Transcription
So, let me guess. Odds are if you're watching this video, you've probably watched a few different trading videos. You're probably not a complete beginner, but you're also still in the learning phase. And you've probably watched maybe 5, 10, 15, maybe even a 100 trading videos.
But every time you watch one of these trading videos, yeah, it all sounds great. You get all these random abbreviations and all these fancy concepts that sound super smart, but then you're left wondering, well, why does it actually work? Does it even work? Because you go and try it and it doesn't seem to work really at all how they said it was going to work and you don't even know why you're drawing the drawings you're putting on the chart or why you're using the indicators that you're using.
These are all the questions that I had when I first started trading over 10 years ago. And over the years, I have learned one critical thing and that is to keep your trading as simple as possible. And so in my journey of trying to simplify my trading as much as possible, I finally found the five concepts that actually seem to work and make logical sense. So in this video, I'm going to show you and break down those five different concepts. And the beauty of this video is that it's not going to be some copy and paste strategy, but rather concepts that you can apply to literally any strategy. It's the foundation of price. And the last few concepts at the end of this video are some that I don't think I've seen anywhere else on the internet. So, if that sounds good to you, leave a like, comment, subscribe, and hit that bell notification icon because I do live stream every day on this exact YouTube channel. And with that being said, let's get into it.
So, let's start from the beginning and ask ourselves one very simple question. What moves the markets? Yes, you see the markets moving up and down, but what is actually driving that movement? Well, the answer, if you couldn't see it, is orders. Okay, orders are what drive the market. Orders are really just people saying, "I want to buy here or I want to sell here." And if you think about it, every candle on your chart is just the history of orders being filled. Okay? So, if we want to just put it simply, price goes up when buy orders overwhelm the sell orders and vice versa. So, if there are more buy orders than sell orders, price is going to go up. If there are more sell orders than buy orders, then price is going to go down. So, the real question is where are the orders sitting on the chart? How do we identify if we can even identify where these orders are resting? Well, that's exactly what I'm about to show you how to do using price action, which teaches us how to read where the orders are on the chart.
So, the first price action concept to be aware of that allows us to find where orders are resting are going to be order blocks. Okay. What are order blocks? Well, an order block is just a consolidation candle just prior to a sharp move up or down. Okay, think of it as like the calm before the storm. It's just a pause before the massive continuation. Okay, that consolidation candle is where institutions tip the scale with aggressive orders. Okay, which basically just means those people were saying, "Hey, we are interested at buying or selling at this price. We are the big money. We know a lot more than you probably do." And so you want to pay attention when these buyers or sellers are showing themselves on the chart. Okay? Because they were interested at that price, they may return at that same price or they may buy more or sell more if price returns to that consolidation level. Okay? So once retested, that level becomes a high probability area of support or resistance.
So let's take a look at an example of an order block. Okay? It's 9:30 a.m. Eastern Standard Time. The market's about to open and so we're going to play this forward a bit and let price kind of give us a trend to work with. Okay, right now you can see we have this impulse leg higher and so overall the bias is up, right? So we are looking for buys. Now, where on this chart do we see a order block? Well, it's going to be right here. We have a consolidation candle, a pause in the market prior to a large continuation right here. Okay? And so this is what we would call a bullish order block. You have a pause in the market, a consolidation candle prior to a massive continuation candle. Okay? And it doesn't have to be just one candle. This could have been multiple candles higher and this still would have been a bullish order block. Okay. And so you can see price has yet to come back to this area. We got close right here but not quite. And so this area represents an area where fresh orders may be resting. Okay. And so once price gets back down into this consolidation level that is where we would expect to see some sort of reaction back higher. Okay? So let's play this forward and see what happens. Okay. Okay. And as you can see, we pretty much just tagged that area and completely skyrocketed right back up to highs. And that is a perfect example of an order block.
