Price Action and Path of Least Resistance PDF

Price Action and Path of
Least Resistance
Written by Chris Svorcik, MBA, MSC
For www.EliteCurrenSea.com
Published in 2020 as an online guide.
Copyright © 2019, 2020 by Elite CurrenSea.
Elite CurrenSea has asserted his right to be identified as the author of this work.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior permission of the copyright owner.
First Edition: September 2019.

Second Edition: April 2020.
Content Index
Bio Author and Partners 6
Author 6
Chris Svorcik 6
Partners 7
Elite CurrenSea - www.EliteCurrenSea.Com 7
Nenad Kerkez 8
Mislav Nikolic 9
A Short History Plus Performance 9
Mislav Nikolic’s Ultima EA 11
ecsLIVE, ecsCAMMACD, and ecsSWAT 13
Price Action and the Path of Least Resistance 17

Path of Least Resistance 17
Trend, Momentum, and the Building Blocks of the Charts 18
Chart Hierarchy 21
Candlestick Basics 23
Candlesticks Explained 23
Correlation between the Open and the Close 24
Candlestick Patterns Explained 30
Bearish Reversal Candlestick Patterns 32
3 Black Crows 32
3 Inside Down 33
Evening Star 33
Upside 2 Crows 34
Harami 35
Bearish Abandoned Baby 35
Meeting Lines 36
Dark Cloud Cover 37
Advance Block 38
Bearish Continuation Candlestick Patterns 39
Falling 3 Methods 39
Bearish 3 Line Strike 40
Marubozu Bearish 40
Bullish Reversal Candlestick Patterns 41
Bullish 3 Inside Up 41
Bullish 3 Outside Up 42
3 White Soldiers 42
Concealing Baby Swallow 43
Morning Star 44
Piercing Line 45
Bullish Belt Hold Lines 46
Harami Cross 46
Harami Bullish 47
Tweezers 48
Bullish Squeeze 48
Bullish Continuation Candlestick Patterns 49
Rising 3 Methods 49
Side By Side White Lines 50
Marubozu Bullish 50
Price Swings: the 4 Types of Price Action 54
Identifying Price Swings 56
Strong vs Weak Price Action: Momentum and Correction 57
Impulsive Price 57
Corrective Price 61
HMA 65
ECS Fractals 65
Time Patterns and Zigzag Pattern 67
Awesome Oscillator or ecs.MACD 68
Benefits of Oscillator in Wave Analysis 70
Reading the Oscillator 71
How to Find the Price Swing 72
Wave Patterns 76
Identifying Momentum & Correction 77
Swings Become Patterns 79
Chart Patterns 80
Bullish and Bearish Continuation Patterns 80
Bullish and Bearish Reversal Patterns 83
Seeing and Recognising Patterns 87
Swings Form Trend 87
Defining the trend 88
Classical HH and LL 91
Moving Averages 93
Correct time frame trends 95
Range or consolidation 96
Reversals 96
Retracements 97
Retracements: how far can we expect the price to go? 102
Direction of the trend 106
Spacing between averages 107
Moving average numbers 107
Short-term MAs 108
Long-term MAs 109
Combining short and long-term 109
Momentum MA 110
Trending market 110
Trend channels 112
Good angle 113
Too steep channel 113
Too shallow channel 114
Sideways channel 114
Multiple hits 115
Internal channel lines 116
Price action versus channel 117
Using single trend lines 119
Steep trend lines (inner) 120
Medium trend lines 121
Shallow trend lines (outer) 121
Bio Author and Partners
Author
Chris Svorcik
Chris Svorcik is a co-founder and co-partner at the website Elite CurrenSea

(www.EliteCurrenSea.com) , which focuses on the Forex & CFD markets and trading education
and courses. He has won the FXStreet award for best technical analysis in 2018 and the award
for best education in 2016 at the UK Forex awards. Both prizes were won together with his
trading buddy Nenad Kerkez, aka Tarantula FX. Together Nenad and Chris started their own
website www.EliteCurrenSea.com which offers analysis, education, courses, and methods in
the field of trading and the Forex market.
The main specialty of Chris is Elliott Wave analysis and moving average (MA) analysis. He
based his SWAT (Simple Wave Analysis & Trading) method, strategies, and indicators on wave
and MA concepts, which this SWAT book explains. Here are some examples of accurate
predictions in recent years on the basis of Wave Theory:
a) the rise of the USD/JPY in January 2012 & the continuation in September 2012
b) the crash of Gold and Silver in January 2013
c) the fall of the AUD/USD in April 2013
d) the weakening of the CAD in 2nd half 2013 + 2014
e) the crash of the EUR/USD and general USD strength in May-December 2014
f) the bearish continuation of the EUR/USD in January 2015
g) the correction of the EUR/USD up to 1.17 in August 2015
h) the decline of the GBP/USD and GBP after the brexit during June-October 2016
i) the continuation of the EUR/USD from 1.12 to 1.25 during 2017
j) the fall of the GBP/USD from 1.40 to 1.20 in 2018-2019
k) the rise of Gold from $1200 to above $1500 in 2018-2019
But the bigger moves are just a sample of the work he does on a daily basis using the 1 and 4
hour charts. He shows his accuracy not only in the big time frames, but also on the more difficult
lower time frames too.
Chris has been an independent technical analyst since 2011 but he studied technical analysis
actively since 2005. He completed two master's degrees, one in banking and finance and the
second one in economics and politics in 2006 and 2007. After completing his two masters, he
worked for 4 years from 2007 to 2011 for a major multinational firm, part of that time as an
investment analyst. From 2013 to 2019, Chris has also worked with multiple Forex & CFD
brokers to help improve their education in the field of wave analysis and live webinars, including
FXDD, Admiral Markets, and XM. In 2014 Chris started with Nenad his own website for analysis,
trading, and education in the field of Forex called Elite CurrenSea. Chris has spoken in dozens
of seminars since his first one in 2013. Nenad and Chris started ecsLIVE channel in 2017 where
they provide live analysis and webinars. In 2018 Chris embarked on a mission to trade
automatically together with Mislav Nikolic, although Chris had to quit in autumn 2018 due to
private reasons. Mislav managed to complete the goal with an EA he created from scratch: the
Ultima trading system in June 2019. Chris and Elite CurrenSea are now actively trading the
Ultima EA. In 2019 Chris focused on making an overhaul of his SWAT course with new videos,
strategies, and indicators. SWAT 2.0 was eventually launched in April 2020. From 2020
onwards Chris is planning to focus less on analysis and more on automated trading systems.
He plans to create his own automated trading strategy in 2020 and 2021.
Chris was born in 1979 in the Netherlands and holds the Dutch citizenship. But has lived in
Prague for the majority of the time since 2004. His hobbies include walking, travelling, reading
fact literature, playing board games, writing, painting, and politics. He has lived in multiple
countries including Austria, Switzerland, Italy, the United States, Ireland, Czech Republic, and
the Netherlands.
To follow me and my work, please connect to these profiles:
Twitter: https://twitter.com/ChrisSvorcik
Facebook: https://www.facebook.com/profile.php?id=100009628491889
Linked In: https://www.linkedin.com/in/chrissvorcik/
Email: chrisjsvorcik@gmail.com
Website: www.elitecurrensea.com
Partners
Elite CurrenSea - www.EliteCurrenSea.Com

Elite CurrenSea (ECS) is a website that offers education, analysis, methods, strategies,
indicators, tools, and trading ideas in the field of Forex since 2014. They have a loyal group of
fans and followers, who encouraged the two to open up their own portal. ECS has organized
several seminars on their own which attracted hundreds of attendees.
They have partnerships with well-known industry giants such as FXStreet, FXEmpire, XM,
FXDD, Finance Magnates. Their YouTube subscribers is above 7,000 and growing and ECS
has gathered a large following on social media and across the web over since 2014. In 2020
and beyond, the ECS website is expected to include options, crypto, and stock trading too which
will each be offered by its own expert.
The Elite CurrenSea website has received more than 73 reviews (April 2020) at Forex Peace
Army with most of them providing a 5 star rating and averaging a 4.6 average.
To follow ECS and our work, please connect to these profiles:
YouTube Elite CurrenSea:
https://www.youtube.com/channel/UCpimDN3XJ9Pg6ML9UALlLOg/featured?view_as=subscrib
er
Twitter: https://twitter.com/EliteCurrensea
Facebook: @elitecurrensea
Email: info@elitecurrensea.com
Linked In: www.linkedin.com/company/elite-currensea
Nenad Kerkez
M.Ec. Nenad Kerkez aka Tarantula FX is a co-founder and co-partner at Elite CurrenSea. he is
also our Head trader at ECS and a valued contributor to many premium Forex and trading
websites including Fxstreet.com. His excellent knowledge of financial markets makes him
frequently appear as a Featured presenter at FX Expos, Live panels and other important events.
Nenad's fiery passion in trading made him receive two awards at Fxstreet.com. He was
awarded the best podcast award in 2017 and the best sell side analyst in 2018 by FXstreet.com.
He worked with Admiral Markets and FXDD as the main Price Action analyst and educator.
Today he works with XM and other major brokers who require his services as a professional
trader and unique price action analyst. His ForexFactory thread Spider’s Den has been viewed
more than 4 million times.
His CAMMACD™ method is a one of a kind trading method that Nenad also utilises for Forex
and CFD analyses. Based on the ecs.CAMMACD system, Nenad took a $10,000 trading
account and made it grow to a $100,000 account in 15 months from December 2018 to March
2020. As of April 2020, the account is now up a whopping +1,134%.
To follow Nenad and his work, please connect to these profiles:
Twitter: TarantulaFX
Facebook: Nenad Kerkez
Linked In: https://www.linkedin.com/in/nenad-kerkez-aka-tarantula-2a32004a
Email: info@elitecurrensea.com
Mislav Nikolic
Mislav Nikolic was born in 1973 in Zagreb, Croatia. Mislav had a taste for entrepreneurship from
the start. After a few successful years running a small company for selling video games, he
decided to search for a new future and challenge. Mislav chose Forex trading after seeing a
seminar from Nenad Kerkez. After a few years of trading, Mislav joined the Elite CurrenSea
team in spring 2017 where he learned everything there is to know about the SWAT methods.
Mislav created his own unique automated trading system called Ultima EA. The live trading
results and back testing have been phenomenal. Ultima EA is quickly creating a name for itself
as one of the best trading systems in the Forex market. Mislav is now CEO at Bull Capital and a
close partner with Elite CurrenSea. He focuses on creating trading strategies and automated
trading solutions. For instance, Mislav also made significant improvements to the Wizz tool and
created an amazing Fibonacci target tool called BullsEye Target.
The Ultima EA has managed to achieve outstanding results with live trading in its first year
varying from +400% to +%700 in just 10 months (using 3-5% risk per setup). The backtesting
results were equally impressive. All of the results from live trading and backtesting will be
explained in the Ultima EA chapter in this guide.
To follow Mislav and his work, please connect to these profiles:
Facebook: Mislav Nikolic from Bull Capital

