1.

Up bars with higher

high and higher low

2. Down bars with lower

high and lower low

4. Outside bars with

higher high and lower low

3. Inside bars with lower

high and higher low
 2. Outside bar broke
above last swing high,
forming an upswing
without an up bar
Up bar
Down bar
Up bar

1. Down bar

Down bar
 3. Failure to clear support led
to a strong bullish reaction

1. This bar is
entirely below the
previous swing
low. It has cleared
the swing low.
2. These bars overlap with the previous
swing low. The price level is not cleared.
1. Good break-out distance
above previous high. A
1

2. Bar closed
above

3. Price cleared previous

high (resistance).
 2. Bar closed above resistance

1. Decent break-
out distance but A
shorter than the
first

3. Did not clear resistance

 C

2. Bar close
1. Similar break-out
distance with the
B below resistance
previous tested high 1

A
1

3. Did not clear resistance

1. Tested highs that
could not close above
resistance

3. Strongest tested
low that cleared
support
2. Similarly weak
tested lows
3. Broke above last higher high; tested pivot becomes valid

1. Basic pivot

2. Fell below basic pivot and formed a tested pivot

 Valid pivot low

Tested below and broke above

Valid pivot low

 2. Formation of a valid
pivot high changes the
market bias from
bullish to bearish

3. A final burst of bullishness

before the market plummets
1. Valid pivot lows in
a bullish market
1. Valid pivot highs
in a bearish market

2. Break-out confirms valid

pivot low; bullish market bias

3. Valid pivot lows

 3. Valid pivot highs

2. This bar completed the

valid pivot high; the first
sign of a bearish bias

1. Valid pivot low in a bullish market

1. Good bullish
momentum in a
bullish market

2. Turning point
where bearish
momentum took 3. Tested lows
over with weak
momentum
 4

1
1. Upwards
slopping trend
line broken here

2. 1st valid pivot high

completed with this bar
 2. Price bounced off
trend line but failed
with an outside bar
1. No more valid lows
 Bull trend line

Valid pivot low

Latest valid low

Rotate trend line upwards

Latest valid low

Rotate trend line

upwards again
1. Adjusted 2. Resistance
trend line from trend line
1. Final bear trend line

3. Congestion between
two trend lines

2. Trend line
support
 3. Trend resumed

2. Support again

1. Lower tails showed

buying pressure
1. Powerful bearish 3. Equally strong
thrust from top of trend resistance

2. Strong support 4. These bars

cleared below the
last swing low.
Price closed above, and cleared
the previous pivot high.
1. Mature bear trend line

3. Congestion between
two trend lines

Trend line
bounce

2. Recent bull
trend line
 Recent bear trend line 2. Negligible
momentum breaking
bear trend line

Mature bull trend line

1. Strong momentum
breaking bull trend line
 Recent bear trend line 2. But price
rose up instead

Mature bull trend line 1. Strong momentum

breaking bull trend line
 3. Too near to the
bear trend line for
taking long trades 5. Possible
short setup

1. Solid bullish
momentum

4. Trend line break

with strong momentum

2. Bull trend line drawn

with this valid low
 2. Resistance from
bear trend line

1. Bullish bias
confirmed here

3. Limited upside due

to bear trend line

Valid low
 3. Bullish
momentum fading

1. Large down gap that

caused price to move
away from the trend line

2. First tested high had

strong bullish momentum

4. Bearish momentum
returning
 Completely within
the range of the
preceding bar
Bar range

Inside Bar
 Closed within range;
possible congestion
Bar range

Broke out of range

 2. Congestion
3. Broke out of range
confirmed here
1. Congestion and ended congestion
started here
 3. Bullish
break-out bar

1. Congestion
started here 2. Congestion
confirmed here
 3. Bullish break-
out that failed

1. Clear bearish
momentum leading
to trend line break
2. Three-bar congestion
1. Bear trend 3. Congestion started
line broken after retest of trend line

