Learning Price Action Through Observation

Learning Happens when you’re open and curious and making observations from what you see. From there, you must be mentally balanced to take action on your observations.

In this post, I focus on the price action that happens in the pivot portion of a swing cycle. If you make observations of this area you will see a certain kind of repeating behavior that can help you understand and design methods for trading swings. You will notice that the market likes to wash everybody out of their positions before pivoting to continue its swing.

I look at two ways this shows up in the price action of a pivot. The first is an engulfing bar that expands and swallows at least 3 of the previous bars. The second is a Gap Swap where a WRB Gap will make an effort in one direction just to be followed by another WRB GAP that reverses that effort and direction and shows that the balance of power has shifted.

This is just a small part of what makes up a swing but it factors into my overall methods and trade plan. You can make observations yourself on pivots and see what you can learn.


The Gap Between What Is and What Will Be

There are 5 basic ways to trade a Gap or any line. In this video, I discuss two ways to enter the market using a Gap. The Gap entry techniques by themselves are of little use, but if we make a few distinctions in market structure and the process of a swing cycle, they can become functional.

Swing cycles have a process that they go through. As long as we understand that process we can view Gaps in the light of where they happen in that process. I’m going to focus on these two Gap entry techniques in the lower portion of the reaction leg at the bottom pivot of a swing. The Gaps are what make up the pivot portion of the swing.

If you observe markets and swings you will often see this distinct pivot portion of a swing, it looks like a U at the bottom of a reaction leg.

Gaps and How Markets Move In Contraction and Expansion

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

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