Twitter: @fxBullCapital
A Short History Plus Performance

Elite CurrenSea was founded in 2014 by Chris Svorcik and Nenad Kerkez. Nikita Barabanov
joined in 2017 as a co-partner with a focus on marketing, affiliate, and growth.
Nenad and I wanted to help out the trading community and our followers so our own website
seemed a great spot to connect the community and traders. It was our new trading home,
although we had a modest audience at the start (2014-16).
The year of 2017 is when a new era started. First of all, our audience grew substantially just
because we started creating more analysis and articles. Secondly, in spring 2017, our mutual
friend Nikita Barabanov joined our team as a co-partner. He saw our value and talent and
wanted to help us out with marketing, affiliates, growth, and getting the word out about us (our
marketing knowledge was very limited).
First we started to work on offering a full scale and professional course. Chris completed SWAT
and Nenad his CAMMACD method. We also started our own YouTube channel which has
grown in 2.5 years from 0 to almost 7,000 (!) subscribers. In 2017 we also started our ecsLIVE
channel with live webinars, analysis and trading ideas, which has helped hundreds of traders in
2 years.
Later on in 2017 we also expanded the team with quality people. Andrey does an excellent job
with helping our traders, Mislav Nikolic was added to the trading team to help with SWAT and
strategy creation, and Ahmed Darwish joined the team to add his analysis.
The next 2 years in 2018 and 2019 we also had a few seminars. Here is an entire list of
seminars that Chris, Nenad and Elite CurrenSea have done:
● October 2013: Chris speaks at two seminars in Lithuania

● March 2015: Chris speaks in Prague, Czech Republic at CNATA - Czech National
Association of Technical Analysis
● February 2016: Chris and Nenad are speakers at Forex seminar in London, UK
● May 2017: Nenad holds a series of seminars in Zagreb and Ljubljana
● September 2018: Elite CurrenSeas organizes Forex seminar in Ljubljana, Slovenia.
● February 2019: Elite CurrenSeas organizes Forex seminar in Utrecht, the Netherlands.
● March 2019: Elite CurrenSeas organizes Forex seminar in Prague, Czech Republic.
● March 2019: Elite CurrenSeas organizes Forex seminar in Zagreb, Croatia.
● March 2019: Elite CurrenSeas organizes Forex seminar in Belgrade, Serbia.
● April 2019: Chris speaks at FPG MoneyExpo Trading in Prague, Czech Republic
● May 2019: Nenad speaks at seminar in Bulgaria
In 2018 Chris also started to work on his new SWAT book, course, strategies, indicators, tools,
and methods. He completed his SWAT book in August 2019 and made a 2nd version in April
2020. The new SWAT course 2.0 was launched in April 2020 and includes new strategies, 74
videos, 22+ hours of video recordings, new indicators, and new strategies. The next goal and
step is to build a SWAT EA in the remainder of 2020.
Nenad finished his updates and upgrades in 2019 which include semi-automated
cammacd.MTF system, fully automated LOA system, scalping and swing systems. Nenad
launched cammacd.CORE and cammacd.SIT in 2019. He completed the newest strategy called
cammacd.EA in 2020. His next goal is also to create an automated trading system based on
cammacd.EA.
Last but not least, Mislav completed his Ultima EA - a fully automated trading system that takes
care of entries, exits, and trade management. The project started in 2017 and completed in
June 2019 when the EA started trading a $10,000 live account. See chapter 10 to read
everything about the Ultima EA, its live trading results, and backtesting results.
Please see the images and myfxbook links here below to get an idea about our trading
performances with ecsLIVE, Ultima EA (more stats in Chapter 10), ecsSWAT, and
ecsCAMMACD.
Mislav Nikolic’s Ultima EA
My EUR/USD account on 15 minute chart using 5% risk per trade starting August 2019:
http://www.myfxbook.com/members/CurrentSeaForex/ultimaswat-eurusd-15min/3524413
Our first EUR/USD on 15 minute chart using 3% risk per trade starting June 2019:
http://www.myfxbook.com/members/CurrentSeaForex/ultima-swat-ea/3601444
My GBP/USD account on 60 minute chart using 5% risk per trade starting August 2019:
http://www.myfxbook.com/members/CurrentSeaForex/ultimaswat-gbpusd-60min/3524417
Mislav’s EUR/USD account on 15 minute chart using 5% risk per trade starting August 2019:
https://www.myfxbook.com/members/BullCapital/ultima-ea-bull-capital/3472089
ecsLIVE, ecsCAMMACD, and ecsSWAT
In December 2018 Nenad and I started a $10,000 account. It passed the $100,000 mark about
15 months later in March 2020. As of 26 April 2020, the ecsCAMMACD account used for
ecsLIVE is up +1,134% with total profits of $92,000+:
https://www.myfxbook.com/members/Tarantula/cammacd-201920-fxdd/3241119
We consider the myfxbook results to be the main source of our performance. But we do compile
stats of ecsLIVE ourselves as well. Our members check the accuracy of our own data closely.
The track record started in October 2017 and the above image shows the results until mid April
2020 for almost a total of 2.5 years.
As you can see from the image, the win rate (including break even trades) is 65%. The new
reward is 420% (when using a modest 1% risk per setup). The avearge profit per month is a bit
more than 14%.
We also calculated the equity curve from 2018 up to April 2020. You can see the image below
as the equity curve develops week by week.
We hope that this trading book helps you become a better analyst and a better trader. Our main
wish is that you can use this book and our website www.EliteCurrenSea.com to benefit both
your own trading and life goals.
Price Action and the Path of Least Resistance
By providing you with a full overview of our views on price action and technical analysis, you
can judge for yourself whether our approach offers suitable methods for you. It is vital that your
chosen method and your trading psychology match. What works for us, does not always work
for all other traders.
The best way to find out is to trade and test it for a few months with a minimum of 40-50 setups
before any conclusion can be made regarding the trading strategy and its execution. Keep in
mind that every approach always has a learning curve and giving up too soon will undermine
any attempt to become successful. That said, if you have been trying an approach for a while
but without any success, then switching or changing methods is eventually acceptable and
needed. For instance, you might decide to remove the Fibonacci tool from your tool box
because it does not help you with finding targets. All of that is perfectly acceptable after
sufficient testing.
We invested a massive amount of time and energy into our approach. Try it first of all with a
strong will to learn and persistence to learn, before even thinking about giving up or moving on.
Path of Least Resistance

Traders use a wide range of techniques to understand the price chart and find profitable entry
points, ranging from technical analysis to wave analysis and from price action and candlestick
patterns to indicators. All of these methods are based on “historical price”.
Technical traders analyse these price charts with historical price to study how price moved in
the past, which in turn, offers information about how it could move in the (near) future.
This technique is not only used in trading and charting but is equally valid for a wide range of
topics such as weather, geology shifts (movements of continents), changes in the universe
(change in planets, stars and universes), consumer patterns and much more. Historical data is
also used for instance to understand, improve and forecast traffic jams, political changes,
economic trends and a whole range of fields. Historical data is always a key component of any
analysis.
Analysis of price via technical analysis is not different in this regard. Generally speaking,
analysing the past helps us predict the future. The same is true for charts: analysing past price
helps us predict the future of price movement. But traders must realise that the accuracy rate
goes down when looking further into the future, which is why it's more accurate to say: analysing
the past helps us predict the immediate f uture.
Why do we emphasize the “immediate” future? Because forecasts are most reliable in the
short-term and become more difficult when applied to the more distant future.
The reason is simple: the further we look into the future, the more difficult it becomes to analyse
all aspects - including current, hidden, and unknown factors - because there are more variables
along the way that can impact the future.
The path of the future can run in many different directions and so it is much easier to make a
forecast when analysing events close(r) to now. This is also valid for the markets and the charts.
When analysing the charts now, traders can make a decent assessment about the next few
hours or days ahead. But the longer a trader looks into the future, then there is an increasing
chance that unknown variables might appear and impact the price in an unexpected way.This in
turn makes it more difficult to predict long-term price movements. The further a trader tries to
forecast into the future, the more difficult it becomes to forecast with a higher degree of
accuracy. Of course, making an incorrect forecast would not lose you any money unless you
make a bet. However, entering a trade setup that is aiming for a target 2 years from now is just
simply more difficult because the market can undergo many changes.
The entire ECS team uses technical and wave analysis to understand how price moved in the
past. We use this analysis to make estimates about how price is expected to move in the
immediate future and then we look for potential trade setups. Sometimes we find setups and
sometimes we don’t, which depends on how probable a certain trade setup is. Some charts are
easier to analyse and hence, more reliable to predict in the near future, and more potential to
find a high probability trade setup, whereas other charts can be enormously tricky and difficult.
So now that you know why we use technical and wave analysis for analysing the financial
markets, price charts, and assets in general, it is time to explain our methods. But before we
can do that, we will be explaining how we analyse the charts first of all.
To analyse each and every chart, we use an approach that is called “triangle of analysis” which
analyses trend & momentum, support & resistance, and price patterns. The next 3 chapters will
explain each segment one by one. We start with trends and momentum.
Trend, Momentum, and the Building Blocks of the Charts

Before we can explain what is trend and momentum, we must take a step back and explain the
type of price chart used. Nenad and I mostly use candlestick charts.
The candlestick is the basic and smallest unit of measurement on the chart - regardless of the
time frame.The candlestick is like the 1 cent coin with the Euro or US Dollar, because there is a
not smaller unit of accounting. Of course, there are some traders that use bars while others use
line, renko or range bar charts.
Nowadays most traders choose the candlestick as the basic building block of a chart…Both
Nenad and I use candlesticks so the focus of this book will be on them.
The credit for candlestick development and charting goes to a legendary rice trader named
Homma from the town of Sakata, Japan. There is a high probability that his original ideas were
modified and filtered over time, eventually evolving into candlestick trading we use today.
Candlesticks provide a wide range of visual hints and thanks to them we can understand price
action trading in a much easier way. Time frame trading with Japanese candlestick charts also
allows traders to grasp market sentiment. Thanks to rice trader Homma to Steve Nison (who
introduced the concept to the West), candlestick charts offer a much deeper depth of
information than traditional bar charts.
All of the candlesticks on any given chart represent the flow of price of a particular instrument
and time frame. Each single, individual candlestick represents one building block of that larger
picture. Traders can connect those building blocks to construct larger structures. For instance,
traders can (sometimes) connect multiple candlesticks to build bigger entities like candlestick
patterns. The same logic can be used for language. Words form sentences which again form
paragraphs. Or, you can compare candles to pieces of Lego (the children’s toy), which are used
to build bigger structures like a house.
With trading it works like this:
1. Candlestick = the basic unit on the chart.
2. Candlestick patterns = a group of 1-3 candles that form specific patterns which in turn
provide information about the direction of the chart.
3. Price swings = a group of candles, usually more than 3 or 5, that indicate a larger price
movement. A price swing is when a series of candles form one larger unit or “leg”, which
has (mostly) the same direction (sideways, up, down) and speed (impulsive or
corrective).
4. A price pattern = a group of swings that connect to form a pattern. The pattern either
indicates bullish or bearish and continuation or reversal.
5. Trend or range = multiple price swings that can be connected to form a larger direction.
A channel would have multiple price swings in it. The overall angle of the channel could
be up, down or sideways. A trend channel is either up or down whereas a range is
always going sideways.
Chart Hierarchy
In the next section we will explain step by step all of the building blocks that make up the larger
market structure. As mentioned above, the single candle is the smallest unit and the largest is
the entire market structure of the chart. Here is the sequence for a full overview. The next
paragraphs will discuss all of these building blocks.
Bottom of sequence (smallest)
1. 1x candle is smallest unit of chart

2. Candlesticks make 1x candle pattern
3. Candlesticks and candle patterns make 1x swing
4. Multiple price swings make price patterns
5. Multiple price swings and price patterns make 1x trend or range
6. Multiple trends, ranges, and price patterns make chart and
market structure
Top of sequence (largest)
Let’s dive into each of these steps. First of all, the candlestick basics and then we will address
each of the price action steps one by one. Followed by candlesticks are candlestick patterns,
price swings, price patterns, and trend / range.
Candlestick Basics
The candlestick is either bullish or bearish:
● A price closing higher than where it opened will produce a white candle by default -
bullish.
● A price closing lower than where it opened makes a black candle by default - bearish.
The candle consists of a body, nose, and the tail (wick or a shadow):
● The boxes that are formed by price action are called "the body".
● The extremes of the daily price movement, represented by lines extending from the
body, are called "shadow, tails or wicks".
● A small part of the candle that is left behind is called “the nose”.
A price closing where it opened or very close to where it opened is called a “doji”. You don't
need to memorise names and descriptions of the candlesticks because it is not needed for
successful trading. Nevertheless, it is helpful for any price action trader.
Candlesticks Explained
The candlestick offers four data points per candlestick:
1. Candle open (O): the starting price of the candlestick.

