Welcome to the first lecture of the price action trading volume 2.

We will analyze a
trade example in the EUR/USD daily timeframe, but remember once again that market and
timeframe don’t matter. After watching the lecture about the level zero of the market in the
price action trading volume 1, you should be able to understand that the main driver of
markets is human behavior, or supply and demand if we want to be more precise about it. By
logical deduction, all markets are exactly the same because they all use the same proxy of
human action to unfold.
In these practical examples contained in the price action trading volume 2 and
onwards, we will try to create professional market analyses using everything that was taught
in the theory of the volume 1. This is where all the information will come together, and you
will get a feel of how all these pieces fit together. If you study these practical examples with
the required level of seriousness, you will start seeing and analyzing price professionally
without thinking too much about all the details. That’s the ultimate goal here.
So, without further ado, let’s begin the analysis. In this chart we can see a naked chart
with a low and a high marked by short horizontal black lines. The first problem here is the
classification of these lows and highs into major or minor, and of course, the constant
problem of a trader, which is to find the optimal interpretation of the counterpoint between
major and minor players. Between the low and the high marked in the chart, we can see what
appears to be a major price vector going up, but looking at the previous down vector, a trade
could interpret that the low marked is a minor one.
Still in this image we can see that right after the high marked by the short black line,
there seems to be a minor flow attempt to break the high, but we can see that the attempt is
frustrated. The big question here still remains the same. Are we dealing with a major or a
minor flow at the low marked?
IMAGE 2
In this second image, we can see a few new details. We extended the low that was
marked before to see how price reacts to it. The two short sloped black lines show frequencies
acting as support and resistance, and that displays the switching motion of market players
near the extremes of price. The green rectangle shows the precise supply and demand zone
of the solid market structure we are analyzing. Look how the upper limit of the zone comes
out of the inward frequency, and the lower limit of the zone comes out of the outward
frequency. Notice also how the down sloping black line shows a frequency line being shifted
exactly where the inward frequency happens.
In the up sloping black line, we can see how price hugs the line creating a couple of
pressure bars that overthrow the line down. Notice how price tests that frequency 5 times
before switching to the downside. Observe also how after price switches from support to
resistance how the sloped frequency line is test two more times. We can see in this image
that the failed attempt of the minor flow to break the highest high in the chart starts to form
a flow down with the failed attempt becoming a solid minor high now. The question a trader
should be asking himself at this point is which player has the most power. The minor flow
going down or the flow that went up from the green rectangle. We can also see at this point
how price is free falling with lower highs and lower lows.
If you have an idea to buy the green rectangle somewhere, this might be a risky
endeavor. Let’s move on to the next slide to see how price reacts to the green demand zone.
We should be able to see some reaction from the buyers, We just don’t know the magnitude
of this reaction for now. This reaction should tell us if the low we have been analyzing is a
major or minor one.
 IMAGE 3
In this third image we can see some very clean and interesting details. We can see
that buyers appeared again in the green demand zone, and this reaction started with a shy
fractal bar that is also a pressure bar, so we could call this a hybrid bar. Notice that the bar in
question has pressure on both ends. This could be a result from the battle between to sellers
that were creating a clean move to the downside and the buyers who were ready to appear
again inside the green demand zone.
We also have a dynamic frequency breakout after the fractal bar appears, which
makes sense because the buyers started to show their power so the down vector terminated.
One interesting detail here is how the last bar on this chart is a hybrid bar which contains the
fractal and the pressure qualities. Notice how the lower tail of the bar comes right back to the
level where the dynamic frequency breakout occurred. The original idea of a long trade inside
the green rectangle could happen once the fractal bar appeared. The correct stop loss should
be below the low marked with the long horizontal line.
We have a new problem now. Notice that price reacted as expected in the green
demand zone, but now price is heading for the red supply zone, which has a solid high
attached to it, so are the buyers going to break that or are the sellers going to react at the red
zone? Looking at the chart, the two players seem to be similar in strength. However, we can
safely assume that buyers are showing a cleaner and slightly more volatile move than the
sellers. The buyers that reacted at the green rectangle also created the price vector with the
highest high in this chart.
