Trading Method Using Price Action!

Nice to meet you. My name is Dream.
I am currently working as a company employee and also running a blog as a part-time trader.
Recently, FXON requested me to write, and I would like to share with everyone the trading method I am currently using.
If possible, please use this as a reference and I hope it will help improve your trading skills.

Writer:Dream
Profile: A part-time trader who trades by simplifying charts with price action theory!
Blog:Learn Price Action in FX

About Dow Theory

Now, without further ado, in this first installment I will explain my own take on Dow Theory.
Since this is my personal view, please understand that and use it as a reference.

By the way, when trading, the most important concept is this “Dow Theory.”
If you know it but still cannot win in trading, it is because you are not applying it.
If you cannot apply it, it means you haven’t understood this concept.
Please study it thoroughly again until you understand it!

First, let’s review the most popular basics of Dow Theory.

?

1. Averages price all-in
2. There are three kinds of trends
3. Major trends consist of three phases
4. Averages must be confirmed with each other
5. Trends must be confirmed by volume
6. Trends continue until there is a clear reversal signal

Up to here, this is something anyone who studies technical analysis should obviously know, right?
Yes. This theory is known by almost all traders.
You will find this theory in the opening pages of many trading books.
That’s why it works effectively.

To summarize the basic rules in my own words, it goes like this(^^)/

↑ [Figure 1]

① A rising Dow is confirmed only after a higher high is established
② A falling Dow is confirmed only after a lower low is established
③ If neither, it is a range

Rules ①–③ continue until a clear signal appears.
When thinking about Dow Theory, this rule (continue until a clear signal appears) is absolute.
From now on, we will trade based on this theory to make a profit.

First, based on this Dow Theory, let's consider the psychology of market participants.

We can observe price action like this.
With higher highs and higher lows, this is an Up Dow.
This Up Dow will continue unless a clear signal appears.
So, what is a clear signal that it will not continue?
This is important, so please check carefully.

A clear signal that an Up Dow has ended is a new lower low from the most recent low.

Thus, until the previous high is followed by a lower low, an Up Dow will continue regardless of anything else.

This price action still shows an Up Dow continuing.
Because the recent low has not broken downward, right!

Market participants will look for buying opportunities in the state of Figure 2.

What about Figure 3?
Figure 3 indicates the Up Dow has ended.

The next possibility, aside from Up Dow, is a Down Dow or a range.
In a Down Dow, you would look for selling opportunities.

If it’s a range, you would either refrain from trading or trade via counter-trend from the range's boundaries.

What about Figure 4?
In this state, the Up Dow is still continuing, but there is a Down Dow in the near term, meaning an Up Bias on a Down Dow.
In other words, it’s hard to determine the direction; it could go up or down.
It’s easy to judge in hindsight, but in real time, it feels like ???

In short,

Figure 2 represents a state where most market participants are aiming to buy on dips.
Figure 3 represents a state where most market participants are aiming to sell on retracements.
Figure 4 represents a state where some are aiming to buy on dips and others are aiming to sell on retracements.

Which state is easiest to trade?

When should we trade and how in each state?

Next time, I plan to write about what kinds of trades to place in which state of Figures 2–4(^^)/

Writer:Dream
Profile: A part-time trader who trades by simplifying charts with price action theory!
Blog:Learn FX Price Action