May 10, 2020
- Welcome to the video on how to

retracement

using

## action

techniques. In this series, we will learn in detail about day

s based on this retracement trading

#### strategy

. Again, this

strategy is extremely simple and is something you can learn today and start practicing starting Monday. Then let's get started. So, let's first start with what we should focus on in this

## pullback

#### price

has made a previous upward movement.
To identify when to enter the trade, we need to understand the price

## action

, Fibonacci retracement, and standard pivot points on the chart. We will also use moving averages to help us decide the direction of the trend. I will first explain the individual components necessary to trade this strategy and then discuss three simple rules for executing both long and short trades. Basically, we are analyzing price confluence, Fibonacci retracement, moving averages and pivot points. Through this simple framework, we seek to identify high probability trades. Let's start with the Fibonacci indicator first. A Fibonacci retracement is a term used in technical analysis that refers to the area of ​​support or resistance on a chart.

Fibonacci retracement levels use horizontal lines to indicate where potential support and resistance levels are located on a chart. Now, each level is associated with a percentage that represents how much of the price of a previous move has retraced. When combined with price action, the Fibonacci retracement does an excellent job of identifying potential turning points in the market. The most popular Fibonacci retracement levels are 23.6%, 38.2%, 61.8% and 78.6%. It is important to note that the 50% retracement level you see is not a Fibonacci number, but it is still widely used. Please note that the Fibonacci retracement is a standard indicator that is available on all technical platforms; that is, a web-based or software-based platform.
For this intraday retracement trading strategy, you need to mark three levels on the chart: 38.2%, 50% and 61.8% retracement level. I will explain the relevance of each level with respect to trading in the subsequent slides. On this chart, I have marked the Fibonacci levels in this region. On each chart, we will mark 38.2%, 50% and 61.8% retracement levels. The price moves from this point to this region and then retraces to the 50% retracement level. From there, the price rises again. Now, most of the intraday trades that are doing well are supported at the 38.2% level or the 50% level. Once the price moves to or below the 61.8% level, it should be considered a weak uptrend.
Now, I will talk about entry and exit later, but in general, you should wait for the price to retrace to the 38.2% or 50% level before thinking about initiating the trade. Even if the price retraces to the 61.8% level, you can still initiate the trade, but you will also need to check other conditions. Now, I'll address this in the examples section of this video. Let's now move on to pivot points on a chart. On this chart, I have marked standard pivot points. These pivot points are available on most technical platforms and I have provided the calculation for the same in the comments section below.
On the pivot point chart, the blue line you see is a pivot level. Two green horizontal lines you see here are resistance level one and resistance two. And two red lines are support level one and support level two. In this day trading strategy, we need to wait for a