The next concept that I want to introduce to you really quickly is liquidity. Most people probably watching this might have an idea of what this is, but we have to cover it anyways before we move on to the more advanced stuff. Okay, liquidity is just stop-losses. Let's not overcomplicate this. Okay, liquidity just means stop losses. So, essentially, you're looking for areas where traders are likely to put their stop-losses. Okay, where do most traders put their stop losses? Just past swing highs and swing lows, okay? Because they feel safe and protected past those points, right? If you are buying, you usually have your stop loss below a low, just like something like this, right? You put your stop loss there. And if you're shorting, you have your stop loss just above a high, something like this potentially. Okay? And so this creates a high density of orders sitting just beyond those levels, just beyond highs and lows. So now institutions know exactly where those stop losses are and they use them to their advantage. Okay? Because if you have a bunch of orders resting just below this low here, it may be beneficial for an institution to come in and use those orders as liquidity or as fuel for their buy positions, right? Because these are stop-losses, meaning they are sell orders. And so buyers that can't get filled at these prices will drive price lower and get filled at these prices using those stop-losses as liquidity for those buy orders, right? Because if you're buying, you need someone to sell you whatever you're buying, right? And so these sellers are turned into liquidity for the buyers and usually you'll see a continuation after breaking a high or a low.
And so if we go back to this order block example where we were looking for buys because we were in an uptrend and we saw this bullish order block. Well, there was also a level of liquidity that was resting in the same area that adds to the confluence of this trade. Okay? And that's going to be this low right over here. Okay? Think about it. If you are buying here or basically anywhere in this price range, where are you putting your stop loss? Well, you could either put it down here or down here or down here, but also down here where the last main swing low was. And so what ends up happening is that traders will place their stop losses below this little wick low here. And remember, we also have the institutional buyers that are waiting to buy in this order block here. And so this creates a confluence of orders. You have the traders that are putting their stop losses below that low right over here. Then you also have the trap traders that are stuck in their short positions after this monster move higher. And so once price gets back down to where they entered, they're looking to exit, which means they have to buy because if they were short, they have to buy to get out of the trade. And then also institutions showed that they were interested in this price range because we saw this massive continuation. So basically what I'm saying is that there's just a large amount of orders in this area. There's an overlap of orders and this is what I call an order zone. Now I'm not going to cover my order zone strategy in this video. But there is a free checklist called the simple trader playbook in the description down below that is entirely free as well as a full 15 video course on order zones called the simple trader blueprint which that is also in the bio.
Now, let's get more advanced and break down price action in even greater detail and get a better idea of how strong or how weak a market is and where you can expect price to turn around. This is going to be broken down into three concepts, which I call the three Ps of price action. And you probably have not seen this anywhere else but this channel, more than likely. So, make sure you keep watching because you're going to learn something new today. Like I mentioned earlier in this video, price action is just the history of orders being filled. And so if you understand this concept that price action is just a historical account of orders in the past getting filled then everything changes. Okay. So we can use the three Ps of price action to judge who is in control on any chart and any time frame. And the kicker is no indicators, no moving averages, nothing. Okay? It's just looking at the chart. Okay? So the three Ps are pitch, projection, and pullback. And don't worry, I'm going to break down each one one by one.
So the first P is going to be pitch. Okay? Pitch is essentially asking the question: how steep was the angle in which price climbed or fell? Okay, a steeper angle higher or lower represents more aggressive buyers or sellers. Okay, and so this equals stronger momentum. A slow-moving and grinding shallow move higher or lower is going to represent weak momentum. The steeper the pitch, the stronger the signal that big money is behind that move. And so let me break this down with some visuals. Okay, let's say you have a trend that's moving higher. Okay, so you have higher highs and higher lows and all of a sudden you get this type of move right here. Okay, and then comparatively, let's say you have the same exact thing. You have a trend that's moving higher, you get this move higher. And then the next move higher looks something like this. Okay? Well, the angle in which we moved higher here is much steeper than the angle we moved higher here. And what this means is that buyers are probably much stronger on this move here than they are here. Buyers in this example are likely weakening, starting to weaken or are already weakened. And so that means that there's less momentum in this move and so any sort of pullback has a higher risk of failing and changing the trend. Whereas in this example, the pullbacks are likely to be shallower or at the very least unlikely to break this low right here because there is so much momentum behind this move. Okay? And so that is the concept of pitch. Don't worry, by the end of the third P, I'm going to show you an example of putting it all together, and it'll all make perfect sense. So, if you're confused or if you don't get it yet, just keep watching. I promise it's going to be all right.
