by In this article, I’ll be discussing few concepts about Trading Price Action Trends. And a lot of the concepts that I’ll discuss price action trading in this post are the concepts of Al Brooks. So I’ll just take an example of Bank Nifty in this entire post, and then I’ll explain a few things.
So the first thing that I’ll begin with in terms of some longer form of trading in Bank Nifty for the next three, four weeks is by assessing what is going on on the weekly timeframe chart. So in case, you are a part-time trader and you’re a working professional, all the concepts discussed in this post will be extremely helpful.
So this is actually a weekly timeframe chart for Bank Nifty. These are the last four weeks’ weekly candles on the chart, and this is the candle that we’ve gotten at the end of this week. So just study what is going on here. So this was the candle on the prior week, and currently, we have got one candle that has completely engulfed at least partially this entire candle’s body here.
So this is the current week’s candle. Now, this is some sort of bullish engulfing pattern that is developing out there. Of course, don’t go by textbook definitions because those are of limited value.
But in general, if you see the price has opened substantially higher from the low point of the last week, there’s some sort of tail also visible here that represents demand. And then look at the closing of this particular candle, it is well above the highpoint of the previous week.
So the closing has happened at 24,532, and I think the high point was something just about 23,000 last week. Now in case you are a beginner and you want to understand about price action patterns, about candlestick patterns, then there is a book written by Steve Nison, just Google about this author, and I’ll also link up the book below.
Now, this is a wonderful resource on candlestick analysis, and I think every trader should read his book. So let us now come down to the daily timeframe chart here. And again, if you look at this particular region from where Bank Niftystarted moving higher, this is very close to the regions here where Bank Nifty earlier attempted to move high. And more importantly, this particular region here.
So all of these points that I’m marking out are relevant support levels for Bank Nifty, and this is something I had also updated in the Telegram channel when Bank Nifty was trading somewhere below the 22,000 level. And if you look at all these support zones, it is again very close to all this price action here. And this was when markets were bottoming out and there were a lot of fights going on between buyers and sellers here.
So whenever you find price retracing back to previous support levels, previous resistance levels, that is when you need to look into price action patterns that form on the chart. Always remember that when the price is moving in a range, it forms some sort of resistance level, and then it breaks out. And at times when the momentum is good, price simply rallies on the higher side, but most of the time you’ll see price will repeatedly come down and test this resistance level, which has now turned into a support level. And then the price will again start moving higher.
Examples of Trading Price Action Trends
So that is what you’re seeing right now in Bank Nifty, we’ve repeatedly tested out this support level here, which in fact was the previous resistance level for the price. And now we are seeing again Bank Nifty is attempting to move high. So this price action pattern or structure, if you call it, is something very similar to support and resistance levels that is support turning into resistance and similarly resistance then turning into support.
So just keep this particular concept in mind, because this is very handy, especially on something like a daily timeframe chart for something like a longer form of trading for working professionals and part-time traders. So let us now come to a section of simple volume analysis. Now, since July, the average volume in Bank Nifty futures has actually moved up, you can see the average volume between Oct and Feb 2021.
If you look at the last three candles that are formed in Bank Nifty, these are not wide in range, had some element of the tail visible, but volumes were on the higher side. If you look at the current candle, which is a bullish engulfing sort of candle, it’s a variation, again volumes have been on the higher side.
So what this tells you is that especially from mid of July or starting of Augustseries, the volume activity in Bank Nifty, in particular, has picked up. And I haven’t checked Nifty data yet, but usually, when volume activity picks up in Bank Nifty, it also picks up in Nifty futures.
I’ll just post that chart later in the community section to check what is going on with Nifty. So there are some basic volume rules that you have to follow. The first candle has to be wide in range. I’ve already covered this in many posts. So just go through all of my posts on Price Action Trading, I’ll just link those posts here. I’ve explained these concepts many times. And whenever there is some sort of up movement or down movement that happens, that has to happen on the back of volume activity.
Range Analysis for Trading Price Action Trends
let us now come to a section of range analysis. Again, this is something that I quite often post on Telegram. Now, just by studying the range of candles, you do tend to get a lot of information about overall price activity. So these were the two wide range candles that were formed in August and September. Of course, this candle did not lead to further up movement in the market, but this candle did cause downward activity in price.
Now over the last three weeks, if you see, this is candle number one, this is candle number two, and this is candle number three. So week one and week two, that is candle one candle two had a relatively narrow range, whereas if you take a look at candle three, this was wide in range, but this had an element of long-tail within it.
Now whenever in a downtrend or a down move, when the overall market is doing then something like an index like Bank Nifty moves lower and starts forming this long tail on the downside, this is a sign of some sort of demand developing at the lower level. And in the current week, you’ve now seen a wide range of candles developing on the upside. The range of this candle is almost equal to the candle number three range.
So what this essentially tells you is that stronger participants are definitely present currently in Bank Nifty, and odds of trending move developing are on the higher side. And this is where a trader can plan out trades based on something like swing trading and even something like positional trading, or a longer form of trading price action trends.
