Language of Markets will be observing the 4th of July weekend. There will be no Live Sessions on Friday, July 4th. Sessions will resume on Monday, July 7th at 12:00 pm PDT. Have a safe long weekend with family and friends.

Language of Markets will be observing the 4th of July weekend. There will be no Live Sessions on Friday, July 4th. Sessions will resume on Monday, July 7th at 12:00 pm PDT. Have a safe long weekend with family and friends.

Shane Blankenship

Gaps and How Markets Move In Contraction and Expansion

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There are several ways to trade gaps but first, there should be a solid understanding of what Gaps are and how they show up. Markets aren’t that hard to read if we have some simple ways to see them that adhere to the principles of movement.

All markets move in contraction and expansion. A Gap is the sudden supply/demand imbalance that comes out of the contraction and shows up as the expansion. These expansions can even be used to measure how far the next expansion will go.

Start with a simple bar chart and erase everything else off the chart. Look and simply see the dense areas of contraction (Range). Then see the expansion (Gap), followed by another contraction.

Look for same-size contractions and expansion and you will start to see how organized price flow can be. It’s no different than swings in that minor contractions and expansions make up the major contractions and expansions.

Tracking The Footprints of WRB Gaps

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This is the first in a series of posts on Gaps. Gaps are the expansion that comes after a contraction. It’s a sudden supply/demand imbalance that shows up in the price bars of a chart. Gaps show us a significant area of buyers/sellers that take control and when they lose that control.

In the video, I discuss and define a Wide Range Bar (WRB) Gap and show how to mark it out on a chart. A WRB Gap is a bar larger than the last 3 bars with a space between the previous bar and the subsequent bar. We will be marking the base of the gap. If it’s an up Gap, mark out the bottom 1/3 of the bar, if it’s a down gap, mark out the upper 1/3 of the bar.

We can then make observations about how price interacts with the base of this gap when or if it gets there. Then we can notice where in the swing process the Gap is happening. Don’t make conclusions, just observe and learn.

There are many ways to trade Gaps but first, we must first lay out some foundations and then come up with objective ways to see them. For now, simply look for the biggest ugliest bars on your chart and mark them out, and observe. These are footprints we can follow and track

Median Lines and Finding The Right Path

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When it comes to learning about markets and trading, finding the right path and committing to it is the hardest part. The right path has little to do with any technical analysis method. It has to do with structuring our mental framework so that we fundamentally change how we experience markets, trading, and loss.

In the video, I show some Median Line and Action/Reaction work but this work is useless by itself. No tool is good or bad, they are just tools we use to comprehend markets. The problem arises when the tools start using us and we think there is some kind of magic to them.

The essence of our strategy should be to structure our methods and mindset toward functionality. The journey we should commit to is one marked by fostering accountability and responsibility in all our actions. The swing trade Idea I show takes a method and structures it into function.

Shane

Defining Target for Risk Reward: Maybe you shouldn’t?

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The trade plan is broken up into parts. We have an objective and consistent entry, stop, and exit plan. Here I will be talking about the exit plan and setting targets that will give you a particular risk/reward ratio. There are no absolutes when it comes to what risk/reward you should be aiming for, a lot has to do with how you handle risk and loss and your overall understanding of markets.

Defining the stop (risk) is relatively easy compared to defining the target (reward). Mostly you need a clean set of statistics on an objective method. This will give you an average distance that the swing will run in relation to your method. The reward part of the equation is a function of how far your stop is to your entry.

There is no one-size-fits-all when it comes to trading. For many, it may be best not to set a target, but instead use something simple and objective like a moving average to exit the trade. This way, you get what the market gives you while incorporating consistency and objectivity into your exit plan. Keep it simple, objective, and consistent, and learn as you go. In the video, I make something up on the spot that may give you some ideas. I use a 20ema as a profit stop only after the price has made a new high. It’s simple, principle-based, and it’s objective.

No matter what your method, knowing where you are in the swing cycle will help in defining entry, stop, and target, and this will directly influence the risk/reward ratio.