Have you ever seen the magic eye posters that were popular in the 90s that had a hidden image in the image and you had to adjust your eyes just right and keep a certain distance from the image to see the image?
I personally remember how I loved them as a child and I really don't know what happened to them, but when I first thought about today's lesson, these images came to my mind. This is because, just like these pictures, the market contains a “hidden” message that only those who are trained in the art and skills of price trading can see properly. For the average person looking at a price chart, they will see a series of seemingly random bars that mean nothing, but the price action dealer sees the message that the money footprint (price action) on the charts says so.
In this lesson we will discuss how to see the hidden messages in the market and what they mean.
Listen to the market and hear what it means
To hear what the market is trying to tell you, you first need to know exactly what to listen to. What you hear are indications of price promotions that remain when the “history” of the market plays out in a chart. And just like reading a book, you have to know what happened before so that the current “page” makes sense. That means knowing how to analyze the past price action to understand the current price action and use this to make an informed prediction of what might happen next.
You see, every single bar in itself really means nothing. It is the bar COMBINED with the surrounding market structure or context that paints the picture of this market for you. As soon as you follow a market long enough, you will know it well and get a feel for it. This comes over time, but it's really what "listening to the market" is all about.
HOW EXACTLY are you listening to the market and "LISTENING" what it is trying to tell you? You do this through a price action analysis, and I'll give you some specific examples below …
The charts are the way the market "talks" to us. However, if you don't know what to listen to, the message will go straight over your head. Let's take a look at some of the main elements of the market's price action language …
Current price behavior and market conditions
The first important message you need to learn to hear in the charts is whether the market is trending or not. If it is trendy, it is very, very good for you, because trend trading is absolutely the easiest way to make money in the markets. If it is not trending, it is likely to consolidate either in a large range (which can be good to trade) or in a very small and random range (choppy and usually not good to trade). This is an important thing to learn in order to decode early as it really dictates which direction you want to act and how you should focus on this market as a whole.
Notice in the graph below that the price moved from a phase of choppy / sideways (small range) price movements to a sharp breakout and then a retreat to the middle of the range before an uptrend started and kept the price higher for months …
In this picture, the price trended aggressively higher before pausing and entering a long phase of sideways price movements. Obviously, the trend periods were much easier to trade and more fruitful. However, many traders continue to trade (and lose their money) because they don't know how to correctly interpret the language of the price promotions. This clearly showed them that the market was entering a period of more difficult trading in PA.
Key levels and technical analysis "perfect" vs. "Imperfect"
Perhaps the next most important “message” the market can send you is HOW the price responds to the most important chart levels. Sometimes a market respects nearby levels very, very well (in many cases almost exactly or even exactly). Sometimes not so much. I prefer trading in markets that respect important levels as this tells me that for some reason this could continue in the near future. Once you have identified these levels, you can wait for them to generate high price price action signals. However, if the price does not meet the level very well, you should avoid this market for the time being.
How price responds to obvious key levels is extremely important. Are we technically “perfect” at the moment or are the technical details more messy and imperfect?
Failure of key levels and contrary signals
Human nature and brain wiring make most people really, really bad dealers. This is because when we look at a graph and see it go up, we feel like it will go up, but this is usually the time it will go down, lol. It can be very, very frustrating for the beginner or the trader who doesn't yet understand to hear and hear what the price action is telling them. Once I wrote extensively in my blog and in my trading courses about how to act like an opponent to benefit in the market. There are indications of price promotions that tell us when a contrary step is underway and the price will return in the opposite direction. One of them is a wrong level break and of course there is also the wrong trading strategy. These are some of my favorite trading patterns as they show the underlying market psychology and give a strong indication of what might happen next.
Note that the price broke the wrong resistance in the chart below before aggressively going back down.
Failed price action signals are fantastic. Wait what?
Ah, the failed price action signal, yes, they can be painful and sometimes a trade just doesn't work. This is a fact of trading that you have to deal with through proper risk management. BUT (you knew it was coming) sometimes failed price action signals can be very strong signals. For example, if you find that the price is hurting the high or low of a particular signal that you thought would have the opposite result, ask yourself what that tells you. What is the market trying to tell you?
Don't rethink it. If you see a price action signal failing, it is a strong indication that the price may continue to move in the same direction …
Event areas and current profitable promotional action signals
If you don't know what event areas are, we recommend that you read my lesson on this topic, as these are very important news areas that the market wants you to see. If you see multiple price action signals coming from the same or a similar area, you may have an event area. If you see another signal in this area, it is a very strong signal that needs to be considered.
Notice the pins in this level when the last one on the right missed an extremely profitable move if you didn't know how to interpret the market message.
You have to think beyond the actual act of trading
Technical analysis is a language and we have to interpret it if we want to have a chance of long-term, sustained trading success.
As most wealthy business people will tell you; Listen a lot, hear what others have to say, get feedback and then make a decision. It is often said: "Be the last one in the room to speak." A clichéd business phrase from most corporate governance books, but it's true. Translated into the retail world, we can “listen” to the market message and then let the market show us what it wants to do. Then we use the collected feedback to form an opinion, create a plan and then act accordingly.
However, it is more than just "listening to the message". You need to combine the messages the market sends you (see examples above) and formulate these messages in the "story" told from left to right in the table. You want to paint a visual “map” by commenting on the technical factors in your charts as in my weekly market commentary.
We use the message to both make and avoid trades and develop a general sense of market conditions, similar to reading the weather and making forecasts. You don't respond to every forecast you make, but some of them could prove very useful in planning what you will do next.
With this in mind, you want to respond to the clearest messages and only the strongest market forecasts. The messages that we interpret are not simply what I would normally teach as a confluence of factors. The concept of "listening to the messages of the market" is really something bigger than just discovering a retail setup. We are talking about hearing the message the market is telling us about smart money. With this information, we can decipher many, many things. We go far beyond the idea: "Hey, I can see 1 + 2 things, so I have to act now." Once you have reached a certain point in your price control, you will feel that the market is actually "closed." "Talks to you" and tells you what to do instead of trying to tell him what to do (which for your information never works).
My trading approach is based on seeing charts daily and interpreting the news broadcast by the market. We have to be there to listen, to map it and to interpret it. Imagine reading a page in a book every day. In the retail world, this means that every day in New York from Monday to Friday, I hear the message that is being sent (i.e. read the price action, map the charts, and decrypt their hidden message). However, that doesn't mean that I sit there all day staring at the charts. I have my scheduled times to check the markets every day, and if I don't "hear" anything from the charts that day, I'll forget them until tomorrow. I am not sitting there and I am trying in vain to "force" something that is not there
Nine times out of ten, I take no action, but this one out of ten when I take action, I pull the "withdrawal" of the trade like a deadly sniper waiting to take the "kill shot" once the right trade Setup is in focus. If you want to learn more about what the market says and how to interpret it effectively, read my professional trading course for more information.
Please leave a comment below with your thoughts on this lesson …
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