All language subtitles for 1. Identifying trading zones

Identifying Trading Zones Having
successfully completed the first two

our trading plan, where we have
determined the market context and also

of trading we are going to carry out, we
will now move on to the next phase,

Step 3 of the trading plan.

Here, we will learn to identify the most
important trading levels and zones

which we need to take into account,
those in which we are going to look for

appearance of our entry trigger.

Remember, everything we have looked at
up to now has helped us to answer the

first and most important question in our
trading plan.

What do we want to do? Buy or sell?

The answer to this question will always
be dependent on the market condition and

its context.

The market can only be in two
situations, a range or a trend.

Within these, there are only three
possible trading contexts.

In a bearish context, once a
distribution appears, we should only

operations. preferably false breakouts
at previous highs.

In a bullish context, once an
accumulation appears, look for buy

preferably false breakouts at previous
lows.

In a neutral context, depending on our
profile as a trader, we can trade at

extremes, preferably favoring the
direction of the trend prior to the

establishment of the range.

From that point and once we have decided
which direction we want to position

ourselves, it is time to look for the
right trading zone.

Over the duration of the course up to
now, we have already started to look at

this, but now we will distill it further
so it is absolutely clear.

The context will determine the type of
trade that we should execute at all

times. In a bullish or bearish context,
we should trade with the trend, be it

bullish or bearish, and in a neutral
context, when we are already in a

sideways movement, we should apply a
form of range trading.

Within each of the two major types of
trading we can identify different zones

levels, which will be the ones we will
use to look for our entry point into the

market. We will now look in more detail
at each of these.

Let's start with the neutral context, in
which the price begins to develop a new

structure, and based on this we will
look at the entire module on identifying

operating zones.

The general recommendation is that
unless there are sufficient signs to the

contrary, we should bear in mind the
direction of the previous trend and

continue trading in this same direction.

In other words, until we see a potential
Phase C test event appear, the more

conservative trader should trade only in
the direction of the latest trend.

A more aggressive trader might consider
trading after false breakouts at the

edges, until the potential Phase C false
breakout appears.

Once the Phase C false breakout appears,
only trade in that direction.

The reason why we should trade in the
direction of the previous trend is due

the fact that, at an early stage in the
development of a structure, we don't

really know if the context of the market
has changed and if it is now going to

start moving sideways, or if instead it
is a simple corrective process that will

then be followed by a continuation of
the trend.

In the end, a trend is an unbalancing of
the market in one direction and

therefore, at the beginning of a range,
there may still be some imbalance

towards that side.

At this point, we can play with two
inputs in our favor.

The fact that we are going to favor
trading in the same direction as the

previous imbalance, applying the
principle of technical analysis, which

that the market will continue to move in
the same direction in which it has been

moving previously, and the fact that
what we are seeing might not be a slow

structure, but a much faster pattern
that would act as a simple corrective

process of the current trend.

As we see in this example, A market in a
trend context develops many pauses

within itself.

This is the nature of the market,
impulsive and corrective movements in

one direction.

And depending on the conditions that
exist in the market at that moment,

corrective movements will develop in one
way or another, more or less quickly

and more or less intensely.

But the key is to realize that the
market is still unbalanced in favor of

direction, and that is why we need to be
wary of the implications of corrective

movements. and not start trading against
the main trend at the slightest hint of

a change.

Remember what we learned in the module
on determining the trading bias of a

structure.

Let's assume that we are in the middle
of a bearish trend and the market begins

to reverse.

Our first hypothesis is that it could
simply be a minor correction, after

the downtrend will continue.

So at that point, we should be in a
position to look for possible short

positions.

Applying the aforementioned principle of
continuity, We must not anticipate the

behavior of the market and assume, at
this point, that we are facing a change

context that will make the market
migrate to a sideways environment.

We must let the market itself inform us.
How?

Well, in the only way it can, by
demonstrating the change of character

starting a sideways movement.

When we work with this type of
hypothesis, in which we are looking for

continuation of the trend after a simple
correction, how can we enter the

market? What is the trading zone?

Initially, and due to the possible
momentum of the market, we do not have

identified trading zone. So in these
fast -moving situations, we can make use

a very powerful concept that can help us
identify the end of a movement.

This involves analyzing candlesticks to
confirm as soon as possible the end of a

swing and the potential start of a price
reversal.

In this regard, the first thing we need
to do is identify the last candlestick

showing intent in favor of the direction
of the current movement.

We are going to assume that this
indicates the current control of the

the short term.

Remember that due to the pure fractality
of the market, this upward movement

that represents the correction is
actually an upward trend in lower time

Therefore, in the very short term, the
prevailing trend is bullish.

We need to use a tool to determine the
breakout of this if we do not want to

move to a lower time frame and look for
some minor distribution process there.

In this example, the candlestick showing
bullish intent is the last SOS bar I

have marked.

This is the candlestick we will take
into account in applying this concept.

