Live Trading Course on Price Behavior – McDady

This is the recording of his FxStreet Webinar:
FXstreet.com: Live Sessions Archives – An introduction to Price Behaviour (Part 1-4)

this course is by Mike Baghdady the winner of The World of Trading Show, traders’ competition held in Frankfurt on November 13th 2009. Mike used the methodology called The Power of Price Behavior to beat all other finalists including exhibitors at this year’s show

You can see him on Fxstreet.com

More than 4 hours training in video lesson

A Study of price Behavior

Expert: Mike Baghdady, Head Trader at SpyGlass

Topics to be covered during the session:

* What creates trading opportunities
* Behavior of Trends

Who is Mike Baghdady?

Mike Baghdady is a 25 year veteran of the financial markets. He is a graduate of the American University at Cairo in Egypt. He is a Market Technician Association member and has held NASD licenses series 3, 7, 55 and 63.

Mike began his career as a physical grains trader in a commodity trading house. In 1989 he moved to New York and can proudly boast as being one of the fortunate few to apprentice at the hands of Mr. Alan R. Shaw CMT, widely considered the father of modern Technical Analysis at Solomon Smith Barney. Since then he worked as a Commodities broker, Stock broker, Futures analyst, Options trader, and as an instructor for both Foreign Currency Exchange and Equities Markets.

Mike has had extensive experience in teaching and mentoring hundreds of traders. His financial acumen and love of teaching fosters a unique symbiotic relationship for both his students and himself.

Session Material:

Introduction

In this presentation I will try to show how a proper understanding of price behavior can assist the new trader to stay on the right side of the market and avoid some possible whipsaws. I will discus the Behavior of Trends, What creates trading opportunities; the questions a Technical Trader should ask before taking a trade.

By Understanding the price behavior and proper implantation of technical indicator, and developing the skill of combining multiple time frames a trader can eliminate at least 50% of his losing trade I will also share a proprietary trading technique which I teach at Online Trading Academy”.

A Study of Price Behavior

Price Behavior and analyzing Price Structure are some of the most important aspects of Technical Analysis and of trading, and yet they are the most overlooked. Understanding Price Behavior and Structure will put the ODDS on the trader’s side so that he can make better decisions, trade more successfully and with better results.

Today, more and more traders and sophisticated investors use some type of technical application that he or she use in their investment or trading decisions. Trading has become a function of taking “buy” and “sell” signals off technical indicators rather than applying the basic principles of Technical Analysis and the study of price behavior and chart structure.

Take a look at (Fig 1) & (Fig 2) and try to decide which would be the high probability trade? Should we Buy? Or Sell?

I know that FXStreet.com audiences are a very sophisticated group of traders, and we also have a large number of aspiring new traders attending today’s session , so I will try to present the material in a way that is clear to the novice and the experienced alike.

This session is too short to completely cover this topic in detail –

Today I will be focusing on Trending Markets

How to study Price Behavior & Structure?

There several rules and as simple as they may seem, they are the tenants of TA

1) The Market is a discounting mechanism, events are usually discounted in advance with movements likely the result of the so called “Smart Money” or the “informed” buyers and sellers.

2) Price moves in trends, trends move in waves – we have “impulse” waves in the direction of the trend, followed by “countertrend moves” better named “corrective waves”.

(Just by accepting this simple truth that prices NEVER move in a straight line, you will stop trying to pick tops or bottom and view the corrections instead as an opportunity to take a trade in the direction on the trend)

3) Trends are created by an imbalance in supply/ demand and that moves price.

4) Usually, movements in the market tend to have a relationship to each other. Price will alternate between areas where prices have been marked up to a new higher level or marked down to a lower level, and after a big move in either direction price will consolidates at that new price level (see Fig 3)

5) Trends usually begin from low volatility sideways or contracting price zones. Trends start from an area of price equilibrium. Once there is an increase in demand, prices breakout of this equilibrium area and are bid higher or “marked up” to the next level where the market consolidates at the new equilibrium zone. ( the opposite is in a down market)

6) Trends do have greater odds of continuation rather than reversal. A trend in motion will tend to continue in motion until a major event takes place that would cause it to change its direction.

7) Trends in most cases do not change direction without giving signals or warning signs that it is about to change. These signals are usually a price patterns and sometimes accompanied by a buy or sell Climax. It takes time for a trend to change.

8) Momentum precedes price, this is a very important concept. I can not emphasize this enough. Momentum is what confirms the trend and it usually precedes the price. Momentum tends to accelerate as the trend develops. So if you are just looking at the chart and see momentum increasing and making new highs or new lows, the odds are that higher prices or lows will probably follow.

9) This breakout out of an equilibrium zone would be evidenced by increase in volatility and momentum until prices reaches the next level of equilibrium where volatility will decline and momentum will decrease.

10) A loss in momentum is NOT a sign of trend reversal, it is merely a pause. The loss in momentum and volatility is because buyers and sellers now agree to the new established price level or the new level of equilibrium. They will continue to buy and sell within a narrow range which is known as backing and filling, thus forming some of the known patterns like triangles, ledges, flags etc.

