Original subtitles

Trading zones at the extremes of dynamics.

In addition to the previously seen trading zones, where the price is in the

clear range context, or during the early stage of the trend, we are going to

address another potential trading zone that we can identify if we draw the

properly.

We have already looked at the most efficient way to carry out this task.

We can do it either manually by applying logic, allowing for some flexibility

and based on the principle that the lines should contain most of the price

action. And we can also do it using the regression channel, a completely

objective method that allows us to quickly adapt to market changes.

Let's look a little at the rationale behind this idea.

In short, it is about identifying the prevailing market dynamic to assign

overbought and oversold areas in its structure and use them as zones in which

look for potential trades.

Initially, if you are an inexperienced trader, these trades should only be in

the direction of said movement.

and any reverse trend trading should only be attempted by those with more

experience. We have already seen that one of the advantages of correctly

the lines is that it alerts us to the moment in which said dynamic has been

broken, which should signal an imminent reversal in the price.

We already know that an essential condition before considering a trading

approach on the opposite side is to wait for a break in the latest short -term

dynamic. Well, Another of the major advantages of drawing lines efficiently

that it provides us with zones that might offer us good opportunities to

and exit the market.

Now, say you have identified a bullish channel, and regardless of whether you

want to buy or sell, what are the best locations to try to trade in?

There is no doubt that the ideal thing to do is wait for the price at the

extremes.

If we have already determined that the control is bullish, we will only want to

buy. and we can use the visits of the price to the lower zone of the channel,

the demand zone, to look for some type of behavior that suggests that a turn in

the market is probable, such as a reversal of the movement, a fast

even the development of the complete structure of the Wyckoff method.

Since we do not know if the dynamic might change at any time, or when an

acceleration or deceleration of the price, or an excess of greater or lesser

depth might be generated, We are going to try to limit the influence of this

uncertainty first by waiting for the price in the lower third of the

and second by waiting for the appearance of the behavior we are looking for as

an entry trigger.

Let's now look in detail at what happens in that part of the chart and how we

can apply these ideas to our trading approach.

This part corresponds to the box that we just saw in the previous slide.

This is a perfect example because it combines the two main concepts regarding

the efficient drawing of lines.

On the one hand, we have been able to identify the prevailing long -term

dynamic, which we have already seen as bullish, which therefore determines the

trading approach towards the long side. And on the other hand, we see that the

market, in the short term, is following a bearish dynamic.

suggesting that it would be best to wait for the real breakout of said dynamic

before evaluating the short position we are looking for.

We have already seen that the same idea can be approached from different

perspectives and in different trading positions.

A lot of this will depend on your profile as a trader and the level of

are prepared to assume with your entries.

In this particular example, the more aggressive trader would wait for a false

breakout to take place just below the two demand lines.

the main trend line and the line which applies to the shorter -term context.

Meanwhile, a more conservative trader would also wait for the breakout of this

short -term dynamic as a definitive sign that it is highly probable that the

market will resume the upward trend from that point.

This short -term dynamic has been outlined through the use of a regression

channel, which, as we already know, is anchored between the high and the low of

all the behavior.

In this example, we have seen the two main benefits of efficient line drawing.

and this could also be combined with the use of multiple timeframes.

If we determine that we are in an interesting trading zone based on the

-term context, it might be time, if the trader so decides, to move to a shorter

timeframe in order to identify a shift in the market, such as a reversal

movement, a fast pattern, or a slow pattern.

Looking at the chart with a longer timeframe, we would be located in an

interesting area for this reversal to take place, waiting for a movement to

opposite extreme.

An efficient use of the context would be to move down to a shorter time frame to

try to trade in that reversal behavior that will generate the shift upwards.

As you can see, lines by themselves offer little in the way of predictive

However, used together with other tools, they can be very useful from a trading

perspective.

We are now going to look at a series of step -by -step examples on how we should

interpret things at the present moment.

We have launched a regression channel from the lowest low to the highest price

level. which leaves us with these supply and demand lines.

They are not projected into the future, but we can guess at what moment the

overbought and oversold zones of this dynamic would be reached.

