The ultimate guide to Price Action Trading - Rayner Teo

Support – An area on the chart with potential buying pressure to push the price higher.

Resistance - An area on the chart with potential selling pressure to push the price lower. 

Role reversal

If the price breaks below support, previous support becomes resistance.

If the price breaks above resistance, previous resistance becomes support.

Dynamic Support & Resistance

Support & Resistance can also move along with price, which is called Dynamic Support & Resistance.

Dynamic support occurs in an uptrend, and dynamic resistance in a downtrend.

They can be identified using moving averages (I use 20 & 50 EMA).

Impulse & Corrective moves

Impulse move - "Longer leg" on the chart, which points towards the direction of the trend. Candlestick size is usually larger, signaling momentum behind the move.

Corrective move - "Shorter" leg on the chart, which is against the current trend. Candlestick size is usually smaller because of traders taking profits, without strong pressure.

You can trade pullback on a corrective move, and breakout on the impulse move. Depending on your trading style, both approaches let you get on board with the trend.

The markets are always changing. It moves from a period of trend to range, and range to trend.

You can break it down further into 4 stages:

◉ Accumulation - Accumulation usually occurs after a fall in prices, and it looks like a consolidation period.

1. It usually occurs when prices have fallen over the last 6 months or more
2. It looks like a long period of consolidation during a downtrend
3. The 200-day moving average tends to flatten out after a price decline
4. Price tends to whip back and forth around the 200 day moving average

◉ Advancing - After the price breaks out of the accumulation phase, it goes into an advancing phase (an uptrend).

It usually occurs after the price breaks out of the accumulation phase

1. The price forms a series of higher highs and higher lows
2. Short term moving averages are above long term moving averages (e.g., 50
3. above 200 day ma)
4. The 200 day moving average is pointing higher
5. The price is above the 200 day moving average

◉ Distribution- Distribution usually occurs after a rise in prices, and it looks like a consolidation period.

1. It usually occurs when prices have risen over the last 6 months or more
2. It looks like a long period of consolidation during an uptrend
3. The 200-day moving average tends to flatten out after a price decline
4. The price tends to whip back and forth around the 200-day moving average

◉ Declining - After price breaks down as a result of the distribution phase, it goes into a declining phase (a downtrend) and consists of lower highs and lows. This is the stage where traders who do not cut their losses become long term investors.

1. It usually occurs after the price breaks out of a distribution phase
2. The price forms a series of lower highs and lower lows
3. Short term moving averages are below long term moving averages (e.g. 50 below 200 day ma)
4. The 200 day moving average is pointing lower
5. The price is below the 200 day moving average

you can use moving average to define the trend. Here's how you can do this:

◉ 20 ma - Short term trend

◉ 100 ma - Medium term trend

◉ 200 ma - Long term trend

1. If 20 ma is pointing higher and the price is above it, then the short term trend is up.
2. If 100 ma is pointing higher, and the price is above it, then the medium term trend is up.
3. If 200 ma is pointing higher, and the price is above it, then the long term trend is up.

Range expansion

This occurs when the market does a false breakout and trades back into the range, thus expanding the "space" between Support & Resistance. 

Selling at resistance would get you stopped out as the price breaks above the resistance only to trade back into the range.

Range contraction

This occurs when the market enters a period of low volatility, usually due to an impending news release.

Looking to "buy low sell high" would put you on the sidelines, as the markets go into a tighter consolidation.

Trend reversal signals

1. Slope of impulse move getting flatter
2. Candlestick bodies getting smaller on impulse moves
3. Slope of corrective moves getting steeper
4. Candlestick bodies getting larger on corrective moves

1. Slope of impulse moves getting flatter

2. Candlestick bodies getting smaller on impulse moves

3. Slope of corrective moves getting steeper

4. Candlestick bodies getting larger on corrective moves

Candle sticks

1. Wick - The wick of the candle represents price rejection. If you see a longer wick, i represents greater price rejection.
2. Length of the wick - When you see wicks "flying" all over your charts, you're probably in a "choppy" condition (usually in a range market). And when have little to no wicks, you're probably in a "cleaner" condition (usually in a strong trending market).
3. Size of the body -  The easiest way to identify momentum in the markets is to look at the size of the body. A large body shows greater momentum, and a small body shows lack of momentum.
4. Close of the candle -  To identify who's currently in control, you'd want to see where the candle closes. If it closes near the highs, the bulls are in control - If it closes near the middle, the market is undecided. If it closes near the lows, the bears are in control.

1. Wick

2. Length

3. Size of the candle 

Pinbar

A Pinbar is a reversal pattern, which was first introduced by Victor Sperandeo in

his book

Bullish Pinbar - Small bodied candle with long lower wick, showing rejection of lower prices.

Bearish Pinbar - Small bodied candle with long upper wick, showing rejection of higher prices.

Just because you see a bearish Pinbar doesn't mean the price is going to trade

lower. In fact, it’s usually just a retracement within a trend.

Do not "blindly" go short when you see a bearish Pinbar, or go long when you see

a bullish Pinbar.

Chances are, it’s a retracement within a trend.

Here's what you should do instead:

• In an uptrend, only trade a bullish Pinbar at an area of support
• In a downtrend, only trade a bearish Pinbar at an area of resistance

Inside Bar

Inside bar - Small candle contained within the previous bar’s highs and lows

The key takeaway about this pattern is low volatility. 

This can be both a continuation and reversal pattern (I'll focus on the continuation

pattern).Thus you can get an entry with tight stops on this pattern (and improve your risk to reward).

Inside bar wont work in a choppy market, the lack of momentum usually results in many losses (so it’s

best to avoid choppy markets).

The best Inside bar setups occur when:

◉ The price breaks out of a range with strong momentum

◉ It’s a strong trending market

◉ It’s trading in the direction of the trend

Inside Bar Trading strategy 

1. If the market is strongly trending lower, then check if it respects the 10 EMA.
2. If the market respects 10 EMA, then wait for an inside bar to form.
3. If an inside bar is formed, place a sell stop order below the previous bar with a stoploss above the high.
4. If the order is triggered, then exit your trade when price closes above 10 EMA.
5. Vice versa for uptrends.

Narrow range candles

Simply put, when you get a series of narrow range candles (volatility contraction), get ready for an explosive move. (These findings can be validated by the works of Adam Grimes, Tony Crabel, and Mark Minvervini.)