4. Bearish break-out
2. Bull trend line drawn failed with bullish
with this new valid low inside bar
2. Pressure Zone
and Deceleration

4. Congestion Break-
out Failure setup bar
3. Congestion
at the top of
the trend

1. Price moved far away

from the bull trend line
 4. Exceeded last extreme high
and the trend line was adjusted
to accommodate the pullback
1. First bar of the
session gapped high
above the bull trend line

3. First swing in the session

to exhibit momentum

5. Congestion
Break-out Failure
2. None of the tested lows with trend line test
showed momentum
 3. Congestion Break-
out Failure resisted by
the earlier congestion

Earlier congestion

1. Strong show of
momentum by the bears
below the bull trend line
2. Six-bar
congestion
 1. Three-bar 4. Traders who caught the
congestion break-out place break-even
stops here to cover

3. Traders who missed

the break-out intends
to sell when the
2. The eventual market gets back here
break-out
1. Congestion
started here

Highest
close

Lowest close
Merged Congestion Zone
Small gap in between the
two congestion patterns
1. This bar clears above
the Zone, and the Zone
becomes a support.

2. Then, price clears

below the Zone. The
Zone becomes invalid
as a support.
 2. Price rises back
within the Zone

Three-bar
congestion 3. Place sell stop order
1. This bar clears below this bearish bar
below the Zone
 2. Then, price clears
above the Zone, and
the Zone is no longer a
valid resistance.

3. But the Zone is still a

1. This bar clears below valid support, until price
the Zone, confirming the clears below it.
Zone as a resistance.
1. Congestion Zone
4. First sign of weak
projected from here
bullish momentum
A
1
B C
1 1

3. Good bullish
2. First test of momentum
zone had strong persisting
bullish momentum
 B C 3. Setup bar
1 1

1. A smaller
congestion zone

2. This bar cleared the below

Congestion Zone, confirming
it as a resistance.
 3. Bearish Congestion
Zone setup

2. Display of bearish
momentum below trend
line confirmed bias change

1. Original bullish
market bias
 3. First Congestion Zone setup

1. Overlapping
Congestion Zones

2. Basic pivot low above 4. A better Congestion

Congestion Zone Zone setup
 2. Strong break of
bearish trend line 3. Long Congestion
Zone setup with
trend line tests

1. Overlapping
Congestion Zones

4. Bullish Pressure Zone

 2. Bull thrust only managed
to close above last swing
high but did not clear it

5. Short Congestion
Zone setup

1. Bearish
momentum
3. Overlapping
Congestion Zones
4. Clear breakaway
from Congestion Zone
Body takes up
more than half
the candlestick.
Body is less than
half the candlestick.

Trend Bar Trend Bar

 3. Bullish bar rose
above the previous
bar high to trigger
the trade.

1. Bullish momentum
rising above trend line

2. Bear trend bar failed

as market found support
at the bull trend line
1. Support from valid lows
2. Bear trend bar
3. Bullish reversal bar
 2. 1st Trend Bar
Failure as market 4. 2nd Trend Bar
retested trend line Failure with a
Congestion Zone

1. Broke trend line and

previous lows with
strong momentum

3. Congestion area
acting as resistance
 2. Bear trend line
drawn with new valid
high; change of bias

1. Market was bullish

 4. Trend Bar Failure
setup in congestion
3. Strong bullish
momentum cast
doubt on bearish bias

1. Firm bearish
momentum

2. Failure of bullish trend bar

 C
1
B
1

A
1

Limit Line
A>B>C
 2. Setup bar
(not triggered)

Limit Line

1. Last bar of a bullish

Deceleration pattern

3. This bar cleared

the limit line; Setup
becomes invalid
 3. Second setup bar
also completed a
bearish Pressure Zone

2. First setup bar

not triggered

1. Outside bar broke trend line but

upswing could not reach last swing high
1. Congestion Zone

2. Trend line break 3. Long

did not exhibit Deceleration
momentum setup bar
 2. Price cleared above
the Congestion Zone
1. Congestion Zone