2. Candle close (C): the closing price of the candlestick.
3. Candle high (H): the high price of the candlestick.
4. Candle low (L): the low price of the candlestick.
The same information is provided for each candlestick regardless of the time frame and financial
instrument. All candles have the exact same composition. So a candlestick on the daily chart
would show the price of the open, close, high and low for each day. The 4 hour or 15 minute
chart also indicate the open, close, high and low but of the lower time frames
The main difference between the time frames is how quickly a new candlestick appears on the
chart. A daily chart will only get a new candle at the start of each trading day. A weekly chart will
take a full week before a new candlestick is available. Lower time frames of course change
quicker. A 15 minute chart will get a new candle every 15 minutes as long as the market is
open.
The importance of a candlestick does depend on the time frame. The candlesticks from higher
time frames offer more value than from lower time frames. A daily chart candlestick has more
weight and significance than a candlestick from a 30 minute chart. The same is true for a 60 min
candle, which has more importance than a 1 minute candlestick.
Correlation between the Open and the Close
The colour of the body in the candle tells us whether it is a positive or negative candle session.
In an uptrend or bullish market, the buying often happens at the open price. As the price rises, a
white candle is formed. The length, or the distance between the open and the close, reflects the
dominance of the bulls. But keep in mind the character of the candle is never fully known until
the candle closes. In many cases, candles also retrace first before moving into the dominant
direction.
In contrast, during a bearish market, a dark body candle is created, which means sellers are
entering the market on the open and selling the price lower to the close. But once again, only
when the candles closes will a trader be sure if it’s a bearish or bullish candle. In many cases,
candles also retrace first before moving into the dominant direction.
Candlestick charts provide great insights into the market dynamics based on the shape and
colour of the candle’s body when comparing it to previous candles.
Key Dynamics of Each Candlestick
That said, each candlestick provides a ton of value and information. Here are some vital
questions it covers:
● What is the direction of the candlestick: bear or bull?

○ C vs O.
○ This is answered by analysing the candle close versus candle open.
○ A candle close above the open indicates a bullish candle.
○ A candle close below the open indicates a bearish candle.
○ A candle close that is equal to the open is called a Doji candlestick pattern and
indicates indecision.
● Which side is in control of the candlestick, bear or bull?

○ C near H/L.
○ This is answered by analysing the candle close versus the high or low.
○ A candle close near the high indicates that the bulls are in control.
○ A candle close near the low indicates that the bears are in control.
○ A candle close near the middle of the candle indicates correction and indecision.
○ Here is how traders can assess the control:
■ 0-5%: extremely strong. The close is almost right at the high or low which
is indicating extreme strong candlestick close. The bulls or bears have a
dominant and clear control of the candle. First candle on the left.
■ 5-10%: very strong. The bulls or bears have a dominant and clear control
of the candle.
■ 10-20%: strong. The candle is under control by the bears or bulls but not
as dominant as the first two groups. Second candle from the left.
■ 20-25%: decent. The control is weaker but one side is still dominant.
Analyse other parts of the charts to understand the overall picture.
Second candle from the right.
■ 25-30%: mild. Be careful, control of one side is becoming much weaker.
Context is important.
■ 30-35%: weak. There is significantly less control of one side and candle
looks more indecisive.
■ 35-50%: very weak. There is no control of one side and the candlestick is
corrective. First candle from the right.
● Is there selling or buying pressure in the candlestick?

○ C and O away from H/L
○ This is answered by analysing how far the candle open and close are compared
to the high or low. This is called a candle wick.
○ A candle close and open that is far away from the high indicates selling pressure.
○ A candle close and open that is far away from the low indicates buying pressure.
○ Less than 50% wick: probably no extreme selling or buying pressure in that
candle.
○ Bottom/top 50% of the candle is wick: some pressure to up or down but if candle
open and close are equal, then this could also mean indecision and no pressure.
○ Bottom 65% of the candle is wick: significant pressure to up. First candle on the
left is an example.
○ Top 65% of the candle is wick: significant pressure to down. Second candle on
the left is an example.
○ Bottom 80% of the candle is wick: significant pressure to up. Second candle on
the right is an example.
○ Top 80% of the candle is wick: significant pressure to down. First candle on the
right is an example.
The wick length can represent a price low and/or high when comparing it with an open or
close price from the real body of the candle. This may provide insights on the market’s
rejection for a resistance or support price level.
The longer the tail, wick or shadow as they are often called, the more likely it indicates a
trend reversal because demand is increasing or supply is reducing. A wick at the bottom
of the candle could indicate the end of the downtrend for instance.
Conversely, tails, wicks or shadows at the top of up-trending real candle bodies, may
indicate that demand is slowing or supply is increasing. Again, a large shadow, relative
to the real body, may signify a stronger reversal, with the strongest being when a pin bar
is formed.
● What is the size of the candlestick?

○ A larger candlestick has more weight and importance than a smaller candlestick.
○ The relative size of the candlestick compared to the candlestick of the same time
frame and on the same chart is the key aspect. The absolute size is not
important.
● Sequence of 2 candlesticks:
○ A trend is visible when price shows:
■ Lower lows and/or lower highs for a downtrend
■ Higher highs and/or higher lows for an uptrend
■ Especially a new candle low or high is considered to be more important
than a higher low or lower high.
○ The close versus the close:

■ A close below the previous close indicates bearishness.
■ A close above the previous close indicates bullishness.
Quiz time!
Now it's time to check your progress after finishing the first part on candlesticks.
Question 1: What does the candlestick with the purple box indicate to traders?
Which answer is correct?
Answer A) indecision, there are no significant wicks on either side, which means indecision.
Answer B) bullish, the candle closed bullish so an uptrend continuation is likely.
Answer C) bearish, there is a strong wick on the top of a candle with a close near the low.
Question 2: What does the candlestick with the purple box indicate to traders?
Answer A) indecision, there is no wick. Candles provide little information.
Answer B) bullish, the candle is a retracement of a larger uptrend.
Answer C) bearish, the candle closed near the low, is a reasonable size and closed below the
previous close.
Curious what the answers are?
See the answers below the video!
In the meantime, check out Nenad’s webinars series called Price Action Trading School (PATS)
on YouTube:
https://www.youtube.com/watch?v=PuZCris_jZ0&list=PLVXHWHUPFSpDt0PA9YhFcsnkXhTJu
Bggy
The answers to the quiz questions are:

1) C - large wick on top indicates selling pressure and a potential reversal.
2) C - candle close near the low indicates that bears are in control.
Candlestick Patterns Explained

Now that we covered the basics, it’s time to discuss the candlestick patterns. Candlestick
patterns are one of the core methods of price action trading. In some cases one specific
candlestick can also be a candlestick pattern but other times you need to see a group of
candles display a certain pattern.
One of the most used candlestick patterns is the so-called “Pin Bar”. Pin Bars effectively
indicate current buyers and sellers. If the tail is longer than the body, then it’s a strong signal
that the price might turn.
As mentioned above, candlesticks are the basic building blocks for every trader. Some
candlesticks will have more “value” than other candles due to their size, wick, or strong candle
close, whereas other candles will be insignificant and offer no extra insight because they could
be relatively small or close as a Doji (close is equal to open).
Candlestick patterns indicate an even bigger message. Although each candlestick provides
some information to traders, candlestick patterns provide more value as their meaning and
impact is larger than just a single candlestick.
As you probably have noticed, traders can analyse the charts in a much deeper way when using
candlesticks and candle patterns. The main benefit is that the information from candles is
instant and without any lag, such as most indicators.
This section will dive into all of the candlestick patterns. It includes an explanation of how to
read candlesticks but also a full overview of the main candlestick patterns and how to interpret
them. Candlesticks and their patterns are a main aspect of both trading systems ecs.SWAT and
ecs.CAMMACD.
The next parts will explain bearish and bullish candlestick patterns. We also divided the article in
reversal and continuation candlestick patterns, which means that there are 4 parts:
● Bearish reversal candlestick patterns

● Bearish continuation candlestick patterns
● Bullish reversal candlestick patterns
● Bullish continuation candlestick patterns
Let’s first start with the bearish ones.

Bearish Reversal Candlestick Patterns
3 Black Crows
The number of candles in the configuration – 3
1. The market is characterised by an uptrend.
2. Three consecutive normal or long bearish candlesticks are seen in the chart.
3. Each candlestick opens within the body of the previous candle.
4. Candlesticks progressively close at new lows, below the preceding candle.
5. HIgher chance of success: if price can manage to break support and bullish impulse
should be less strong than the bearish decline
3 Inside Down
1. The market is characterised by a prevailing uptrend.
2. We see a Bearish Harami (or a Harami Cross) pattern in the first two candles.
3. After that, we see a bearish candlestick on the third candle with a lower close than the
second candle.
Evening Star
2. We see a bullish candlestick as the first candle.
3. After that, we see a short candlestick on the second candle that gaps in the direction of
the uptrend.
4. A bearish candlestick is spotted as the third candle.
Upside 2 Crows
2. A normal or long bullish candlestick appears as the first candle.
3. The second candle is a short bearish candlestick that goes down.
4. On the last candle, another bearish candlestick opens at or above the open and then
closes below the close of the previous candle, though still above the low of the first
candle.
Harami
2. A bullish body is observed as the first candle.
3. The bearish body that is formed on the second candle is completely engulfed by the
body of the first candle.
Bearish Abandoned Baby

The number of candles in the configuration – 3 or 4
2. A bullish candlestick is observed as the first candle.
3. Then we see a Doji on the second candle whose shadow stretches above the upper
shadow of the previous candle.
4. Third or fourth candle’s bearish candlestick moves in the opposite direction.
Meeting Lines
2. A bullish candlestick is observed as the first candle.
3. We see a bearish candlestick as the second candle.
4. The closing prices are the same or almost the same on both candles.
Dark Cloud Cover
2. A white candlestick appears as the first candle.
3. A black candlestick opens on the second candle and closes more than halfway into the
4. The second candle fails to close below the body of the first candle.
Advance Block
2. 3 bullish candlesticks appear with each candle having a shorter body
3. The candle open of the 2nd and 3rd candle are within the body of the previous candle
4. The wicks of the three candles gradually become taller, especially the last candle
Bearish Continuation Candlestick Patterns
Falling 3 Methods
Number of candles in the configuration – 3-6
1. The first candle in the pattern is a long bearish candlestick within a defined downtrend.
2. A series of ascending small-bodied candlesticks that trade within the range of the first
candlestick.
3. A long bearish candlestick creates a new low, which cues that the sellers are back in
control of the direction.
Bearish 3 Line Strike
Number of candles in the configuration – 4
1. The first three candles make up the Three Black Crows formation or similar two
candlestick patterns (variant 2).
2. The last candle is a bullish candle that opens below the third candle and closes above
the first candle’s open or the second candle’s open (variant 2).
Marubozu Bearish
Marubozu defines strong sell off resistance or strong buying off the support. Marubozu is also
known as momentum candles.
Bullish Reversal Candlestick Patterns

Bullish 3 Inside Up
1. Connected to bullish Harami Pattern.
2. The first candle is bearish and downtrending.
3. The second candle is bullish.
4. The third candle has a higher close than the second candle.
Bullish 3 Outside Up
1. The market is characterised by a prevailing downtrend.
2. Followed by the engulfing candle.
3. The third candle has a higher close price then the second candle.
3 White Soldiers
1. The market is characterised by an uptrend or end of downtrend.
2. We see a bullish marubozu candlestick as the first candle.
3. Next two candles make higher highs.
Concealing Baby Swallow
The number of candles in the configuration – 4 (very rare pattern)
1. Two falling bearish Marubozu candles at the beginning confirm the downtrend.
2. The third candle is a short bearish with or without a downside gap.
3. The third candle trades into the previous candles’ body, producing a long upper shadow.
4. The fourth bullish candle completely engulfs the third candle, including the shadow.
Morning Star
1. The market is characterised by a downtrend or retracement in a bullish trend.
2. Bearish candlestick is observed as the first candle.
3. Followed by a doji or small candle.
4. The third candlestick is a bullish momentum candle.

