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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.