Institutional Price Action cheat sheet

 

Smart money concepts patterns

 

Mastering Stochastic Oscillator

Stochastic Overbought vs Oversold Strategy

Bull/Bear Divergence Strategy

The stochastic divergence strategy involves traders analyzing the relationship between the movement of the asset’s price and the stochastic oscillator. 

When the asset's price reaches higher highs while the oscillator registers lower highs, it indicates a bearish divergence. 

This pattern suggests tat the price may soon decline. Alternatively, a bullish divergence occurs when the price is making lower lows, but the oscillator is making higher lows, indicating a possible price rise. 

This strategy helps traders spot potential trend reversals early. When applying the stochastic divergence strategy, appropriately setting stop loss and take profit levels is crucial. For a bullish divergence, it is advisable to place the stop loss slightly below the latest swing low.

 Take profit levels can be adjusted based on the trader's strategy, often positioned near a previous swing high. If aiming for a 1:1 risk-to-reward ratio, traders might opt to exit their position once this target is achieved.

A prime example of bearish divergence is illustrated in the chart below, where the price forms a new high while the stochastic indicator registers a lower high. 

This often precedes a selloff and a trend reversal. In such a scenario, the stop loss should be set above the recent high, while the take profit can be targeted at the latest support level or when the stochastic reaches oversold conditions.

Combining the stochastic indicator with moving averages, a widely popular tool, offers an intriguing strategy.

 Here, moving averages help outline the long-term trend and key levels of support and resistance. 

This can be leveraged as a multi-timeframe analysis, where the moving average identifies the broader trend.

Once the long-term trend is established, traders can switch to a shorter time frame to find potential entry points using the stochastic oscillator.

To effectively use this strategy, it’s essential to trade in line with the direction indicated by the moving averages.

 Here's a more detailed look at the strategy and multi-timeframe analysis:

Step 1: Determine the trend direction on the daily chart by adding a 100-period moving average. 

If the price is above the 100-day SMA, the trend is upward. Conversely, if the price is below the 100-day SMA, the trend is downward.

Step 2: Switch to a 2-hour chart (you could use a 1-hour or 30 min as well). 

Screen your stochastic signals to ensure they align with the daily trend direction established in step 1 (downtrend, only look for sell opportunities in the example above).

If the daily trend is upward, focus solely on buy signals where the stochastic crosses above the 20 level.

 Conversely, if the daily trend is downward, only consider sell signals when the stochastic drops below the 80 level.

As you can see on the 2-hour chart below, each time the stochastic crosses below the 80 level, it presents the opportunity for a short position

Stochastic Oscillator with Trendline

Stochastic divergences or reversals can be effectively paired with trendlines and price action signals

 in trading. Once a distinct trendline is identified, a signal is generated when the trendline is broken.

 If the stochastic indicator also confirms this trendline break, it provides a strong signal.

he chart example above provides a perfect example, as the stochastic crosses back below 80 around the same time as the trendline break occurs. Now, it is crucial to remember that at 

times the setup may not be perfect, meaning you could get the trendline break ahead of the stochastic crossing back below the 80 level.

Conversely, you could also get a stochastic crossing back below 80 ahead of a trendline break. This does not invalidate the setup but rather just a slightly different one.

Price Action Trading class

“Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime”

 For  contact us

https://wa.me/+919953573304

The Double Top Strategy: The Pullback Trading Entry Technique

The Double Top Strategy: The Pullback Trading Entry Technique

The second method traders use to trade the double top chart pattern is the pullback trading entry method.

So, what is the pullback trading entry method?

This entry method implies waiting for the market to retrace to the neckline after breaking below it.

Let me show you an example with this GBP AUD H1 chart below:

Notice that the market was trending up and later formed a nice double top pattern, indicating a potential bearish reversal.

The breakout of the neckline is a good opportunity to enter the market, but if we are conservative traders, we may want to get more confirmations.

So, we can wait for a rejection of a pullback to the neckline after the breakout. 

Look at what happened next in the chart below:

Pro Trading SchoolMenu

trading-pullbacks-with-double-tops

The Double Top Strategy: The Pullback Trading Entry Technique

The second method traders use to trade the double top chart pattern is the pullback trading entry method.

So, what is the pullback trading entry method?

This entry method implies waiting for the market to retrace to the neckline after breaking below it.

Let me show you an example with this GBP AUD H1 chart below:

double-top-pullback-strategy

Notice that the market was trending up and later formed a nice double top pattern, indicating a potential bearish reversal.

The breakout of the neckline is a good opportunity to enter the market, but if we are conservative traders, we may want to get more confirmations.

So, we can wait for a rejection of a pullback to the neckline after the breakout. 

Look at what happened next in the chart below:

double-top-chart-pattern

As you can see, after the breakout of the neckline, the market retraced to retest the neckline, which has now become a resistance level.

At the neckline, it formed a bearish engulfing bar candlestick pattern.

 This bearish reversal candlestick pattern at the neckline indicates that the little attempt by buyers to push the price back up was rejected, as sellers took charge, ending the retracement move and starting a new impulse move downward. 

So at this point, we have four important elements that encourage us to short the market:

The formation of the double top

The breakout of the neckline 

The pullback to the neckline

The formation of a bearish candlestick pattern signal (bearish engulfing bar)

Now, let me show you how to place your entry, stop loss, and profit target.

Look at the chart below:

As you can see from the chart, you place your entry at the close of the bearish engulfing bar, your stop loss above the upper shadow of the engulfing bar, and your profit target at the next support level.

I marked two profit targets because there are two levels that the market can reach if it moves downward.

So, it is up to you to decide whether to choose the first profit target or the second one.

 No one will teach you which one to choose, as you will only learn that from experience, but as a beginner, I recommend you look at the first major level and place your profit target just above it.

successfully, and many other traders trade the pullback successfully as well.

I don’t really want you to ask me which one to choose; you are the only one who can decide the entry method that suits you best.

However, if you are a conservative trader, you will always feel like you need to wait for a pullback, and that is fine.

On the other hand, if you are an aggressive trader, you will like to enter immediately after the breakout.

Now, you may be wondering whether you are a conservative trader or an aggressive trader.

The truth is, nobody can give you the right answer, because nobody knows you better than yourself.

Open a demo account and start practicing these strategies. From there, you can learn more about yourself to know the type of trader you are and the trading method that is best for you.