Piercing Line
1. The first candle is a bearish momentum candle.
2. The second candlestick opens up, goes slightly down and closes more than halfway into
the body of the first candle.
3. The second candle fails to close above the body of the first candle.
Bullish Belt Hold Lines
1. After the drop in the price, we observe a bullish Marubozu candle at the support.
2. Double or triple bottom support precedes the Belt Hold Lines pattern.
Harami Cross

1. A doji candlestick appears at support.
Harami Bullish
1. The market is characterised by a prevailing downtrend.
2. A bearish candlestick appears as the first candle.
3. The next candle is characterised by a bullish body which is completely engulfed by the
Tweezers
1. The first candle is a bearish candle and it closes near the support or daily low.
2. The second candle completely negates the first so it erases all losses of a previous
candle.
Bullish Squeeze

1. A bearish candlestick appears on the first candle.
2. The second and the third candles each have lower highs and higher lows than the
previous candle.
3. Their direction is not important; the size of the three candles does not matter.
Bullish Continuation Candlestick Patterns

Rising 3 Methods
Number of candles in the configuration – 3-6
1. The first candle is a strong bullish candle that retraces the next three candles, though
the second, third and fourth candle remain within the range of the 1st candle.
2. Those are characterised by consecutive lower highs where wicks may slightly vary.
3. The final candle breaks resistance to the upside and makes a bullish continuation.
Side By Side White Lines
1. The first candle we see is a long bullish candle that appears at resistance.
2. The second candle is a bullish candle that follows the first one, making a breakthrough
resistance.
Marubozu Bullish
Marubozu defines strong buying off the resistance or strong buying off the support. Marubozu is
also known as momentum candle.
Here is a summary of all candlestick patterns:

Quiz time!
Question 1: What candlestick pattern is visible in the purple box?
Answer A) bearish engulfing twins.
Answer B) bullish squeeze.
Answer C) harami cross.

Price Swings: the 4 Types of Price Action
The previous two parts showed you how to read candlesticks and how to understand
candlestick patterns. This will become important later on in the book when we are analysing
how price action is behaving when reaching a key decision zone and we need to measure
whether price is bouncing or breaking.
Price swings are groups of candles that “belong to each other”. The candles make one swing
because they share certain characteristics together. Swings are considered to be a group of
candlesticks where the majority share:
1. Common direction (bearish or bullish)

2. Strength (strong or weak).
Simply said, price swings are either impulsive (strong) or corrective (weak) and they are either
bullish or bearish. It is important to know that strong price movement is called impulse or
momentum whereas weak price action is known as corrective or consolidation. The strength or
weakness of price flow can be understood by analysing whether price is behaving impulsively or
correctively.
This creates four different types of price movements, which in some ways can be seen as the
“DNA” or “heart beat” of the market:
Direction / Speed Impulsive Corrective
Bullish Bullish impulse Bullish correction
Bearish Bearish impulse Bearish correction

Each of these four variations represents a seperate “price swing” or “wave”. Every price swing is
either bearish or bullish and either impulsive or corrective.
It takes time and experience to recognise which price action belongs to one price swing... But
the above table provides a key starting point. You will also be able to spot price swings better
when using our ECS rules and guidelines.
GBP/USD 4 hour chart: blue arrows indicate bullish momentum, green arrows indicate bullish
correction, red arrows indicate bearish impulse, and orange arrows indicate bearish correction.
You might be wondering: what is the benefit of knowing this information about the price swing?
Price swings provide key information about the market structure. Traders that correctly analyse
and understand price swings have the following advantages:
● Character of current price swing: ability to analyse past price swings to estimate the
current price action more accurately.
● Length of current price swing: ability to analyse the current price swing (character /
direction) and thereby also understand how long the price swing will last and when it
could end.
● Character of the next price swing: ability to analyse past and current price swings to
estimate the character of the next swing price swing.
Price swings are important because of these nine reasons:
1) It allows traders to understand what type of price swing they are trading.
2) It explains what to expect from the current swing in terms of movement and
volatility (impulse versus correction).
3) It explains what target could be expected and what stop loss works better.
4) It indicates what the direction of the next price swing could be.
5) It also shows whether the next price swing will be corrective or impulsive.
6) Traders can do wave analysis and understand wave patterns based on price
swings, which are the building blocks of swing.
7) Traders can use the Fibonacci tool with more accuracy and precision.
8) Traders are better able to estimate the time aspect and expected length of a
trade setup.
9) Traders can identify patterns quicker and easier.
Traders must have a clear and logical system of identifying one price swing because without a
rules based approach, traders will misinterpret the chart and be unsure about their analysis. In
fact, most traders fail in trading, analysing the waves, and trading the waves because they do
not use a systematic method for understanding and reading price swings.
Based on the above info, traders can make better decisions about their trades, such as skipping
setups, managing open trades, and entering trade setups. Price swings are not the only factor
for trading decisions, of course, but certainly play a key role in our analysis.
The next step is how can you recognise price swings, which we will explain in the next
paragraph. Just by identifying price swings correctly, traders are able to gain a significant edge
over a larger group of traders who are not aware of price swings, price patterns, impulse and
correction. After that, we will discuss how to actually use price swings.
All in all, keep in mind that it is very important to use a systematic approach for spotting price
swings because without it, traders will not be able to properly analyse the price charts. It would
be similar to a ship sailing on open waters without a compass. Recognising price swings,
knowing the start and end of such swings, and analysing that information properly is.
Ps. the answer to the quiz question on candlesticks is answer A!
Identifying Price Swings

The ecs.SWAT method uses six distinct approaches to find and identify the correct AND best
price swings:
1. Momentum and correction concept

2. HMA moving average
3. Awesome Oscillator (AO) and ecs.MACD
4. ECS fractal indicators
5. Time patterns and zigzag indicator
6. Wave patterns
In some cases these 6 methods will indicate the same price swing but be aware that each
method could also indicate a different price swing. And that is perfectly acceptable. Price swings
can vary depending on the tools and methods used and all of them can be equally logical. It is
up to the trader to choose the price swing that makes the most sense but the mentioned
methods will provide a solid basis.
Strong vs Weak Price Action: Momentum and Correction

Usually impulsive price action belongs to one price swing whereas corrective price action
belongs to one bigger price swing as well.
Let’s examine what traders should consider as impulsive (strong) or corrective (weak) price
action. Here is an overview:
● Impulsive: strong price action is quick and moving in one direction.

● Corrective: weak price action is moving indecisively, slow, and sideways.
Impulsive Price
Impulsive price action is characterised by a couple of main factors:
1) Majority of candles
Most of the candlesticks in the group (price swing) have a close in the same direction
(bullish or bearish). This can be measured as a rough estimate and does not have to be
very precise. Once +/- 65% or more of the candles in the group are either bullish or
bearish, then the swing is more likely to be a bearish or bullish momentum.
Most candles are bearish in this bearish momentum. Approximately 70% of the candles
are bearish, not counting smaller candles that are “dojis” (open is near to candle close).
Also many bearish candles close near low.
2) Candle close near high or low
Many of the candlesticks show strength by closing near the high or low. Strong bullish
candles close near the high whereas strong bearish candles close near the low. The
close is important because it shows that the bulls or bears are in control of that time
period.
Bullish example where majority of candles are bullish candles. Most bullish candles
close near high. The larger candlesticks are bullish. Also a new high is regularly posted.
All characteristics of an impulse.
3) A new higher high or lower low

The impulse is still strong if price has recently made a new higher high or lower low
when compared to the previous candle(s). A new high or low confirms the impulse. A
price swing might lose its momentum if a candle fails to make a new high or low and
could start a correction. Some momentum is lost when 2 candles fail to break for a high
or low whereas ECS prefers to use the rule of 5 to 6 candles (see time pattern in chapter
number 5). Impulsive price action is considered to be active when 3 bullish or bearish
candles show a higher high or lower low in a row (or at least 3 candles out of a group of
6).
The purple arrows indicate where price confirms the bullish impulse with a new higher
high.
4) 3 candles out of a group of max 6

Identifying momentum is often easier done after the fact but this rule will help traders
recognise it in real-time. Once there are 3 candles in a row in one direction and all
candles have a higher high or lower low, then an impulse is likely starting or continuing.
Although 3 candles in a row is the best, it is also fine if the 3 candles occur in a group of
4, 5, or even 6 candles. This is often the starting momentum of a bullish or bearish
swing.
The image below shows how 3 candles out of a group 6 (red box) can also indicate the
start of an impulsive price action. But it is important that this does occur with the trend
because counter trend movements can sometimes show 3 momentum candles too (blue
box) but just be a pullback within the trend. The green box shows a spot where a counter
trend momentum has a higher chance of working out because of the visibility of
divergence (purple line).
5) Large candlesticks
The impulsive candles are usually larger and more ‘dominant’. The size of the candle is
measured by simply calculating the distance between the candle high and low. Impulsive
price action often offers a couple of candles within the price swing that are large(r) and a
few that are moderately large in comparison with the other corrective candles. There is
no fixed rule of what is considered a large, medium or small candlestick. The best is to
make a simple comparison on the time frame you are analysing with the most recent
price action and check whether the candles are larger than the estimated average.
Simply said, visually compare the candles in question with the rest of the chart. If the
candles are relatively large compared to the rest of the chart, then those could be
impulsive candles. Traders can also use an ATR (Average True Range) indicator to get
an idea about the price volatility in the recent history.
The purple boxes indicate areas where candlesticks are relatively large compared to the
opposite candles and candles from other parts of the chart.
Corrective Price
Corrective price action is characterised by factors that are mostly the opposite of impulsive
candles:
1) Mixture of candles
No side (bullish or bearish) has a clear majority. The candles are a mixture of bull and
bear candles with no particular sequence. Price action is mostly going sideways or is
showing a light angle up or down.
Price action is messy and choppy in most parts of this chart with the exception of a few
parts where price was a bit faster, most notably on the left of the middle.
2) Candle closes near the middle

The candle close indicates indecision by not closing near the high or low but rather
around or close to the middle. Of course, some of the candles might still close near the
high or low but usually this occurs a lot less often than when compared with impulsive
price action.
Typical corrective price action where price is choppy, moving sideways, and has less
clear sequence. There are a few larger candles which represent mini pieces of impulse
but overall, the price is choppy.
3) No sequence of highs or lows