## pullback

near the pivot level or near the support level. During the same time, if the price is close to the 38.2% or 50% retracement level, then that retracement becomes a high probability trade. If you look at this region, this is where the pushback has occurred. This is the same graph we saw on the previous slide.
The retracement is right at the pivot level and as per the chart above, the retracement is exactly at the 50% retracement level. Always remember that when pivots and Fibonacci come together, the setup is clearly one that has a higher chance of success. In this video, I will show you many examples where I will show you how the confluence of price action, pivots and Fibonacci lead to high probability trades. In this chart, the price has had a previous downward movement and then has retraced upwards. Watch where the price retraces before going down. The price precisely begins to retrace once it reaches the pivot level.
On an intraday level, price retracing to the pivot level is very common and hence always track these levels on the chart. If you look at the price here, it just couldn't get past the pivot level and then goes down with momentum. Take a snapshot of this chart as this is the setup you should look for on the short side of the market. When it comes to pivot levels, there are standard pivot points, Camarilla pivot points, Fibonacci pivot points, and many other variations. Now all these variations work very well and you can choose any of them. However, always remember that whatever pivot level you choose, be consistent with it.
Do not switch between standard pivot points, Camarilla pivot points, or Fibonacci pivot points. This is an important point to keep in mind: whatever pivot point you consider, be consistent with it for at least 50 trades. This is the same graph we saw on the previous slide. If you see, the price in the chart above reversed from the pivot level. In this chart, the price has exactly reversed from the 50% level and the 61.8% level. Now let's remember that whenever the price retraces to the pivot level or near the Fibonacci retracement level, that region becomes a high probability trading region.
This is what you need to keep in mind constantly, i.e. the confluence of price, Fibonacci retracement and pivot levels together. Since we've seen how Fibonacci and the pivot work together, let's now move on to some price action concepts you should keep in mind. So in the subsequent slides, we will discuss the detailed applications of these. When it comes to intraday price action patterns, the most important thing to consider is where the patterns form and what they represent. The first thing you should pay attention to is the tail of the candle and the shadows. The tail of the candle represents demand and the shadow represents supply.
In intraday trading, tails and shadows are more important than patterns. The main reason for this is that they represent demand and supply at lows and highs. This is also the first supply and demand signal that a day trader can detect. If you look at this chart, look at all the long tail series here. This clearly represents demand at a lower level. Similarly, in this region, the series of all these long shadows represent sales at higher levels. Whenever you look for trading pullbacks, try to spot tails and shadows to gauge supply and demand. This way, before you decide to carry out an operation, you will clearly know who maintains control.
Now, I'll cover more of this in examples on how to use it in real time. Let's analyze the bullish and bearish patterns in this intraday strategy. There are three specific patterns that you should look out for at the pivot level or retracement level. The first pattern is bullish engulfing, where buyers take control of the price and drive it higher. The wider the sail during this process, the better it will be. If more bearish candles are involved in this process, this would mean more optimism. The second pattern is the bullish piercing pattern, where after strong bearish candles, buyers take control of the price and push it up from the lowest point of the day.
This clearly reflects a change in momentum and is another important price action pattern in intraday trading. The third pattern is the long tail candlestick pattern. Now this is also known as a pin bar and again represents a change in price momentum. These three patterns are very common in day trading and these are the ones I focus on. On an intraday basis, the most common pattern that develops is the reversal of the pin bar or long tail candle. Very often, after a long tail candle, you will see the formation of a bullish engulfing or bullish piercing pattern.
Now, whenever you notice this happening, always take note because it becomes a high probability setup. When it comes to a bearish candlestick pattern, the first pattern is bearish engulfing, where sellers take control of the price and then drive it down. Again, the wider the candle and the greater the number of bullish candles involved, the better it will be. The second pattern is the dark cloud covering pattern, where after a strong bullish candle, sellers take control of the price and drive it down from the high point of the day. Both bearish engulfing pattern and dark cloud covering pattern are very important when it comes to intraday short selling.
The third pattern is the long shadow candle. This again represents a change in momentum and such patterns should be taken note of. Always remember that the first point of analysis is to identify long tail and long shadow candles and then you should look for other price action patterns on the chart. It is also necessary to understand that more than the patterns, the shape of these patterns is more important. Now, as a trader, you need to develop situational awareness skill by decoding the price action with each candle printed on the chart. Only then can you develop your intuition and feel the price.
Another set of price action patterns that should not be taken into account are wide range candles. These candles usually play a very important role in intraday trading. A wide range of candles, depending on where they are formed, are an excellent source of supply and demand. Their relevance obviously depends on where they form, but in general, when you see a wide range candle with strong volumes, think in terms of demand and whenever you see wide range supply candles, think in terms of resistance. If you see wide range candles forming near the pivot level and Fibonacci retracement level, always take note.
Wide range candles with long tails and long shadows are also very strong patterns and work very well on an intraday level. One more reason why these candles are extremely important is because most trend reversals, if you see them, are very common in and around such candle patterns. Let's now move on to the role of volume and moving average when it comes to this trading strategy. In this day trading strategy, both volume and moving average are optional. However, it is not that these do not add value to this method. I prefer to use them on occasions, depending on the prevailing market conditions.
When the price rises or falls, the increase in volume is always a positive sign. For example, in this chart, as the price rose, a clear expansion in volume was seen. Furthermore, as the price dropped and consolidated here, volumes were clearly on the downside. Again, this is something that clearly reflects the lack of interest from participants as the price fell. If volumes had increased as the price fell here, that would be a warning sign for those looking to buy this pullback. Therefore, if you want to combine volume with this method, make sure that the volume expands in the direction of long or short trades.