We also have an interesting situation at the highs of this chart. The outward frequency
of the red supply zone intersects with the highest frequency line that cuts through the highest
high of the chart and the minor solid high. You might be tempted to think about a short trade
at the red zone with a stop above the minor solid high, but the fact that there is an overlap of
the outward frequencies at the top of chart simply invites market makers to wash out that
level. Notice also that the current bar in this chart could very well be a Von Restorff effect.
When we have a tricky situation like this, it’s always a good idea to wait and see what price
does at the critical levels.
IMAGE 4
Here we have a crucial bar in the chart. First of all, notice how price seems to ignore
the red zone. It fails to create even an inside bar at that level. In other words, the red supply
zone seems to have zero effect in price as if the zone was already out of the short-term
memory window of the market. Most importantly, look at the last bar in this chart. This bar
alone in the context we are describing deserves a special attention since there is so much
detail contained in it. First of all, it is a clear hybrid bar with a fractal quality and a selling
pressure quality. The upper tail of the bar pokes the minor solid high and the last major high
of the chart. Not only it pokes it but it closes way below. This is the retail trader’s nightmare.
Many people would attempt to go long as soon as price went one pip above the last
major high of the chart. If you were in this position, it’s easy to see how you would be in bad
shape after this last bar in the chart. Notice how cleanly the Von Restorff induces people to
the upside. If you know about these things, you could simply step back and watch the rest of
the unaware trader get burned while you would wait for the smart and strategic point to act.
The long down sloping line you see is a frequency line with a real grounding and an
abstract grounding position where the alleged manipulation happened. Notice that is almost
catches the minor solid high frequency as well, but not quite. At this point it’s quite difficult
to see price continuing going up given the amount of contextual details for a manipulation of
this market. This last hybrid bar also produces a dynamic frequency breakout signaling the
end of the upward price vector we were analyzing up to this point. Now we have further
decisions to make and more information to analyze. By the way, notice how closely I’m
looking at the market. Can you see how scrolling the chart back would tell me absolutely
nothing about this market now? I hope you can see how the recent past is much more relevant.
Ok. Even though buyers reacted at the green demand zone, these buyers were not able
to prove themselves because they failed to create a higher high. If that large hybrid bar had
closed above those major highs, we would have a new major solid low in this market, but the
bar just poked it, so the low in which buyers reacted at the green zone is a fake low, which
means we cannot trust it as protection for a possible long trade opportunity around that area.
The solid major low here still remains that low out of which the green demand was created.
If this is indeed a market manipulation, we should see price going down from now
on, at least to the green zone again, which would be an area of conflict between buyers and
sellers.
IMAGE 5
Fast forwarding price a little bit we have new elements for the analysis. As it was
expected, price started to come down after that clear hybrid bar. The first new detail here is
that price makes a momentary stop at the dynamic frequency breakout line that showed the
end of a down vector and the beginning of the up vector that preceded the alleged
manipulation of this market. Price finds a barrier in there but notice the selling pressure
happening in the upper tails of those candles. Price eventually breaks down due to the power
of market makers to the downside.
However, a few moments after that the solid selling pressure meets the solid buying
pressure at the consolidated green demand zone that has been working so far. We have a
hybrid bar happening at the solid major low. Price pierces it a little bit, but I don’t think this
could be classified as a manipulation maneuver since the market has a natural background
noise. The poke is too shy for that I believe, but I could certainly be wrong about that. Notice
that the hybrid bar is a response to a very solid level in this market. This last bar shows clearly
how we still have buyers in that major low.
In this chart we also have the formation of a major solid high where the manipulation
occurred because the price vector that follows that high closes below the low that precedes
the manipulated high. This gives us a signal to draw a precise supply and demand zone near
the high where the manipulation happened. It’s important to realize the validity of the
concepts of solid and fake market extremes. After the manipulation, you could try to go long
near the fake low, but that would be equivocated. The possible long trade there is still in the
green demand zone with a stop below the major low.
IMAGE 6
In this next slide we can see how buyers still hold their ground after that hybrid bar.