Corrective price action is mostly price action that goes sideways. Within the corrective
zone, there might be parts where price moves impulsively but overall the price action
looks choppy and indecisive. Part of the reason why price action looks corrective is
simply because one side is unable to control the direction, which means that there is no
sequence of higher highs (for an uptrend) or lower lows (for a downtrend).
Typical corrective price action where price is choppy, moving sideways.
4) Smaller candlesticks
Corrective price action is usually characterised by smaller candles. There might be an
occasional candle that is bigger but a large majority of the candles should be relatively
smaller. To sum it up, most candlesticks are small, indecisive, and show no particular
direction either up or down. Relatively small when compared to impulsive candles is valid
for both bullish and bearish candles.
Corrective candles are usually smaller than impulsive ones.
Test: What groups of candles represent impulsive price action in this chart? Are A, B, C, and D
indeed considered to be impulsive pieces of price action? Write true or false for all four answers
and check the correct answer at the end of the chapter.
HMA
The HMA moving average (setting 20) helps identify what is momentum and what is a
correction. A switch from bearish to bullish and vice versa often is a warning signal that a swing
might be completed. The main advantage of the HMA (compared to impulse and correction) is
that approach is fully automated because the HMA is an indicator. Hence it removes any need
for discretionary decisions.
Candles that are moving around the HMA are often periods of correction. In a range the HMA
angle will frequently switch from up to down and down to up whereas in a trend price will create
a sustained HMA angle for a longer period of time.
Another perspective to consider is the candlestick close or open and low or high versus the
HMA. When the candle is fully above or below the HMA, then this often indicates a decent or
strong momentum.
The image below shows how price is in a range (on the left) and how it builds several swings up
and down within the range before moving down lower with a strong impulse. Once price is
moving lower impulsively, the HMA stays bearish until there is a small pullback before
continuing lower again with a bearish HMA. Each HMA change can be considered a completed
swing.
Price action at the top is corrective, the price drop is impulsive.
ECS Fractals
The fractal indicator helps traders find key support and resistance levels, which are also
potential turning spots on the chart. Traders can either use the standard fractal indicator on their
MetaTrader4 platform or use the ECS fractal indicator for the MT4 platform. Each fractal
indicator, just like the HMA moving average, is automatically plotted on the chart.
The fractal indicator will be explained later in this book in more detail but for now, it is important
to know that it can help with determining swings. Here are the details:
● If price is moving fast into one direction then no fractals will appear, which is an
impulsive price swing.
● If many support and resistance fractals appear, then the price is (probably) building
corrective price swing(s). The up and down turns are in fact creating the fractals.
A trader can use the points from one fractal to the next fractal as a price swing. The price action
between a support and a resistance fractal could be considered as a separate price swing. If
there are two fractals on the same side (either at support or resistance), then it is best to use the
fractal that provides the longest price swing. Simply said, all price action between one support
and one resistance fractal is considered a price swing.
Here below we added an image. All the purple boxes and arrows have been added to indicate
the start and end of each price swing. Each arrow is one price swing. The orange box
represents fractals that are not used for a price swing because there are 2x support or
resistance fractals present. In these cases it is best to use a larger price swing.
For your information, normal fractal indicators would indicate the same as the ECS fractal
indicator for the purposes of identifying price swings. But ECS fractal indicator provides us with
deeper information about the trend, retracement, and potential for reversal. This information is
explained later in chapter 7.
Time Patterns and Zigzag Pattern
Time patterns are already visible when using the ECS fractal indicator but they deserve their
own paragraph for determining swings. Time patterns in fact are a key part of the pattern family
but will be explained later on in this book in chapter 5 in more depth.
For the moment, its best to use automaticated tools that represent time patterns by using a
fractal indicator (with value 5 rather than 2 if you can change it in your trading platform) or the
zigzag indicator with settings 10-5-3 (depth-deviation-backstep) for finding intermediate price
swings on the chart that closely reflect the idea used with time patterns.
Let’s first start with a fractal indicator value of 5. What does that mean? Let's explain:
1. A candle will either make a higher high or lower high and lower low or higher low when
you compare the current to the previous candle.
2. A candle with a higher high or lower low confirms impulsive price action (new high
confirms uptrend and new low confirms downtrend).
3. When price shows multiple higher highs or lower lows, then impulsive price action is
taking place, which is considered to be one price swing.
4. The impulsive price swing is considered to be over once 5 to 6 candles fail to break the
last high or low.
5. Then a price swing can be marked as completed and a new price swing is starting.
All of these purple boxes indicate a high or low that is higher or lower than 5 candles to the left
and 5 candles to the right. All of the purple boxes are also a fractal but as you can see from the
image, there are many fractals that did not qualify when using a setting of 5 candles. All the
purple arrows indicate a price swing.
The image below shows the price swings that are valid for the zigzag indicator. Some of the
price swings are similar to the time pattern ones, but there are a couple or price swings that are
actually excluded as well.
Awesome Oscillator or ecs.MACD
Elite CurrenSea uses the Awesome Oscillator (AO) as a swing and wave trend indicator. The
AO, which is created by the Elliott Wave expert, legendary trader, and Fractal creator Bill
Williams, is in our view the best oscillator for analysing the waves of the Forex, CFD, and other
financial markets.
The middle line (called zero line) is key. We analyse the AO bars that move away and back to
the zero line for that purpose of identifying price swings:
● AO bars moving above the 0 line and back is one bullish price swing.
● AO bars moving below the 0 line and back is one bearish price swing.
The trader needs to analyse whether price action is corrective or impulsive in the place where
price moved away and back to the 0 line.
A good second place however is reserved for our own proprietary MACD indicator called the
ecs.MACD. Although there is a wide range of wave trend indicators that are mentioned online,
the AO and the ecs.MACD are two of the most accurate wave trend indicators. We will now
explain why.
You might be wondering, can Indicators really help with identifying price swing and waves
(based on Elliott Wave Theory)?
Yes, they can. But keep in mind that not everyone agrees. We believe that both price action and
the oscillator indicator can be of enormous help in understanding the Elliott wave structure. But
there is a “dispute” among wave analysts and some believe that indicators do not play any
(significant) role.
In any case, it can’t hurt to be open to both styles and to see which one fits your own analysis
and trading the most. Based on your own experience, you can then choose whether you
analyse Elliott Waves fully based on price action or whether you will follow our advice and
combine price with (an) oscillator(s).
The AO and ecs.MACD are both extremely valuable for identifying the correct price swings with
a rules based approach. They are also equally valuable in determining wave patterns because
wave analysis is simply an analysis of price swings. Once you understand price swings, you will
be able to understand wave patterns quicker too.
Benefits of Oscillator in Wave Analysis
In the field of Elliott Wave analysis, both oscillators provide key information about the exact
price swing, wave count, and wave pattern outlook. Here are the three major benefits of using
the AO or the ecs.MACD as a wave trend indicator:
1) Helps identify the correct price swings.

2) Indicates and confirms momentum and correction.
3) Helps label the wave patterns.
If you do not use the AO or ecs.MACD, the problem is twofold when applying a discretionary
approach to your wave analysis (and not a rules based method based on oscillators):
● Analysis of beginners and intermediate traders will be less accurate: identifying a wave
without a wave trend indicator is difficult and also time consuming.
○ There are many waves and waves within waves. What is one price swing or
wave and can you repeat the same logic on each and every chart day in and day
out? In most cases, traders cannot manage this level of consistency.
○ Most traders will not have the required experience to analyze waves without fixed
rules. This is especially true for beginners but also for intermediate traders
(unless you have a decade of analysing waves under your belt).
● You will not have sufficient confidence when trading: although analysing the charts might
work out fine, trading your wave analysis with actual capital always requires more
confidence.
Reading the Oscillator
As you can see, the key to success in analysing and trading both price swings and the Elliott
Wave Theory is by applying a systematic way of identifying one single wave, which can be done
via the AO and ecs.MACD.
Here are the key factors to analyse:
● The zero (0) line: the key point part of the oscillator is the “zero” line. Every time the AO
or ecs.MACD bars cross the zero line, a new price swing is in process.
● Blue or red bars: blue bars indicate bullishness whereas red bars indicate bearishness.
● Bars versus zero line:
○ Blue bars above the zero line indicates bullish momentum or impulse.
○ Red bars above the zero line indicates a bullish correction.
○ Red bars below the zero line indicates bearish momentum or impulse.
○ Blue bars below the zero line indicates a bullish correction.
With this in mind, we can make the following conclusions:
● Price is not hitting the zero line recently:

○ Price is in momentum when the AO bars move away from the zero line.
■ Bullish: bars are above the zero line.
■ Bearish: bars are below the zero line.
○ Price is in a retracement when the AO bars are moving back to the zero line.
● Price is near the zero line:
When the AO bars are back at the zero line, price has completed an old price swing and
is building a new price swing. This means that it has reached a decision spot:
○ Price is in a reversal if the AO bars are moving away from the zero line after
recently crossing the zero line.
○ Price is in a retracement or range if the AO bars go sideways.
○ Price is in a trend continuation if the AO bars continue in the same direction.
How to Find the Price Swing

How do you recognize on the price chart what is the correct price swing when analysing the
zero line of our wave trend indicator, the AO or ecs.MACD?
1. As you now know, every time the AO bar crosses the zero line, a new price swing is
valid.
2. Once this occurs on the AO indicator, traders must analyse the price charts at the same
moment as the AO bars are crossing the zero line.
3. Then look for the most recent top or bottom which is the end of the previous price swing
and the start of the new price swing.
4. The current swing lasts until the AO bar retraces back to the zero line again.
As indicated above, the cross of the zero line is key for understanding price swings and wave
patterns. Here is an example of how traders can understand the process in more detail.
The 1) indicates where the AO bar crosses 0 line. Find the same spot on the price chart (2).
Find the most recent major bottom (or top) since that point (3). Swing is valid till price goes back
to 0 line again (4).
The above image is an example where we zoomin to one spot of the chart. Let’s now show a
chart now which shows a larger piece of the price action.
The above chart shows purple arrows, which indicate each time the AO bars cross the zero line.
Each crossing of that zero line indicates the end of a price swing and wave pattern too. The
purple boxes on the chart indicate the turning spot of each swing whereas the arrows show
whether the price swing is a:
● Bearish impulse: red arrow

● Bullish impulse: blue arrow
● Bearish correction: green arrow
● Bullish correction: orange arrow
Compare the above chart to a naked chart that you can see here below. Would you be able to
achieve the same consistency with the AO as without the AO? Would you truly be able to
recognise the price swings as quick and with the same consistency?
That is possible for traders who have more experience but is much more difficult for traders that
are beginning or intermediate. They are much better by using a rules based approach. All the
rules connected to this and much, much more is what we fully explain in our ecs.SWAT
methodology.
All in all, the AO and/or the ecs.MACD are a major asset when analysing the charts, price
swings, and wave patterns because it helps you:
1) Identify the correct price swing:

Use the crossing of the AO bars below and above the zero line to know what is the price
swing. You then know the start and end of each price swing on the chart as well (see
above).
2) Understand the direction of the price swing:

When AO bars are above the zero line, this means that price is either showing bullish
momentum or a strong bullish correction which depends on the context of the past price
swings. In both cases though, the bulls are in control of the current price swing. Same is
true of course when the AO bars are below the zero line, which means that the bears are
in control.
3) To understand the behavior (impulse or correction) of the price swing:

Traders can also understand the behavior of the price swing and estimate whether it's
impulsive or corrective. If price is showing a strong push (momentum / impulse) above
the zero line, then a move back to and even below the zero line is often a retracement.
But if the AO bars are crossing the zero line after a divergence pattern (AO bars showing
a failure to make a higher high or lower low but price is making a higher high or lower
low - see chapter 5 about divergence patterns), then the chance of a reversal is
increasing. A trend continuation is often impulsive, a retracement is often corrective
whereas a reversal will most likely become impulsive.
4) To determine the wave patterns of each swing:

Once traders can find the correct price swing, can analyse whether its bullish or bearish,
and can understand whether its corrective or impulsive, traders can then use that
information to analyse, judge, label and evaluate the most likely wave patterns.
5) To determine the same information (direction, behavior, wave sequence) for the next
price swing and even a few price swings after the next price swing.
Analysing wave patterns is nothing more or less than understanding the sequence of price
swings. It is a question of understanding the story behind the price action.
With this information, mastering wave analysis is now within your reach.
But keep in mind that knowing how to do wave analysis is absolutely not necessary if you trade
our ecs.SWAT method. The beauty of SWAT (Simple Wave Analysis & Trading) is that you can:
Trade the waves without knowing the waves.
We built our SWAT methodology in such a way that you can benefit from the waves without
needing to use the wave patterns themselves.
Wave Patterns
Knowing the Elliott Wave Theory helps you identify price swings too. When price is building a
specific wave (1, 2, 3, 4, 5, A, B, C, D, E, W, X, Y or Z), then it will help traders understand what
can be considered one full price swing and what is the character of each past price swing, the
current swing, and the price swings of the near future. A wave 1, for instance, is clearly a
separate swing from wave 2. An ABC correction too has 3 swings. We will not address Elliott
Wave Theory in this part as yet because it will be explained in more detail later in this book in
chapter 5.
Identifying Momentum & Correction
Take a look at the chart below. It shows a currency pair with the SWAT software (MT4 indicators
and template). Please examine the chart while keeping in mind all of the tools and ideas that
were mentioned so far. Then see how it compares to our analysis of this chart, which is
summarised below.
Here is our summary:

1) This chart shows strong AO bars moving away from the zero line (first red arrow on the
left).
2) On the price chart you can also see the confirmation as the price is moving away from
the moving averages (MA) with price below the short-term MAs and the short MAs below
the long-term MA.
3) The strong impulse is likely (decent probability) to see a bearish continuation due to the
lack of divergence and clear bearish impulse. The retracement zone is the short-term
MAs, which occurs a little later.
4) The AO bars go back to the zero line and complete a bullish correction and retracement.
5) A strong breakout candle (and ecs.SWAT candle) start the downtrend again. This candle
is visible at the start of the 2nd red arrow (2nd from the left). Strong AO bars again
emerge as they move away from the zero line, which signals a bearish continuation as
expected.
A similar scenario takes place on the next image. Take a look:

Here is our summary:
1) A large retracement is taking place on this 1 hour chart because price did not only make
a pullback to the short-term moving average (MA) but all the way to the long-term MA.
This indicates a larger pullback that is also visible on the 4 hour chart.
2) After the deep retracement, we can see early signs of a trend continuation when price is
close to the zero line and then falls below it.
3) Both price and the AO bars fall dramatically a bit later (see red arrows) with a few
smaller and one larger pullback to the short-term MA. The last lower low in turn creates a
divergence pattern, which is a warning that the trend is running out of steam.
Before we move on to the next section (swings becoming patterns), we owe you the answer to
our quiz. The correct answer to the Quiz on impulsive price action is:
a) False. In this box there are no 3 bearish candles in a row that have a lower low.
b) False. Here are only 2 bullish candles, not 3.
c) True. Yes, there are 3 bullish candles in a row with higher highs.
d) True. Yes, here are 3 bullish candles with a higher high out of a group of 6 candles.
The image below highlights the impulsive parts of price action. The red boxes indicate
bearishness and the blue boxes show bullishness. This image indicates exactly where price
shows impulsive price action.
Of course, eventually the entire swing up is seen as one price swing (see image below). But
there are 5 parts within the price swing that are considered to be most impulsive (5x blue
boxes).
Swings Become Patterns

The next step after price swings is price patterns. Price swings can be connected with each
other to identify larger price patterns. By combining multiple price swings together, traders
analyse larger price patterns which are also known as chart patterns. Keep in mind, however,
that not all price swings form a larger price pattern. It’s a possibility, not a must.
Chart patterns provide traders with deeper information about the chart dynamics and indicate
more information about the anticipated direction (up/down/sideways), character
(impulse/correction), and sentiment (continuation/reversal). All of these patterns can be grouped
together into four groups:
1. Bullish continuation chart patterns.

2. Bearish continuation chart patterns.
3. Bullish reversal chart patterns.
4. Bearish reversal chart patterns.
Chart patterns provide traders with another layer of chart, technical, and wave analysis.
Chart Patterns
Bullish and Bearish Continuation Patterns
Continuation patterns are basically the same pattern for both an uptrend and downtrend. The
main difference is of course the direction.
The main continuation patterns are summarised here:
1) Flag pattern: price action shows momentum which is then followed by a slow grind to the
opposite direction. The retracement usually goes to the 26.6% or 38.2% Fibonacci level
(when placing the Fib on the impulsive part) and certainly not deeper than 50% Fib
otherwise the flag pattern is invalidated.The corrective price action with a shallow angle
is called a flag.
a) A bear flag indicates more downtrend. It is a bearish impulse, followed by a

shallow angled bullish channel, and then completed or confirmed with another
bearish continuation below the flag. A break above the resistance of the flag or
above the 50% Fib invalidates the bear flag pattern.
b) Bull flag indicates more uptrend. It is a bullish impulse, followed by a shallow

angled bearish channel, and then completed or confirmed with another bullish
continuation above the flag. A break below the support of the flag or below the
50% Fib invalidates the bull flag pattern.
2) Contracting triangle pattern (also called a pennant): price action is unable to break the
tops and bottoms and keeps moving sideways. Often follows after a strong momentum
up or down. The triangle then indicates pause. Wave C should not break beyond wave
A, wave D should not break wave B and wave E should not break Wave C. If it does,
then the triangle is invalidated.
a) Bullish break above the resistance of the pattern indicates potential triangle
confirmation and uptrend.
b) bearish break below the support of the pattern indicates potential triangle
confirmation and downtrend.
3) Sideways range or consolidation zone: price is going flat and sideways, often after a
strong impulse but not always. A range can sometimes be best seen if zooming out to a
higher time frame or zooming in to a lower time frame. The support and resistance levels
of the box indicating breaking / confirmation points.
a) The break below or above support or resistance is key, just as the triangle
pattern.
4) Ascending and descending triangle (also called wedge): in this pattern, price is building
a flat top or bottom but the other side is approaching closely. A flat bottom with a
descending resistance line indicates a descending wedge whereas a flat top with an
ascending support indicates an ascending wedge. The wedges can break to both
directions but an ascending wedge is usually bullish and a descending wedge is usually
bearish. That said, there are plenty of examples where price breaks to the opposite
direction, especially if the price is showing bullish momentum before a descending
wedge (rather than bearish momentum) or bearish momentum before an ascending
wedge (rather than bullish momentum.
a) The break below or above support or resistance is key, just as the triangle
pattern.
Bullish and Bearish Reversal Patterns
Reversal patterns are basically the same pattern, one indicates bullishness and the other
confirms bearishness. The main difference is again the direction.
1) Double bottom or top. A double bottom indicates the end of the downtrend and the
potential for a bullish reversal. A double top indicates the end of the uptrend and the
potential for a bearish reversal. An early confirmation of a double top or bottom could be
a price action candlestick pattern that shows a reaction at support or resistance. A
stronger confirmation takes place if price is able to break and show a higher higher (after
a downtrend) or a lower low (after an uptrend).
a) Double bottom indicates a potential bullish reversal.
b) Double top indicates a potential bearish reversal.

2) Triple bottom or top. This pattern is the same as double top or bottom. The only
difference is that there are three bounces in a row, rather than 2.
a) Triple bottom indicates a potential bullish reversal.
b) Triple top indicates a potential bearish reversal.
3) (Inverted) head and shoulders (H&S) pattern: price is running out of steam and a trend
reversal could take place. A head and shoulders is when an uptrend is vulnerable to a
bearish reversal whereas an inverted head and shoulders is when a downtrend is
vulnerable to a bullish reversal. The neckline connects the starting point of the left
shoulder and head. A break beyond this level indicates the confirmation of the reversal
whereas a break beyond the top (level of the head) invalidates such a reversal.
a) H&S indicates potential bearish reversal.
b) Inverted H&S indicates potential bullish reversal.
4) Falling or rising wedge: this pattern indicates that the trend is running out of speed and
losing momentum. In an uptrend, there will be a higher high but the break above the
previous top is shallow. In a downtrend, there will be a lower low but the break below the
previous bottom is shallow. A rising wedge and falling wedge should indicate reversal
but sometimes price continues strongly with the trend despite the pattern. It is therefore
wise to keep an eye on both support and resistance trend lines.
a) Falling wedge indicates potential bullish reversal.
b) Rising wedge indicates potential bearish reversal.

Learning to recognise patterns takes time. You need to see the pattern, recognise it, know what
to expect from it, and understand how to measure a pattern continuation, pattern failure (false
breakouts (fakeouts)), and even false fakeouts. This does not happen overnight and takes time
and effort to build up the experience and skill set needed to implement pattern trading in a
proficient manner. The ecs.SWAT and e cs.CAMMACD methods, however, shrink that learning
time and allow traders to master the skills needed in a much quicker time frame.
Seeing and Recognising Patterns
The best way to gain experience is by looking at hundreds of price patterns so that your brain
becomes trained in spotting them on the chart. Pattern recognition skills are trainable and the
more patterns you see, the easier it is for the brain to instantly see and recognise them.
Experience with patterns is a big help in trading these formations too.
The best way to practice and build up experience is by analysing charts in the past. Look for
price patterns on the price charts and see how the patterns behaved. Repeat this exercise
dozens, even hundreds of times. The best way to train your brain for pattern recognition skills is
by doing this exercise at least 50 times, per pattern.
Swings Form Trend

The very first thing that beginning and aspiring traders hear from other more experienced
traders is probably: focus on trading with the trend. Determining the trend sounds simple and
easy but requires more attention than many traders expect beforehand.
The trading philosophy “the trend is your friend until it bends” is well-known to traders. Buy on
dips and sell on rallies seems simple enough as a message... However, traders face real life
issues when applying it on real charts.
● What is the real t rend ( multiple time frames show major differences)?
● At what point will the trend continue?
● How long will the trend last before a bigger reversal occurs?
● Should I expect a shallow or deep pullback?
Due to Murphy’s law, traders often encounter a winning streak when they start out trading. Their
success is mostly possible due to the presence of a very strong trend. They trade along with it
but are unaware that trends do eventually stop. They are not able to recognize that the market
structure has changed and they lose their profits as price reverses or falls into a ranging
environment.
Understanding the trend is therefore a very important process of analysing the charts. It is
absolutely vital that traders understand the market structure and are able to assess the
presence of a trend and chance of trend continuation. The purple boxes indicate moments
where the trend ran out of steam and reversed. Many traders get trapped into trading with the
trend at the wrong spot before seeing price move into the opposite direction.
Defining the trend

Price can either be a) trending, b) reversing, or c) consolidating. The presence of a trend is
needed for both trending and reversing price action; whereas a lack of a trend implies
consolidation.
A trend is characterised by the presence of multiple price swings. It is a combination and

mixture of multiple impulsive price swings and corrective price swings.
1. An uptrend will be dominated by more bullish impulsive price swings and bearish
corrective price swings.
2. A downtrend will be dominated by more bearish impulsive price swings and bullish
corrective price swings.
3. Both up and downtrend however can also have impulsive price swings in the counter
trend (opposite) direction and corrective price action with the trend.
Simply said, a trend is established by connecting impulsive and corrective price swings
together. These price swings form a trend.
Trend and range are in fact opposites of each other, like darkness and light. The market is
either trending or ranging. But when we add multiple frames, then trend and range can mix. For
instance, a range can take place on the 4 hour chart within a trend on the daily chart.
There are many ways to define the trend but Nenad and I focus on a couple of favourite
techniques:
1) Classical HH and LL - purple boxes

2) Moving averages - orange/green lines
3) Trend channels (or lines) - red lines
4) Fractals - swat.FRACTALS indicates by green and red diamonds and circles
Classical HH and LL
There are multiple tools that make good sense for understanding the trend. One of my favorites
is the classical sequence of lows and highs, which is a solid approach when analyzing the
markets. For a trend to take place, traders are looking for:
● Multiple higher highs and higher lows.