All right, so P number two is going to be projection. Okay, how much further did price get from its previous high or low? Okay, strong projection means that price made a meaningful new high or low with room to spare. Weak projection means that price barely exceeded the prior high or low, meaning that momentum is fading. Okay. Each swing should project further than the last for a healthy trend to continue. Meaning price is making higher highs. Not only is it making higher highs, but it's going further higher each time. Okay. When projection starts shrinking swing to swing, the trend is likely to begin to exhaust or potentially reverse. Use projection to judge how much conviction is behind the current move. Okay. So once again, let me explain this with some drawings. Okay. Let's say we have an uptrend and the trend is looking something like this. Okay, in this example, how do we identify the projection? If you're in an uptrend, the projection is going to be the distance between the highs. Okay, and so in this case, you can see the distance between the highs right here. If we just mark out each high and measure it out. So in this case, for example, let's just draw a box from high to high. Okay? And what we'll see is that this box right here is taller than this box right here. What this means simply is that price action got further away from its previous high. It made more progress in this move here than in this move here because the distance between these two highs is shallower. It's smaller than the distance between these two highs. What does this tell you? It means that price is accelerating higher. It has stronger momentum. But for example, if we have the opposite, if we have something like this. Okay. Now, what do we notice? Okay, this is a big issue. We have our highs 1, 2, 3. But look here. The distance between these two highs is this. And the distance between these two highs is this. All of a sudden, price was barely able to make a new high. And so, the projection is shrinking and the highs are getting closer to one another. And so essentially what that means is that sellers are coming in sooner. Okay? And so that means that price action is weakening or strengthening to the downside. Okay? Weakening to the upside.
And the last of the three Ps is going to be pullback. How deep is price retracing when it pulls back? A shallow pullback is going to represent that the opposing side has little strength and the trend is healthy. Okay, the shallower the pullback, the stronger the current trend. A deep pullback will represent the opposing side is fighting back and the trend may be weakening. Okay, a deeper pullback represents a weakening trend. Shallow pullbacks in an uptrend tell you that buyers are not willing to let price drop far and deep pullbacks mean that sellers are gaining ground and so be more selective with your entries. Combine all three of these Ps to build a complete picture of who is in control of the market. And so just as projection is going to be the distance between the highs in an uptrend, pullbacks are going to be the distance between the lows in an uptrend. So for example, if we have something like this going on and then all of a sudden we get something like this. Well, let's measure the distance between the lows in this trend. Okay? 1, 2, 3. Okay? Measure the distance between this low to this low and this low to this low right over here. And you'll see obviously one is much smaller than the other. And so all this means in in simple terms is that price is starting to pull back more than it was previously, which means that sellers are starting to enter the market and the trend may begin losing its strength. If you just think about it logically, if this low was created here and this low was created here and it created all of this distance, it took price having to move all the way up to this price point. Okay, that represents a strong push higher. But if we make this move right here, we go from this point to this point and then we give back almost, let's say, 90% of that move on the pullback. Well, that means that sellers are becoming stronger, right? Just logically speaking, you know, if it's tug-of-war, the sellers are starting to pull that rope across the line more so than you would probably like. Okay? And so the trend may be weakening and you may even be able to take a counter-trend trade there or just be more cautious on your buy trades.