What we are going to do, therefore, is wait for this to happen, for the market

to reach our demand trading zone, and then we will begin to look for our entry

trigger. And here is exactly what we are looking for, on the trading zone with a

shakeout at the level of liquidity that had been previously generated with that

pivot. If everything is aligned, there is no reason not to take the trading

opportunity to buy.

If you look carefully after breaking the low of the pivot, the price has an

initial bullish reaction but then develops a new bearish candlestick. We

talk about this later, in the section on trading approaches, but that bullish

candlestick would not act as an entry trigger since it closes at the middle of

the last large bearish candle and also has a wick at the top, denoting an entry

to sell.

On the other hand, In the last action, we see the appearance of an SOS bar that

closes at the top of the last SOW bar and therefore could serve as an entry

trigger to go long.

We would then wait for the market to hit a new high to restructure the

regression channel. And from there, the reasoning would be the same. Wait at the

demand zone and see how the price interacts when it reaches it.

On this occasion, after the last high, the price then develops three false

breakouts. which in principle could be seen as possible entry points.

The first one is technically a false breakout, as it objectively meets the

criteria of the two candlesticks that we need for a pivot to be generated, on

the left and on the right.

Moreover, the bullish candlestick that follows denotes a good presence of

buyers, so while it is certainly not a visually appealing pivot, the trade

have been taken and it would have resulted in a loss.

To try to avoid this type of situation, we can add a filter that will stop us

from taking into account these types of pivots that are certainly difficult to

see and do not fill us with confidence.

The second false breakout has the same characteristics as the first, and again

strong demand candlestick appears.

As we will see later, I always recommend the use of stop -type orders to enter

the market, an order that in this case would be located above the bullish

candlestick, and that fortunately I would have not taken, as I had entered

would have meant a new loss.

Finally, the third false breakout once again meets our criteria, both regarding

the pivot and the SOS bar.

This so, added to the fact that we are still in the trading zone, means we

should take this opportunity to enter.

In this case, it would have gone well and we would have made a profit.

These three entries, as you may have guessed, would correspond to a more

aggressive trader profile since they do not wait for the latest prevailing

market dynamic to change.

What would have happened had we adopted a more conservative profile?

Well, we still would have had our chance to enter the market at that false

breakout, and we would have been successful. A sniper approach to

Just one shot.

This is why we need to first decide what kind of trader we are and what kind of

trading we feel most comfortable with.

We could adopt both forms of trading by carrying out an appropriate risk

management, but we will also address this later.

Again, once the upward trend movement has restarted, we would readapt the

regression channel towards the new highs, reaching that present moment in

the market revisits the previously identified demand zone.

If we look closely, we could even be seeing a small structure where a new

is being built.

The market seems overextended, that is, it seems to have already traveled a

certain distance upwards, so we could be facing a possible end of the movement.

The key here, if you remember, is to analyze the power of this structure with

respect to the accumulation structure that generated all this bullish effect.

Since this would be off the slide, I have added it in the box.

As we can see, the structure that gave rise to the bullish trend is quite a bit

larger, which suggests that a considerable cause has been built. This

should rule out the possibility of this small structure exerting any effect and

reversing the market.

Therefore, with this basic premise Our position at this point should be to

continue to expect the development of a reaccumulation structure rather than a

distribution. What does this mean?

Well, as in this particular example, even though we have seen an upthrust in

this minor structure, we should continue to expect the possibility of a spring

being developed in favor of the context, and if so, depending on this anatomy,

we should consider entering the market to buy.

And indeed, We then see a new bearish false breakout at the trading zone that

ultimately shows the structure to be a reaccumulation.

Remember that the market loves to give off false signals, so it is vital that

understand the prevailing context.

Of course, it won't always be this way.

Sometimes this same behavior will cause the entire market to reverse and

generate a bearish trend, but this wouldn't be the norm.

Our advantage lies in expecting the price move in line with the overall

of the market up to that point in time.

And, as happened previously, another new false breakout then occurs that can be

used by those more conservative traders who have waited for the break from this

last dynamic and have wanted to enter once the sentiment of this minor

has been confirmed.

And there is still one more opportunity at that confluence of the false breakout

with the trading zone.

Without a doubt, these are simple but very powerful ideas that can give us an

advantage when trading.