Pay attention to the fact that the hybrid bar also breaks the dynamic frequency of the down
vector that follows the manipulation. It’s interesting to notice that even though price stopped
at a previous dynamic frequency breakout line, the dynamic frequency of the down vector
never broke to the upside until that significant hybrid bar at the major low. Price is now very
close to the major supply zone that comes out of the manipulated high. We can also update
the green demand zone to the new area where buyers seem to be sitting after that hybrid bar.
Since we are dealing with a major solid high and a precise supply zone in the red
rectangle, we can maybe form a short trade idea. Let me give you an example of a trade that
might be valid here using some advanced line work, and perhaps most importantly, the
principle of reverse engineering. Notice that I have a whole narrative already in place, and I
can use line work to confirm this narrative, and not the other way around. Starting with the
complex line work would be potentially confusing. So, the way the reverse engineering
principle works is this. We have an area of interest, which is the red supply zone, and we
have a decent place to put a stop above the major solid high. We already have one sloped
frequency line, but that might be too high.
IMAGE 7
One way to do this would be a modified Schiff fibfork with a 61.8% retracement line.
Before looking at the current intersection of the fibfork line with the upper tail of the bar,
take a look at the principle of validation in here. Pay attention to how many times the tail of
this fibfork has been tested in the past. We have about ten touches of that fibfork tail to
validate it. This is one good way of justifying a short trade almost at the red zone.
IMAGE 8
In this image we have a lot of new information and many decisions to make. We can
obviously see how the modified fibfork worked well, but the price action itself is throwing
some puzzles for us now because we have a minor flow developing to the downside. We
even have a minor solid high already. There are two questions here: Will the buyers in the
green zone hold their ground, and if they do, will the minor supply zone be able to hold those
buyers? First of all, if you took the short trade at the fibfork line, this is the time you collapse
your risk as a safety measure.
With that said, it’s still difficult to see which of the major players will win here.
However, if buyers start to hold their position at the green zone, simple logic tells us that the
minor supply zone found in the recent minor flow will not hold simply because major players
are stronger than minor players. The green zone represents yet again an opportunity to go
long with a stop below the black horizontal line. At the moment, price is touching the inward
frequency of the green demand zone. I also drew a pitchfork to justify this trade idea. This
pitchfork is interesting because it shows the principle of cross dimensionality.
Look how this is a minor fork in relation to the big modified schiff fibfork, and notice
also how price drifts away from it and it is now testing the fork line on the outside. That
would be a double intersection of a minor pitchfork line with an inward frequency line.
IMAGE 9
In this image I erased the forks for clarity. Once again, we have several new details
and opportunities. First, we have the green demand zone holding its ground once again
exactly at the inward frequency. The minor supply red zone failed to hold those buyers simply
because the minor sellers were in front of the major buyers. You can see that there is a bump
down there once price touches the inward frequency of the minor supply zone, but buyers
quickly annihilate the expectations of those minor sellers.
However, not everything is great for those major buyers from the green demand zone
because now price is at a major supply zone created by the market manipulation. We have a
short trade opportunity in here with some very clear indications. We are exactly at an inward
frequency line, and price is touching that sloped frequency line that was created a while ago,
but still relevant apparently. To top all of that, we have a fractal bar with the upper tail poking
those two frequency lines beautifully.
Shorting the market at the very next bar open would be valid with a stop above the
manipulation high. There is a subtle detail here, which is the fact that we identified both
edges of this market, and it’s very likely that one of these trades will be successful. If we
guarantee a good risk reward ratio in both, we can eliminate some of the subjectivity by
playing both sides. In terms of game theory, this could be considered as a Nash Equilibrium,
which simply means a strategy that maximizes both players strategies simultaneously.
IMAGE 10
In this image we have the outcome of both trades in the Nash Equilibrium. Notice
how the short position one and the long position lost, but since we used good risk reward
ratios in both trades, the result is a profit of 358 pips even when the win ratio is 50%. That
serves to show you how the win ratio is an incomplete metric and the risk reward ratio is a
more robust analytical tool. As an exercise, you can attempt to find details that I omitted in
this analysis like different linework that points to the areas of interest for example. You can
also try to map all the praxeological elements that I haven’t talked about. The more you
dissect charts, the easier this will become and eventually this will become second nature to
you.