● Multiple lower lows and lower highs.
The trend is taking a pauze (called retracement or pullback) when the market is unable to post a
new extreme (high/low), which means a lower higher in an uptrend or a higher low in a
downtrend.
In the image below the uptrend made a lower high and a lower low, but the overall price action
was corrective and the bullish break above the bull flag chart pattern indicates an uptrend
continuation (blue arrow). The lower high and lower lower, however, indicated a retracement in
the uptrend.
The trend has officially ended when:
● Price builds a lower low within an uptrend and breaks the dominant bottom of the
uptrend.
● Price builds a higher high within a downtrend and breaks the dominant top of the
downtrend.
The above image shows a clear uptrend (blue arrows). Price then makes a lower high followed
by a lower low. The bearish break also pushed below the dominant bottom (green box), which
was the bottom of the last bullish swing in the uptrend. In this case, price also showed strong
bearish momentum. The break of the bottom and the strong momentum indicate that a reversal
is more likely than a bearish correction.
Moving Averages
The presence of a trend can also be simply spotted when using moving averages. The key
aspect for an uptrend is that price is above a short-term moving average with the short-term
moving average above the long-term moving average. For a downtrend the opposite is valid:
price is below the short-term moving average, which is below the long-term moving average.
Uptrend: price above short MA above long MA.

Downtrend: price below short MA below long MA.
It is possible to use a 3rd layer, 4th layer, and even 5th layer of moving average(s). Traders can
add various short-term and long-term MAs to the chart. Here below is an example where a
short-term MA has been added.
The Fractal indicator is a tremendous help in spotting the sequences of lows and highs with
great ease. The fractals are visually appealing and make the trend analysis much faster. I
therefore always use fractals on my charts.
Correct time frame trends

Another key step is to know which time frame to use. The trend can in fact be defined on all time
frames depending on the time frames you prefer to enter. We recommend using 1 and/or 2 time
frames higher than your entry chart. Here is an overview:
● Entry 5 min chart --> 30 / 60 min charts for trend.

● Entry 15 min chart --> 1 / 4 hour charts for trend.
● Entry 1 hour chart --> 4 hour charts for trend.
● Entry 4 hour chart --> day charts for trend.
● Entry day chart --> week charts for trend.
Range or consolidation
A range indicates a lack of trend. It can be spotted by price action which is moving sideways.
When connecting tops and bottoms, the angle is either flat or (very) shallow). When analysing
the moving averages, the short and long-term moving averages are hitting each other (no space
between price and MAs and between MAs). A trend is pulling the long and short-term moving
averages away from each other so when the averages are on top of each other, then the market
is building a consolidation.
Reversals
The difference between a reversal and a consolidation is the fact that price is pushing into the
opposite direction of the trend and eventually a reversal will drag the short-term MA over the
long-term MA.
● In an uptrend the reversal occurs when:

○ Price fails to continue with the sequence of higher highs and higher lows.
○ Price breaks below the support and key bottom of the uptrend channel.
○ Price crosses below the long-term MA.
○ The short-term MA will pull below the long-term MA to the downside.
● In a downtrend the reversal occurs when:
○ Price fails to continue with the sequence of lower lows and lower highs.
○ Price breaks above the resistance and key top of the downtrend channel.
○ Price crosses above the long-term MA.
○ The short-term MA will be pulled above the long-term MA to the upside.
Retracements
Not all price action that is going against the trend, however, is a reversal. Lighter and deeper
retracements, also called pullbacks, indicate various degrees of pauzes within the uptrend.
When price is retracing, it essentially means that price is making a small correction but it is
expected to continue with the trend.
A light pullback takes place when price reaches and bounces at the 21 ema zone whereas a
deep retracement occurs when price moves back to the 144 ema close. The difference between
a deep retrace and a reversal is that price should not significantly break away from the 144 ema
close into the opposite direction and the 21 ema should remain aligned too.
Let’s review for bulls and bears:
● Downtrend and bullish pullback: price remains around the 21 ema zone. The 8 ema or
20 hma might be dragged into the 21 ema zone and the space between 21 ema zone
and 144 ema becomes smaller.
● Downtrend and bullish retracement: price is above (!) the short-term MA and price is
around or at the 144 ema. The short-term MA remains below or around the 144 ema
close.
● Uptrend and bearish pullback: price remains at or just below the 21 ema zone. The 8
ema might be dragged into the 21 ema zone and the space between 21 ema zone and
144 ema becomes smaller.
● Uptrend and bearish retracement: price is below (!) the short-term MA and around or at
the 144 ema. The short-term MAs remain above or around the 144 ema close.
Here is a useful summary:
● Price bounces at 8ema or 20 HMA: momentum continuation.

● Price bounces at 21 ema: shallow pullback.
● Price bounces at 144 ema: deep retracement.
● 21 ema crosses 144 ema: reversal.
● 21 ema keeps touching/hitting 144 ema: sideways range.
Retracements: how far can we expect the price to go?

The trend typically stops at a point when momentum becomes weaker and in an area where
support and resistance (S&R) shows strong confluence. This is when a light pullback, deep
retracement, or a reversal usually starts and when price develops a motion against the direction
of the trend.
The main question is: can a trader know which counter trend price movement is likely to take
place? The good news is: yes, we can analyze and estimate whether price will only make a light
pullback, a deep retracement, or actually reverse.
Divergence is an important factor in answering this question. When multiple time frames are all
showing divergence, then a reversal becomes more likely. The more time frames that have
divergence, the more likely that a reversal is about to start. For instance, divergence on the
weekly, daily and 4 hour chart would seriously endanger the chance of trend continuation and
increase the chance of a trend reversal.
However, if the price is not showing divergence or only divergence on a lower time frame, then it
is more likely that price is making a light pullback or deep retracement before the trend
continues.
Of course, anything in between no divergence or divergence on multiple charts is a grey area.

Typically on a 1 hour chart or lower, single divergence will cause a light pullback and double
divergence will cause a deeper retracement.
Single divergence on 1 hour chart:

Double divergence on 1 hour chart:
On a 4 hour chart or higher, any type of divergence has a higher chance of creating a deeper
retracement or reversal.
The moving averages are from this perspective used as targets. Here is a summary:
● The main target when a single divergence appears on a 4 hour chart or higher is the 144
ema close.
● If divergence appears on multiple charts or multiple times on a 4 hour chart or higher,

then a reversal could also be possible. Aiming for beyond the 144 ema close is realistic,
although the 144 ema always remains a good target.
● Single divergence on the 1 hour chart sends price often to the 144 ema close too, but
less frequently than on a higher time frame.
● Double or triple divergence on the 1 hour chart is a more reliable measurement that price
will make it to the 144 ema close.
● Single divergence on a chart lower than the 1 hour time frame is not a strong signal but
double or triple divergence could create a retrace to the 144 ema too.
Keep in mind that when the price reaches the 144 ema close, then the single divergence pattern
does not carry any importance. Why? Because the price has already reached the minimum
target. Once again, this is valid for single divergence (one divergence appears on the chart) but
not for double divergence or more because in that case a reversal is becoming more likely.
Although divergence is a useful pattern to keep an eye on, its effect on price and reversal are
not always immediate. Divergence is a good warning for trend traders that the trend might be
losing steam. It is however not enough information to enter a reversal setup. To trade against
the trend, traders should seek more confirmation such as a confluence of support or resistance
and candlestick confirmation.
Direction of the trend

All in all, defining the trend might not be as simple as it sounds when taking into account
multiple time frames, various moving averages, different channels and multiple trend lines. Price
moves on many different levels and the ‘stories’ of the various time frames can quickly become
confusing. Conflicting messages are certainly not uncommon. Consider the following question
that many traders face each trading day: “am I viewing a pullback within a new trend or is the
‘old’ trend still valid and has price just changed gears?”
Let’s try to resolve this issue by using our favourite methods: trend lines, trend channels, and
above all, moving averages.
Spacing between averages

For a proper trend to be confirmed, it is important to see space between the moving averages.
In fact, the bigger the space between the moving averages, the more momentum there is on the
chart. When price is showing momentum:
A. Price is able to move further away from the short-term MAs.

B. The short-term MAs are in turn pulled away from the long-term MAs.
C. An increasing gap is visible between the short-term and long-term MAs.
At this point the momentum / trend is often quite strong and price could use the MAs as a
support or resistance zone for a trend continuation.
Moving average numbers

Nenad and I prefer EMA’s (exponential moving average) more than SMA’s (simple moving
average) but which MA type and which MA number(s) are used is in our eyes not so important.
Nenad and I use MAs which are based on the Fibonacci sequence levels. Chris works with 21
or 34 ema for short-term and 144 ema for long-term whereas Nenad likes the 89 ema, which he
uses for his famous T-89 pattern. That said, we think that almost all EMA (and SMA) numbers
are valuable whether you work with 10-20-40-50-100-200 combinations or with Fibonacci
sequence levels as we do. In our opinion, the most important part is to acquire and build up
experience with the moving average numbers of your choice.
Short-term MAs
I personally use a set of 21 ema moving averages, which is the 21 ema close, 21 ema low, and
21 ema high, which I call a band. Nowadays I tend to only use the 21 ema low and high
because the 21 ema close is simply in the middle of those 2 MAs and hence 2 MAs are in fact
sufficient. Basically, the 21 ema high and low show the boundaries of the 21 ema zone even
without using the 21 ema close. The reason why I prefer a band of 21 ema’s rather than just a
singla MA is because it:
1) Provides a zone of support and resistance rather than one specific spot.
2) Is based on Fibonacci sequence levels, which work great on charts.
3) Does a great job of capturing momentum bursts.
Long-term MAs
I personally use 144 ema close. This is again an MA that is based on Fibonacci. Price tends to
highly respect the long-term moving average as a spot where price either continues with the
trend or reverses. Nenad likes using the 89 ema close.
Combining short and long-term

I like combining the 2 sets of 21 and 144 ema because it’s flexible and trends are simple to spot.
A clear trend is present when the 21 is above/below the 144. When the 21 is crossing the 144 a
trend reversal is potentially occurring. And when the 21 ema is on top of the 144 ema, then a
range or consolidation is taking place.
Momentum MA
Using a very short-term moving average is also useful because it provides more information
about the momentum. For instance, an 8 ema close or 20 hma provide important details about
the strength and speed of price action. Anything from 3 up to 13 ema works well for measuring
impulsive price action. I personally use 5 or 8 ema close for this purpose or the 20 hma.
Trending market
I personally combine classical highs and lows, trend channels, fractals, and above all moving
averages to answer that question for my own trading. I use 4 hour charts to determine trades for
intra-week setups and a combination of 1 and 4 hour charts for intra-day trades. In the section
below I will discuss 4 various market structures 1) trending, 2) retracing, 3) reversing, and 4)
consolidating.
When price is aligned with the MA’s and the MA’s are aligned as well, then there is a very clear
conclusion: the market is trending. Let’s review for bulls and bears:
A. Bullish trend:
a. MA’s: price is above the short-term MA (moving average - I use 21 ema), the
short-term MA is above the long-term MA (I use 144 ema).
b. H/L: traders should be able to clearly see a sequence of higher highs and higher
lows, especially higher lows.
c. Fractals: usually the fractals that are at/just below the 21 ema are very important
and often act as S&R zones. Fractals above the 21 ema are less relevant and not
so important as a support level.
d. Trend channels: in some cases we are able to draw a channel on the chart
connecting multiple tops and bottoms. With a channel there are many rules to be
aware of, which will be discussed in a later post. Key is that the uptrend channel
connects at least 3 hits on the bottom.
B. Bearish trend:
a. MA’s: price is below the short-term MA (moving average - I use 21 ema), the
short-term MA is below the long-term MA (I use 144 ema).
b. H/L: traders should be able to clearly see a sequence of lower lows and lower
highs, especially lower highs.
c. Fractals: usually the fractals that are at/just above the 21 ema are very important
and often act as S&R zones. Fractals below the 21 ema are less relevant and not
so important as a resistance level.
d. Trend channels: in some cases we are able to draw a channel on the chart
connecting multiple tops and bottoms. With a channel there are many rules to be
aware of, which will be discussed in a later post. Key is that the downtrend
channel connects at least 3 hits on the top.
Most of the time the 21 ema and the 144 ema will show an angle that is equal to the trend
direction. So a bullish (bearish) trend should see bullish (bearish) ema’s as well.
Trend channels
The best trend channels are characterized by a few important aspects:
A. A good angle is visible which is not too steep nor too shallow.
B. There are multiple price hits on the channel (minimum 2, best 3 on the bottom of an
uptrend or the top of a downtrend).
C. Price respects the internal channel lines.
D. Most price action is contained in the channel.
E. Some of the price action can be outside of the channel.
Let us now review these points in more detail.