So if we go back and look at that example that I showed you at the beginning of this video of the order block and the liquidity, how do we break this down into the three Ps? Well, the first P is going to be pitch, right? And so let's just take a look at how steep this angle is. Well, that is pretty steep. That is almost a straight line higher. And so right out of the gate, we know that price action is strong to the upside. Even more interestingly, if we take a look at the pitch of this move lower, you can see that it's a very slow grind down followed by a very sharp move higher. Okay? And so, we can already see the buyers starting to form in this move because price is not just falling off a rock, right? We were seeing a slow grind lower and then all of a sudden a sharp move higher. Okay? So, you literally see the buyers start to gain control in these two moves right here. So, that's the pitch. Now, projection is going to be to measure the previous high. Okay, the previous high was pretty much over here. Maybe you could argue over here. Overall, I would say that the projection is pretty weak, but also you have to remember that we are just now changing the trend, right? We are just now making new highs. So, there really isn't much of a projection to go off of because we just changed the trend from down to up. There's not really a previous high that we can measure accurately with because we are not in an uptrend up until this first high that we just created here. Okay? So, we can't really take a look at projection here. So overall, we would more so focus on the pitch as our sign of confirmation. The pullbacks are pretty much non-existent in this move higher. Okay? Other than maybe one small pullback here. And so you can feel pretty confident that once we enter a major area of support such as this order block and just below this level of liquidity, you can expect that probably buyers are going to hold that level and continue price higher, which is exactly what happened.
And now instead of looking at the past, let's take a look at a real-life trade that I took on stream. If you don't know, I live stream every single day from 9:30 a.m. to around noon. If you don't know, I live stream every single day on this exact channel from around 9:30 a.m. to 12:00 p.m. Eastern Standard Time every single day. So, now let's take a look at a live trade that I took on live stream earlier this week. This is me during the live stream. Don't get confused. I am still up here talking. Okay, but let's break down the setup that we currently see. Okay, let's start with the first P. P number one, pitch, right? Well, clearly we have a very steep pitch, right? Very, very steep. And so, what do we expect? We probably expect shallower pullbacks, okay? Because price is very strong. We do not expect buyers to allow price to really fall too much to the downside. Okay? And so I feel good about buys given that the pitch is strong. Okay. The next one is projection. Again, projection is not really available here because we just went straight up right out of the gate. And so there's not really any highs to compare it to. But even so, if we wanted to call this a high or maybe there's problem, I'm sure there's probably other highs over here. We have just completely blown all of them out of the water. So projection is more than likely very strong as well. Okay, again, projection is just the distance between the highs in an uptrend. Okay, and you can see the distance is pretty big here. Okay, so very strong move to the upside. And now pullbacks. Well, we've gotten no pullbacks and so naturally we can expect that if we do get a pullback, it's probably going to be a very shallow pullback like I just said, okay? Because the pitch is very steep and so buyers are in control. So we've measured the pitch, pullback and projection and now we just need to look for an entry. Okay. And so I've identified an order block right over here that is also relatively shallow in the retracement. Okay. It's a relatively shallow pullback if we do pull back to that area. And then this confusing stuff to the left you don't really have to worry about. That is uh a software and another video for another time. Okay. But essentially what I'm doing is I am now looking for an entry in this order zone and looking for a continuation higher back up towards these highs right over here. Okay. And so let's play it forward and see what happens. I'm going to fast forward a bit. >> Oh my god. >> And you can see price comes down into that area. Tags the order block perfectly. And let's see what happens. I'm going to fast forward. Okay. And here's the trade in real time right here. I switched over to my trading screen. Currently up around $200 and my entry was a perfect bottom tick. Okay, you can see we entered that order block right there. My entry is the exact bottom basically right at the start of that order block. Okay, and now all I am doing is waiting for that continuation that we spoke about earlier, which means I'm just targeting this high. So I have a sell order at this high. I bought at the very bottom of this wick. It's a little bit hard to see, but that is where I bought. Okay, and I'm just trading one mini. And so I'm currently up around $300. And again, all I have to do now is sit back and wait for price to reach the highs. So let's fast forward this a bit and see what happens. Okay. And notice how strong price is moving back up higher, right? Because the trend overall is very strong. The three Ps are all working together. And boom, we smashed that take profit very, very quickly. I think just under a few minutes, and that was an $800 trade.
And so if you put all these concepts together, you essentially get a playbook on how to read price action in a way that makes perfect sense, in a way that makes logical sense, right? And so if you understand these concepts, then you will understand trading. Make sure you liked, comment, and subscribed and hit that bell notification icon. And I'll see you in the next video. Peace.