So one of the requirements that you need to have to initiate aswing or positional trade in any given instrument is that make sure there is a wide range candles of present on the chart. So if you come in July and mid of August, look at the range of all these candles. Now especially if you look at the body of the candle, that is the open and closed region, that clearly these are not wide in range, and it just tells you that Bank Nifty was consolidating in this region. And once the range is narrow, then after this, you definitely get some sort of expansion in range.
So this is again based on the concept of NR7 and NR4. This is applicable on a weekly timeframe, daily timeframe on any given timeframe. So I think currently we are in some sort of expansion phase in Bank Nifty, and I don’t think the price is gonna stay here at 23,527, it may move down, or it may move up.
But one thing is for sure that the expansion phase has started in Bank Nifty, and a good amount of trading opportunities will definitely show up in the weeks to come. So one of the key steps in trading Price Action Trend is to determine the overall trend on the chart and to also know the path of least resistance. Now I’m analyzing this on a weekly timeframe chart.
It’s mainly because I’m interested in trading Bank Nifty for the next two to four weeks. In case I’m doing something like ultra-short-term trading or swing trades, then I’ll do this analysis on a daily timeframe chart. So I’ll mark out four points on the chart.
This is point number one, this is point number two, and this is point number three. Now, if you take low of point number one and mark it with point number three, then you’ll get 50% and 61.8% retracement level between the level of 23,600and the level of 24,400. And if you take the retracement between point number two and point number three, then again this 50% and 61.8% level will come somewhere between 20,500 and 21,300.
So by simple trading price action trend analysis, Fibonacci analysis, this was the zone between 23,600 and 24,400, but there was a lot of cluster support that was visible. In terms of simple price analysis, support, and resistance analysis, I’ll just come to that in the next slide, but based on simple Fibonacci analysis, the zone of 22,400, to something like 23,600 is definitely strong support for the market.
And why I point out this particular number? Because if someone is interested in something like positional trading in Bank Nifty, then this particular zone of 23,000, 23,400 will act as an excellent stop-loss level. So prices already moved up10% from the stop-loss level. So in general, when I’m doing something like positional trading, my stop-loss and index is roughly about 10%.
In stocks, I go as deep as something like 15 to 20%. Obviously, this will alter because if I’m doing positional trading, I have a much deeper stop-loss level. If I’m into something like swing trading or short-term trading, then obviously stop-loss level can not be this wide. So this is the key reference point here from a positional trading point of view.
From a swing trading point of view, I’ll come to that in the latter section of the post. When it comes to simple support and resistance analysis, what I’ve done is I’ve taken this particular resistance line. So the price has tested out this resistance line many times.
This is something I also explained in the first slide of the post. So this naturally becomes a good reference level for the few weeks, this is somewhere at 21,800. And this particular point here that I’ve marked out is the recent swing low, so again, this is a very important level.
So if you’re someone like a positional trader, you can keep this level as stop-loss in Bank Nifty futures. And if you’re someone like a swing trader, then I think a stop-loss of 23,200, 23,600 thereabout would also be good. So this entire zone for the next coming few weeks will act as a strong support level, let’s keep in mind that we’re having some sort of event, so anything can happen.
Price can either start moving high, or you can get some sort of consolidation over the next few weeks, and then get better risk-reward in this particular support level. So at all times, you need to be prepared for all scenarios, and you need to mark out all these levels on the chart so that as price action plays out in real-time, you can refer back to your charts and identify better risk-reward for your trades.
So let us now come to the section of VWAP analysis. Now I mainly use VWAP analysis for something like short-term trading and even something like swing trading. So this is my primary indicator when it comes to participation as a swing trader and short-term trader. For you, it can either be a VWAP indicator, or you can also use something like simple moving averages.
These also tend to work really well. So in terms of VWAP analysis from the short-term, if you see, these are the places where the price was taking clear support on the VWAP level. So today morning, when the price gaped up, just take a look at the volumes that came in, entire bid of opening happened before the previous sessions price action activity at the VWAP level, and then the price simply moved higher.
This was only around 10:00 that we had one test at VWAP, that is today’s VWAP, and the majority of trading activity has happened above the VWAP level. So this clearly tells you that the current trend, the current momentum is definitely strong in Bank Nifty.
And in case the price dips in the coming week, then that would give you excellent risk-reward even from a short-term trading point of view. But I’ve mentioned this many times that my number one indicator in terms of short-term trading, swing trading is the VWAP indicator. And VWAP indicator is something that is also used by a lot of institutional participants. And that is why this tends to work so well.
So always keep in mind what sort of price action is developing around the VWAP level, and then subsequently what price does in terms of moving above the previous day’s VWAP, or below the previous day’s VWAP.
Of course, you have to combine what sort of candles are forming, what sort of volume activity is occurring on the chart, and that is when you can determine what is going on. So such sessions are actually sessions where supply is absorbed in the chart.
trading price action trends for day trading is usually the best trading strategy to take the trade. This setup is very easy and simple to use just you need to keep patience and let your setup form and then you can enter your positions. Stoploss should be the low or high of the inside bar candle for uptrend and downtrend and the target would be as per your risk-reward ratio. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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