Good angle
A trend channel is not supposed to be too steep or too shallow. A trend channel needs to have
a balanced angle because then the price is moving in a rhythm that is showing trend strength
and sustainability.
Too steep channel

This is not a trend but a momentum or impulse. Price can keep moving strongly within the
momentum but eventually price will lose its steam and need to make a bigger correction. The
correction will break the channel because of its steep angle.
Too shallow channel
In this case the price is not showing sufficient momentum in the direction of the trend. A weak
angle in fact shows a corrective pattern.
Sideways channel
In this case the price is not even able to build an angle, which means that price is building a
range or sideways price action zone. Price cannot trend if it’s moving flat.
What is good, too shallow and too steep? These terms are very discretionary but we will try to
quantify them, although they remain rough figures at best.
First of all, it’s best to use a chart setting where 150 to 230 candles are visible. This chart setting
shows the best “market memory”. Anything more and the chart is too squeezed. Anything less
and the chart is too zoomed in.
Secondly, an angle of +/- 25-45 degrees is considered to be an optimal angle for a trend
channel (see red lines in image below). Anything below 25 degrees is shallow and above 45
degrees is steep. Steeper and shallower channels are still useful and good channels but are not
considered trend c hannels.
Thirdly, a steep channel mostly has very impulsive price action (see orange lines in image
below). A trend channel will have both momentum and corrections which give it the medium
angle. A sideways or shallow channel has only corrective price action but few parts with
momentum.
Multiple hits
The minimum number of hits on the channel is 3 (on one side). Anything lower than 3 is
considered a potential channel. A channel becomes more established and valuable when more
hits are visible.
● In case of a downtrend channel we need to see 3 hits on the bottom. The 3rd hit on the
bottom in fact changes the potential trend channel into a confirmed downtrend channel.
● In case of an uptrend channel we need to see 3 hits on the tops. The 3rd hit on the top
changes the potential trend channel into a confirmed uptrend channel.
There is nothing wrong with drawing multiple channels on the chart as long as it remains
relevant for your analysis. Often price is able to respect multiple trend lines and channels.
Eventually, of course, one of the channels and trend lines will become obsolete and then a
trader can remove the tool.
Price action needs to be within 30 pips from the top or bottom of the channel on a 4 hour or
daily chart to be able to consider it a full hit on the channel.
Internal channel lines

A good trend channel has internal lines which are respected by price action. There are 3 internal
lines, which consist of a middle line and 2 quarter lines. Well formed trend channels will have
price action which respects the middle line as it tends to act as support and resistance.
The quarter levels are important too:
1. Selling in the top quarter or half of a downtrend channel is ideal because there is lots of
space within the trend.
2. Selling in the bottom quarter of a downtrend channel is dangerous because there is no
space before the price reaches the bottom of the channel.
3. Buying in the bottom half or quarter of an uptrend channel is ideal because there is lots
of space within the trend.
4. Buying in the top quarter of a downtrend channel is dangerous because there is no
space before the price reaches the top of the channel.
Price action versus channel
The value of a trend channel diminishes if a lot of price action is hanging outside of it. But some
price action is allowed to be below or above it. This is technically called an overthrow and under
throw. Price has then overextended beyond the channel but eventually could revert back into
the channel. It’s OK to place a channel on the chart which cuts through parts of price action.
Preferably the channel only has wicks outside of its boundaries but even entire candles are
acceptable if this increases the number of channel hits or improves the channel angle.
Occasionally price will not be making an overthrow or under through but it will actually break the
channel. It could break the channel in the opposite direction of the trend and indicate a potential
reversal break.
Or it could break the channel in the same direction and in fact accelerate the trend.
Whether price only places a high or low outside of the channel OR whether price manages to
post 1-3 full candles outside of the channel are important factors to analyze if price has
overextended or has broken the channel.
Using single trend lines
It is not a must to use trend channels. A single trend line could offer the same benefits and the
same characteristics of a trend channel are valid for a trend line too.
Proximity and relevance: trend lines are only useful obviously if they are relatively near price
action. A trend line that is hundreds of pips away from a 1 hour trend line will probably not add
much value to your charting analysis.
Multiple trend lines: there is no rule that tells traders they can draw only 1 trend line on the
chart. Feel free to connect multiple points and keep them on the chart because all of them
represent a decision spot. Although you can add as many trend lines as you feel are needed,
make sure not to over crowd your chart because you want to avoid paralysis of analysis.
Old trend lines: keeping some of the older trend lines on the chart is OK especially when you
expect them to provide support and resistance in the opposite direction. Old trend lines can be
great points of chart confluence.
Cutting through candles or wicks (dark red): trend lines can cut through part of the candle or
wicks of the candle if the trend line becomes a "better" trend line due to more hit(s), a more
sustainable angle, more space between the hits.
Steep trend lines (inner)
A steep trend line indicates that price action is behaving very impulsively. Price is moving
quickly in momentum and therefore the trend line is steep as well. Any angle more than 45
degrees on a chart with +/- 150-230 candles is considered steep.
These trend lines can be used for finding continuation trades within the momentum. But be
careful not to get carried away with this practice because eventually price will fail to continue in
the momentum and will show a larger correction.
The breakout of a steep trend line could be an entry setup as well, however this needs to be
treated with even more caution. The break of a steep trend line could just be an expanded
correction and nothing more. Traders run the risk of price going only a bit in their favor before
the trade setup runs into trouble. The counter trend break could make sense if the momentum is
going against the trend direction of a larger time frame.
Medium trend lines
Price is showing periods of impulse and corrections which makes the channel angle not too
steep or shallow. An angle less than 45 degrees but more than 20 degrees on a chart with +/-
150-230 candles is considered medium. These trend lines offer both bounce and break
opportunities.
Shallow trend lines (outer)

Price is showing a correction which makes the channel angle shallow. An angle less than 20-25
degrees on chart with +/- 150 candles is considered shallow. These trend lines offer better
break out opportunities and sometimes bounces in the direction of the bigger trend.
Shallow trend lines occur when price is correcting so it makes sense to look for breakouts above
the correction, most notably when price has made an impulse prior to the correction.
A bounce setup could occur in the correction pattern as well, such as a bullish bounce and long
setup at the bottom of a bull flag or a bearish setup at the top of a bull flag.
Trend lines are not only useful for determining the trend but also for analysing support and
resistance (S&R), which is the next major concept that traders must know so that they can
understand the charts and technical analysis in a more proficient way.

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Price Action and Path of

Written by Chris Svorcik, MBA, MSC

Copyright © 2019, 2020 by Elite CurrenSea.

First Edition: September 2019.

Price Action and the Path of Least Resistance 17

Chris Svorcik is a co-founder and co-partner at the website Elite CurrenSea

To follow me and my work, please connect to these profiles:

Linked In: ​https://www.linkedin.com/in/chrissvorcik/

Elite CurrenSea - ​www.EliteCurrenSea.Com

To follow ECS and our work, please connect to these profiles:

To follow Nenad and his work, please connect to these profiles:

To follow Mislav and his work, please connect to these profiles:

Facebook: Mislav Nikolic from Bull Capital

A Short History Plus Performance

● October 2013: Chris speaks at two seminars in Lithuania

Path of Least Resistance

Trend, Momentum, and the Building Blocks of the Charts

With trading it works like this:

1. Candlestick = the basic unit on the chart.

Bottom of sequence (smallest)

1. 1x candle is smallest unit of chart

Top of sequence (largest)

The candlestick is either bullish or bearish:

1. Candle open (O): the starting price of the candlestick.

Correlation between the Open and the Close

Key Dynamics of Each Candlestick

● What is the direction of the candlestick: bear or bull?

● Which side is in control of the candlestick, bear or bull?

● Is there selling or buying pressure in the candlestick?

● What is the size of the candlestick?

○ The close versus the close:

Which answer is correct?

Answer B) bullish, the candle closed bullish so an uptrend continuation is likely.

Answer A) indecision, there is no wick. Candles provide little information.

Answer B) bullish, the candle is a retracement of a larger uptrend.

Curious what the answers are?

See the answers below the video!

The answers to the quiz questions are:

Candlestick Patterns Explained

● Bearish reversal candlestick patterns

Let’s first start with the bearish ones.

The number of candles in the configuration​ – 3

1. The market is characterised by an uptrend.

3. Each candlestick opens within the body of the previous candle.

4. Candlesticks progressively close at new lows, below the preceding candle.

The number of candles in the configuration ​– 3

1. The market is characterised by a prevailing uptrend.

1. The market is characterised by an uptrend.

2. We see a bullish candlestick as the first candle.

4. A bearish candlestick is spotted as the third candle.

The number of candles in the configuration​ – 3

1. The market is characterised by a prevailing uptrend.

2. A normal or long bullish candlestick appears as the first candle.

3. The second candle is a short bearish candlestick that goes down.

The number of candles in the configuration​ – 2

1. The market is characterised by a prevailing uptrend.

2. A bullish body is observed as the first candle.

Bearish Abandoned Baby

1. The market is characterised by an uptrend.

2. A bullish candlestick is observed as the first candle.

4. Third or fourth candle’s bearish candlestick moves in the opposite direction.

The number of candles in the configuration​ – 2

1. The market is characterised by an uptrend.

Linked In: https://www.linkedin.com/in/chrissvorcik/

Elite CurrenSea - www.EliteCurrenSea.Com

The number of candles in the configuration – 3

The number of candles in the configuration – 3

The number of candles in the configuration – 3

The number of candles in the configuration – 2

The number of candles in the configuration – 2

The number of candles in the configuration – 2

The number of candles in the configuration – 3

Number of candles in the configuration – 3-6

Number of candles in the configuration – 4

The number of candles in the configuration – 3

The number of candles in the configuration – 3

The number of candles in the configuration – 4 (very rare pattern)

The number of candles in the configuration – 3

The number of candles in the configuration – 2

The number of candles in the configuration – 1

The number of candles in the configuration – 1

The number of candles in the configuration – 2

The number of candles in the configuration – 2

The number of candles in the configuration – 3

Number of candles in the configuration – 3-6

Number of candles in the configuration – 2