11) The breakout in between equilibrium zones offers the trader the biggest profit potential.

Let’s go back and review the charts (fig 1 & fig 2) and let us apply what I have just mentioned above, and together let us decide which trade we should have taken?

Here are some questions we should be asking ourselves:

a) What is the market condition? Trending or consolidating?
b) Is momentum increasing or decreasing?
c) What is the major trend?
d) Do we have a Trend changing pattern and /or a buy /sell Climax?
e) Where is Support & Resistance?

Look at Fig 4 Box 1

We can answer the above questions?

a) Yes the market is trending up, series of higher highs and higher lows
b) Yes, momentum was increasing all the way to the top. You can see that the blue price bars have bigger ranges and are more explosive in the direction of the trend, the magnitude of the price swings are bigger in the direction of the trend than the corrective swings; thus indicating that higher prices will follow.
c) The major trend is up
d) Yes, at the top, we do have a buy climax followed by a failure of prices to make higher highs, prices then gapped down taking out support. That would be our First signal that trend has changed and for us to go Short

Fig 5 Box 2

Now let us examine the next swing down Box 2 answering the same questions

a) Taking it from the Top– we had a buying Climax followed by a Failure to make higher highs and then prices broke down through support. The market is now trending down.
b) Momentum is increasing to the downside evidenced by bigger down swings and red price bars. The final push down, as you see, is indicating a loss in momentum – but that does not indicate a trend change – it could be a profit taking area for us – and we would be still expecting a new lower low to follow .
c) The trend is Down – Lower highs and lower lows
d) The next swing down made a higher low and consolidated at an area marked with low volatility – Coiling and followed by a breakout to the upside and an increase in momentum indicating a new trend to the upside.

Fig 5 Box 3

Now let us examine the next swing up Box 3 – apply the same rules and answering the same questions, let us see if we can choose the high probability trade

a) The market broke out of a consolidation and is trending up – Trend change is evidenced by prices failing to make a lower low. Actually making a higher low.
b) Momentum is now increasing to the upside, large upswings – small corrective down swings, an increase in momentum is evident on the charts.
c) The trend is now up. Indicating that new price highs are yet to come.
d) The last corrective swing down at the top of the chart is shallow, moving sideways for about 7 days; holding support.

To say the least, we have no reason whatsoever to go short, even though all the indicators (fig 2) are giving sell signals, and by the information we get from the price action I think we can all conclude that the high probability trade is to be go LONG.

See fig #7 & 8

As you see by studying the price behavioral and applying the principals of technical analysis you would have been on the right side of the market and would have also taken several profitable trades. And if you choose to use some technical indicators, they should be used as tools to confirm your trading decision rather depending solely on them to initiate a trade.

I am attaching more charts in different markets to show you that the same type of analysis and rules do apply in all markets and on any time frame

Simply taking trading signals off an indicator, or analyzing several indicators at the same time usually would have a negative effect on trader’s bottom line.

Most of the traders whom I trained and who have worked along side of me know that I rely mostly on the charts and seldom use indicators while I was trading live. I use indicators to confirm my bias. These are skills that you will develop over time, studying the chart and gaining experience.

It is very important that you to be able to make a trading decision based on your observations of the price action and by what you see on the chart. There is a great deal of information you can derive from the charts that will put the odds on your side and add to your confidence level and you will have a reason to get into a trade and stay in it longer – give it more room – if you so choose.

And if prices do not act in the way you expect them to act, then get out of the trade and re-study the chart. Take in the Big Picture; Make sure that you have enough price data on your charts. This is how and what we teach at Online Trading Academy.

Let me emphasize NO one knows where the next tick in price is going to be. Our job as traders is to put the odds on our side and to Identify and Quantify our risk; i.e. where is my exit on that trade if I am wrong? And then decide if that level of risk is acceptable to me.

At Online Trading Academy, where I teach, we emphasize that the key to making money is minimizing our risk and taking small losses, try to never take big losses and put the odds on your side.

Profits will then take care of themselves.

here is the summary of the vid:

Mike’s site is http://spyglasstrading.co.uk

Few days ago I found 3rd candle system here on our forum, pls read it and feel its simplicity, watch Mike’s vids, you’ll get more Price action feeling)

On 3rdcandle SYS I demoed it on GBPJPY yesterday and it worked 3 times out of 3 – taking 10-11 pips on M5. Small hint – I was doing that in second half of London session, after daily candle was mostly formed, so I was taking only SELLs on retracements (identified major downtrend), as per the SYS, which is basically breaking down of last fractal, stoploss was few pips above fractal top plus spread.

On GBPJPY takeprofit could well be more than 10 pips, but 10 pips per trade is just fine as long as its consistent 10 pips per trade on a positive side
With more than 10 pips odds of having 3 out of 3 reduce exponentially in my opinion. Good luck!