What we will do is wait for the price to
close below the low of this bullish

bar, as a sign that control of the short
-term market has reversed in favor of

the sellers.

And this happens precisely with the last
SOW bar.

So if there is no overriding sign that
conditions the current one, we would be

in a position to expect a scenario in
which there will be a new bearish

But the market did not develop as
predicted in our first scenario.

We can continue to make use of the
reversal concept and determine that it

ended after seeing candlesticks showing
the opposite intent.

as is the case here with the last SOS
bar that closes above the last SOW bar.

The first hypothesis would be to expect
continuation, but once we have confirmed

that the market has failed to continue
falling and instead has started to

develop a short sideways movement, our
next hypothesis should be to wait for

development of a fast accumulation or
distribution pattern.

You've now got the idea, right?

It is about going from less to more.

First of all, we hypothesize that we are
looking at a simple correction within

the trend. And if this does not develop,
we hypothesize that we are looking at a

longer -lasting corrective process, or
what I have called a rapid accumulation

or distribution pattern.

And if this doesn't develop either, the
hypothesis we will work under is that we

are observing one of the slow patterns
suggested by the Wyckoff method, a

classic accumulation or distribution
structure.

Looking at this particular example, Once
we determine that it is not a simple

correction, the trading zone for this
context is located at the last high

point generated by the price.

Here, we will wait for the development
of one of the fast distribution

We already know that a climax will not
develop since this belongs to the

previous hypothesis of a simple
correction prior to the continuation of

downtrend.

Therefore, we must wait for the
appearance of one of the three remaining

patterns, a double top, pullback, or
trap.

I personally always wait for the
appearance of a trap.

This behavior, as you already know,
corresponds to a false breakout or

So at that point, we would already have
everything aligned, the bearish context,

and at the identified trading level, we
would wait for the appearance of a

bullish false breakout and enter the
market with a short position and wait

the continuation of the bearish trend.

But the market doesn't follow this
hypothesis either.

The visit to said level does not take
place.

and instead it continues to move
sideways.

At this point, it is already evident
that we are dealing with a slow

accumulation or distribution structure.

As we can see, we have been reacting to
the behavior of the market and applying

different concepts depending on the
situation.

At this point, since we are already in
Phase B, as we have previously

we have two trading options depending on
the trader profile.

The conservative profile will only look
for selling opportunities.

influenced by the preceding trend while
the more aggressive trade might look for

opportunities in both directions.

What are the trading zones then in this
context?

We already know the answer to this. The
supply and demand zones that are

generated at the upper and lower edges
of the range.

Personally, I like to use only the
absolute limits of the structure because

false breakout at these edges fills me
with more confidence.

But they can just as easily be treated
as wider zones.

since the appearance of reversal at the
edges is a process that covers a certain

distance.

In any case, if you decide to take into
account the supply and demand zones

instead of only the absolute limits of
the structure, don't look to enter the

market simply because the price reaches
that zone.

Instead, wait for a minor false breakout
to appear in this area.

This combination will give you better
results, since you will be trading false

breakouts in zones at the edges, which
implicitly denote overbought and

conditions.

My recommendation is that you do not try
to trade false breakouts in the middle

of the range.

The more central the zone is with
respect to the limits of the range, the

balance and acceptance it represents,
and therefore the lower the probability

breakout success.

As we have said, the edges of the range
represent overbought and oversold

situations.

This, in itself, offers an opportunity
to buy low and sell high.

Therefore, if you trade inside the
structure instead of at the edges, you

be buying and selling at a fair price,
which means that you won't benefit from

any advantage.

In those central points, the market can
go both up and down without any

conditioning factor, almost randomly.

The real advantage in a range context is
offered by trading at its edges.

How long can we implement this trading
at the edges?

We already know the answer to this.

Until the definitive false breakout that
is likely to generate the start of the

imbalance of the structure appears.

And so this is our next trading zone,
the absolute edge of the structure,

we will expect the Phase C test event to
develop a total false breakout of the

range. In our example, it appeared below
the range, so the odds suggest that we

are looking at an accumulation pattern.

From that point on, regardless of what
kind of trader you are, the context and

the roadmap point in a single direction,
so you should only assess opportunities

in favor of this false breakout, as has
been suggested throughout this course.

The next trading zone appears during the
development of the trend movement

within the range, during Phase D.

You should bear in mind that finding
opportunities in this context will not

always be possible.

It will depend on the momentum that the
market carries and the distance between

the edges of the range.

In this case, we see that there is a
great distance, so it was likely to be

to identify some opportunity in favor of
the bullish roadmap.

The price is capable of developing a
good upward movement that reaches the

but fails to break the structure at the
top, which is why we call it a minor

sign of strength.

From there, it develops a smaller
structure, and here we find our next

zone, at the lows that it generates in
said structure.

This is a high -quality trade.

In our favor, there is the major
shakeout we have just seen, the sign of

strength, and a minor shakeout which
offers a very reliable opportunity.

The structure continues with its genuine
development and produces the real

bullish breakout.

