Reading Price Charts Bar by Bar: The Technical Analysis of Price Action for the Serious Trader.
For a trader, the fundamental issue that confronts him repeatedly throughout the day is the decision of whether the market is trending or not trending. If it is trending, he assumes that the trend will continue, and he will look to enter in the direction of the trend ("With Trend"). If it is not trending, he will look to enter in the opposite direction of the most recent move ("fade" or "Countertrend"). A trend can be as short as a single bar (on a smaller time frame, there can be a strong trend contained within that bar) or, on a 5-minute chart, it can last a day or more. How does he make this decision? By reading the price action on the chart in front of him.
My goals in writing this book are to describe my understanding of why the trades in Figure P.I offer great risk-reward ratios, and to present ways to profit from setups like these in both stocks and futures trading. The most important message that I can deliver is to focus on the absolute best trades, avoid the absolute worst setups, and work on increasing the number of shares that you are trading. I freely recognize that every one of my reasons behind each setup is just my opinion and my reasoning about why a trade works might be completely wrong. However, that is irrelevant. What is important is that reading price action is a very effective way to trade, and I have thought a lot about why certain things happen the way that they do. The book is a comprehensive guide to understanding price action and is directed toward sophisticated traders and market professionals. How ever, the concepts are useful to traders at all levels. It uses many of the standard techniques described by Edwards and Magee and many others, but will focus more on individual bars to demonstrate how the informa tion they provide can significantly enhance the risk-reward ratio of trading. Most books point out three or four trades on a chart, which implies that ev erything else on the chart is incomprehensible, meaningless, or risky. I be lieve that there is something to be learned from every tick that takes place during the day and that there are far more great trades on every chart than just the few obvious ones, but to see them, you have to understand price action, and you cannot dismiss any bars as unimportant. I learned from performing thousands of operations through a microscope that some of the most important things can be very small. The goal for most traders is to maximize trading profits through a style that is compatible with their personalities. Without that compatibility, I believe that it is virtually impossible to trade profitably long term. Many traders wonder how long it will take them to be successful and are will ing to lose money for some period of time, even a few years. However, it took me over 10 years to be able to trade successfully. Each of us has many considerations and distractions, so the time will vary, but a trader has to work though most obstacles before becoming consistently profitable. I had several major problems that had to be corrected, including raising three wonderful daughters who always filled my mind with thoughts of them and what I needed to be doing as their father. That was solved as they got older and more independent. Then it took me a long time to accept many per sonality traits as real and unchangeable (or at least I concluded that I was unwilling to change them). And finally there was the issue of confidence. I have always been confident to the point of arrogant in so many things that those who know me would be surprised that this was difficult for me. How ever, deep inside I believed that I really would never come up with a con sistently profitable approach that I would enjoy employing for many years. Instead, I bought many systems, wrote and tested countless indicators and systems, read many books and magazines, went to seminars, hired tutors, joined chat rooms, and talked with people who presented themselves as successful traders, but I never saw their account statements and suspect that most could teach but few if any could trade. Usually in trading, those who know don't talk, and those who talk don't know.