Now let's move on to the application of moving averages. In this method, you can use the moving average to evaluate the direction of the trend. In this particular chart, I have used a 50 period moving average on a five minute time frame chart. Now, if you were trading this stock, you would see that a bullish engulfing pattern has formed at the 50% mark and the price is above the 50 period average. If we also look at the average, it is trying to go up. Now to me this would become a high probability setup as most of the factors are present for this trade.
The way I use this is that if the pivot, Fibonacci retracement, and price action don't confirm the trade, then I like to see what the volume and moving average suggest. Now, based on this, I make an informed decision. You can also include concepts that we discussed in the previous two videos on intraday trading strategy to include conditions such as high volume node, relative strength, early decline, and open interest. It depends on how you want to look for further confirmation of various data points. Now, for those of you who missed those videos, I'll leave a link to those videos toward the end of this video.
Let us now move on to the importance of when the pattern is completed.setback in this intraday trading strategy. You must understand that time is extremely valuable as an entity in day trading. This means that you need to have time on your side for the trade to work for you or against you. When trading this retracement strategy, you should ensure that you only trade those retracements where the entry signal is triggered within the first three hours of the market opening. The sooner the pattern forms, the better it will be as you will have free time to make the trade work in your favor.
However, on the other hand, if the retracement pattern completes at 2:00 p.m. or 3:00 p.m., which is very close to the end of the day, then you should avoid doing those trades. These trades should only be performed if you intend to hold positions for a couple of days or if you detect extreme momentum in the market on that particular day. If you look at this chart, the retracement pattern completes here around 10:00 AM. m. in the morning and then the price drops as the day progresses. You have plenty of time available to make the trade work in your favor and evaluate the overall market.
I hope this particular aspect about time is clear. In this chart, the price has an upward movement here and then the retracement pattern completes at 11:30 AM. in this region. You will then see the price move higher as the session continues. Day traders often overlook the importance of when the pullback trading setup is in place. To be successful in intraday retracement trading, you should only target those setups that occur before 12:00 to 12:30 PM. m. In this way, you will increase the odds in your favor when operating with this strategy. Let's now see how you need to detect high probability trades with this intraday strategy.
I have marked the pivot level, Fibonacci retracement, and resistance level on the chart. On this chart, the retracement pattern completes at 11:00 AM. m. Look at all these long shadows you can spot in this region. All this represents an offer at a higher level. Then, the price forms a dark cloud covering pattern here and two bearish engulfing patterns at these points. Post this, price goes down with momentum. As you can see, the price started facing resistance between the retracement level and the pivot level. The pivot level you see here is around the 50% retracement mark. Now, when you short sell, you need to estimate the price to move from the pivot level to one level support to two level support.
These are the regions where you should think about booking your profits in your operation. Let me explain this in the following chart. In this chart, the retracement setup is completed between 38.2% and 50% of the retracement level. Look at the set of all these candles here, all the candles have a long tail, which clearly represents the demand of the buyers. The trigger to go long comes here in the form of a bullish engulfing pattern and this happens very close to the pivot level marked on the chart. Setup of the recoil was also completed around 12:00 p.m. If you see it, then the price rises with the momentum.
During this period, the price crosses R1 and then R2, which serve as suitable regions to make profits from your trade. In such setups, the stop loss is set at the nearest swing low. In this example, I will set my stop at this particular level and then wait for either trade to work in my favor or for this stop level to trigger. In this chart, the price has a previous upward movement here and then goes down to the 50% retracement mark. This is also where the turning point of the day exists. At this point, the price tries to rise in the form of bullish piercing pattern and wide range bullish candlestick pattern.
Post this, the price moves sideways for some time and then goes up during the day. Here are a couple of candles with a long tail suggesting demand around these levels. The price eventually moves to the R1 level, where one should think about booking profits or partial profits for the day. Let's take one more example. In this chart, the price moves down from this region to here and then retraces upwards on the back of the long tail candle. The price then faces resistance at the 50% and 61.8% levels and this can be seen here with these long shadow candles.
The price also forms two bearish engulfing patterns here around 50% and 61.8%. If you see, this is also the region where the pivot level exists for the day. The retracement pattern in this example completes at 10:00 AM. m. in the morning and then the price consolidates a little before going down. The price is moving quickly from the pivot level to the S1 level, where one should think about taking profits or partial profits for the day. Let's now look at three simple rules that we must follow when trading with this intraday strategy. Rule number one: Long trades should only be placed when the price has had a previous upward movement and retraces to the 38.2% to 61.8% level as well as being close to the pivot level or a support level.
Use the R1 and R2 levels to book profits on your trade. Throughout this process, focus on bullish price patterns along with long tail candles. Rule number two: short trades should only be made when the price has had a previous bearish movement and retraces to the 38.2% to 61.8% level as well as being close to the pivot level or a resistance level. Use the S1 and S2 levels to book profits in your trade and always focus on the long shadow candles. Rule number three: Trades must be made within the first three hours of market opening, and if the price action, pivot analysis and Fibonacci retracement do not give you a clear picture, check the volume and moving averages like filter.
Now, in my opinion, apart from this set of rules, I don't think you need any other filters. As a day trader, focus on keeping things extremely simple. This strategy is quite easy to learn, so be patient and practice a lot in real time. If you have any questions related to price action concepts, Fibonacci concept or pivot levels, please let me know in the comments section below. I read and respond to every comment that is published and that is why do not hesitate to ask any questions you have, no matter how basic they may seem. So consider hitting the like button and sharing this video if you find it useful.
Thank you very much for watching this video, guys. Take care and stay safe.