. drawing TL
is an art. dont force them to fit the market. identify the major up/down trend and find 2-3 support or
resistent points and draw a line touching all of them. some times you will get multiple TLs and some
intersection of TLs. dont get bogged down, always trust the major TL

sometimes you get intersection of SR and TL they are very powerful. we will cover the confluence
part in the system rules

Fibonacci Retracement

These are more of psyche levels that market respects. why only these numbers ? dont know. but it
works. google for definition of fibonacci series if youdont havecomputer science / math background.
we are interested in only 3 levels. 38.2, 50 , 61.8. if the price corrects by 38.2% from its immediate
wave high and we find agreement from reversal candle, SR, TL , BRN, etc then we get a buy signal.
lets say immediate wave/swing low is 100 and 140. the swing height is 40 rs. 38.2 of 40 is 15.28, so
if the price is coming down from 140 and comes to around 140-15=125, then we are ALERT. more
correction, the better signal it is. again its not exact number, its a zone with some band.

you dont need to worry about this calculation, several charting tools have this fib drawing tools, but
important thing is to identify swing high, low.

you can have 2 waves. one major wave and another intermittent wave. if you draw fibs and get
intersection of lines from both waves, it adds power. for example 38.2 of one wave can coincide with
61.8 of inner wave, then its powerful. in this system confluence is the main entry rule (more later)

fib extension can be used for taking profits. its opposite to reversal. just dont worry right now.

Space / Traffic

When you hit the ball you dont want any fielders around it. did you ever notice how many times
sachin hits the ball and it pierces the feilding and goes for four. and how often you see shashtry
hitting straight to fielders. however strong your shot is if it doesnt find gap, its useless.

same thing here. we want to work in a free space. not in lot of traffic and surrounded by immediate
opposite signals. the percentage of success goes up when you are in a free zone without much
traffic around in near future. so it is one of the most important rules in our system.

i will explain this with some examples. again just use your eye. train your eye. it becomes natural
over a period

look at this chart. it gave buy signal (pin, tl, in direction of trend) but if you see immediate left side,
there are atleast 2 resistence lines immediately above us and too many candles in the near left side.
we dont want this much traffic. we will find it hard fighting against these guys

there are couple of things we need to learn before we start laying out system rules.

1). EMAs.
I will inly use this indicator, thats all, no other stuff like RSI, BB, Parabolic... Keep it simple. EMA is
prefered over SMA due to weightage for recent price action. we use EMA 150 and 365. the current
bar must be above these 2 lines for buy. when the bar is nearing one of these lines, we are ALERT.

2). Multi Time Frame

Even though we are looking at daily chart, we must look at weekly, monthly charts to derive the
trend. remember trend is our friend. we only buy when the trend is upwards. we wont go againt
trend. however sometimes when we get a buy signal and we are against trend, we will closely
monitor the trade and keep moving the SL.

now that we learnt the basic components lets construct the system using these. by now we got a fair
idea of the price action dynamics. lets take advantage of this and build a system with high probability
of success

first we need to identify wether we got resersal bar or not. reversal bar is a pin bar, bullish outside
bar, double doji followed by a breakout. these indicate momentum shift from sellers to buyers.

next is the most impartant thing. where this recersla is occuring ? what is the location ? we are not
interested in trading every reversal. it should occur at a good location. for us good location is one or
all of these

swing low (support level)

trend line

ema 150 or 365

fib retracement level 38.2, 50, 60.1

BRN

we need confluence of more than 1 or 2 location points. confluence is agreement. out of the 5
location pointls listed above we should get as many as possible to make it strong. we dont trade on
one. we need atleast 2. that means we should get a reversal bar at support level and trend line. its
very rare you get confluence of mutiple factors, you should grab those opportunities, thats where
value lies. that means we are at a point near support level, near trend line line, near fib level, near
ema level and near BRN. this is like eating full meals with soup, starters, main cource, desert and
paan !!!

we pay attention to traffic, if we see lot of traffic ahead and we got confluence of only 1 or 2 location
points, either we reject the signal or trade cautiously.

so entry rules are

1). big , visible pin piercing the location point line but closing above it with strong volumes.

2). location should be a confluence of many points like support, tl, fib, ema, brn. the more the better

stoploss is the next support level. lets say current suport is at 110. next support is 105. we place SL
at 105-buffer. buffer is always useful to avoid wrong breakouts.
tp is next resistence or first trouble area. this could be upper line of channel. when you hit one of
these areas, take 50% off and move the sl for rest to break even and let it ride. remember MM is
very important. cut down losing trades, ride on winning trades.

so its very simple and easy to understand system. zoom yout chart to atleast 6 months and look for
visible, big pins, buob, dojis at support, tl, fib, ema, brn. only trade in the direction of trend. that
means the overall trend is upwards and we look for temporary, intermittent downward movements
and look for strong reversals at strong location of intersection of multiple lines (support, tl, fib, ema,
brn)

be patient and wait for proper signal. dont try to force fit the chart into the system, let it come out
obviously and train your eye to spot those opportunities. you need to spend 1 hour on weekend to
look at all charts for any possible opportunties

i will post some example charts later