There is something interesting here.

Could the BUEC be that behavior that I
have marked in the image? Or by

is it more logical to think that the
true BUEC corresponds to the last

Well, we don't really care.

This has more to do with labeling than
with trading, so we shouldn't focus too

much on this.

My point of view is that, based on the
concept that we looked at about the

proportionality of movements, it seems
more likely that the last movement is

BUEC. since the previous one seems a
little out of proportion.

If you look carefully, the minor BUEC,
the one that I have marked with an

corresponds to the minor structure that
develops within the range during Phase

D. For this reason, it also seems more
logical to me to identify this small

as the test after the breakout of the
intermediate structure and the larger

as the test after the breakout of the
entire structure.

Going back to the major test after the
breakout, we see that it does not

actually develop said test on the broken
resistance level.

And this broken resistance level is
actually our next trading zone.

The fact that the price doesn't manage
to go down to it is not something

negative. In fact, it is a sign that
denotes underlying strength.

Do you recall how we should interpret
patterns that are not capable of

developing a false breakout at the edges
of the range?

We said that basically they represented
strength in the opposite direction since

the participants did not have the
ability to send the price to those

This is exactly what is happening here.

The trading level on which we are going
to look for the test after a bullish

breakout of the entire structure is the
resistance level, or CREAK as it is

known in the methodology.

But we know that this can happen, and
that whether the market develops said

a little higher or lower falls
completely within the expected scenario.

hence the importance of being somewhat
flexible in our expectations of how the

market will behave.

In this case, the fact that the price
has stayed above said level actually

denotes a greater underlying strength.

The agents involved, for whatever
reason, have agreed at an aggregate

the price will not go down to any lower
trading levels, and that is why the

bullish reversal has been generated
right in that area.

This zone has not appeared by chance
either. It has been generated with a new

sideways movement.

which offers us a trading level below
its lows since we can expect there to be

some liquidity located there a certain
number of orders pending execution and a

false breakout at that zone represents
another very good opportunity to enter

the market long finally once out of the
range we already know what the context

is and what we should only be looking
for the trading zones here will be

generated as the market develops It is
simply a matter of monitoring the asset

and waiting for a pivot to be generated
that is likely to create a liquidity

zone and then wait for a shakeout there.

Here, we see some examples of what we
are looking for. A market in an uptrend,

which develops a pause and a search for
liquidity occurs at said levels before

generating a new upward momentum.

The shakeouts that occur during this
trend phase were called ordinary

by Richard Wyckoff.

This doesn't have any type of special
implication.

they are simply springs in favor of an
upward trend movement.

You may have noticed that this is the
same context as the one we saw at the

beginning of the example, where we
presented the first trading zone with

reversal movement concept and also that
of the second trading zone, where we

discussed the possibility of searching
for trades with fast accumulation and

distribution patterns.

As you can see, we have started with
that context and ended with it.

We started with a trend context and
ended with the same concept, only in

case in the opposite direction.

We waited for the creation of the
trading level with a first arrival and

reversal of the price, before then
looking for one of the suggested

work with, the double bottom, the
pullback, or the trap, which we already

refers to our shakeout.

You can use any of these fast patterns,
but my recommendation will always be to

wait for the trap, and we already know
why.

This segment of the market is very broad
and covers the entire trend movement.

Therefore, if there is a strong trend,
it can provide us with multiple

opportunities throughout its
development.

Here we can see the seven trading zones
that we have identified throughout the

development of the example, from before
the range began to develop until the

trade in favor of the trend.

Obviously, you don't have to trade each
and every one of the zones.

Over time, you will adapt your profile
to trade only those that offer you the

greatest confidence.

And in this chart, we can see exactly
the same thing, but adapted to an

of a distribution pattern.

We won't dwell too long on this, and
we'll just do a quick run -through of

of the zones, as it's essentially the
same as the accumulation example above.

I just want to say in the first part of
the chart, we would be looking for short

positions, because the preceding trend
is bullish.

Trading opportunity number 1 can be
identified thanks to the concept of

reversal when a bullish candlestick
closes above the last SOW bar.

Trading zone number 2 is a fast pullback
pattern since, if you look closely, you

will see that it fails to plunge below
the lows of the last pivot.

Trading zone number 3 is located in the
demand zone, in the lower part of the

structure, where we could expect the
appearance of a bearish false breakout

minor spring.

Trading zone number four is finally the
appearance of the phase C test event, in

this case in the form of UTAD, which
reverses the market sentiment and would

suggest that we only look to go short
from that moment onwards.

Trading zone number five is a minor
false breakout during the downtrend move

within the range.

Remember that this opportunity will not
always appear since it will be directly

conditioned by the width of the range
and the momentum of the market.

At trading zone number six, The broken
support zone offers us two opportunities

in that break and retest movement.

And from there, once the trend is
started, we find ourselves in trading

number seven, where we should look to
enter expecting a continuation of the

bearish imbalance.