4. Setup bar
3. Decelerating as the
market returned to test
the Congestion Zone
1. Strong five-bar thrust
to test the trend line

2. Second down
thrust formed a
Deceleration pattern

3. Did not clear

the last pivot low

4. Bullish Pressure Zone

 2. Bears 5. Resisted by
1. Strong bullish wrestled Congestion Zone
momentum back control

4. Bullish momentum
with Deceleration

3. Could not close

below last extreme low
Hammer Inverted Hammer
1. Congestion after
first bar of the session

4. Bullish
pressure
zone

3. Anti-climax supported
2. First valid low by trend line and the
of the session Congestion Zone
 1. Extremely
strong break of
a bull trend line
4. Anti-climax
setup bar
2. First sign of
bullish momentum

3. Bearish momentum
took back the control
immediately
1. Strong break of
bull trend line
3. Could not close above
the last basic high

4. Second try to
move above the
resistance ended with
a bearish outside bar

2. Five-bar up
thrust ending with
an Anti-climax 5. Bullish Anti-climax
as a possible exit
1. Shorted here 3. Market shot up after
the bullish Anti-climax

2. Covered at this
price after a
bullish Anti-climax
1. Price has gapped far
above the bull trend line

2. First tested low 3. Anti-climax setup bar

ended with a
congestion pattern
 Stage One Stage Two Stage Three
New bar Along the way Resulting bar

1. Sold here

2. Bought here

4. Bought here

3. Sold here
Selling
pressure

Buying
pressure
Pressure
Zone
Only 1 tick

Not a reliable
Pressure Zone
 2. Place a buy
stop order here

3. If price clears
below this line, the
1. Bullish setup is invalid.
Pressure Zone
 1. Seventh consecutive
bullish bar

4. Bullish
Pressure Zone

3. Congestion
2. Weak tested low Zone
 First bar of 3. Bullish setup bar
this session rejected from Pressure
Zone and bull trend line

1. Congestion
Zone from
previous
session

2. Bullish Pressure Zone

 1. Bearish Pressure
Zone setup bar

3. Bearish Deceleration
and Pressure Zone
2. Bullish Anti-climax setup bar
and Pressure Zone
4. Crude oil
inventory report
released here
 2. First bearish Pressure
Zone with outside bar as 3. Second Pressure
setup bar Zone (resistance from
Congestion Zone)

1. Rejection from
broken bull trend line
confirmed bearish bias
2. Bearish
Pressure Zone

3. Setup bar

1. Bullish
market bias
 Stop-loss

Entry
Anxiety Zone
2. The break of its high
was the nudge that
tipped the balance.

1. Bullish bar within

Anxiety Zone
 3. Project an Anxiety Zone from high
and low of the triggered setup bar

1. Bearish
Anti-climax

2. Short setup bar triggered

 3. Setup bar triggered

1. Bullish
Anti-climax

4. Project an Anxiety Zone

2. Bullish
from the high and low of
Pressure Zone
the triggered setup bar
 3. If price crosses this
1. Bearish
Pressure Zone level, the Zone
becomes invalid as well.

Anxiety Zone

2. This bar cleared

below the Zone,
making it invalid.
 2. This bar cleared
above the Zone,
making it invalid.

Anxiety Zone

1. Bullish Anti- 3. If price crosses this level, the

climax Zone becomes invalid as well.
 3. Place a buy
1. Bullish stop order at the
Anxiety Zone high of this bar

4. Cancel the order

if it is not triggered
by this bar

2. Bullish bar overlapping with

the Anxiety Zone (setup bar)
 2. First serious 4. Bullish
attempt to rise Pressure Zone
was rejected entry bar

5. Bearish
setup bar in
Anxiety Zone

1. Gapped down and

cleared last pivot low 3. Bullish Pressure
for two bars Zone against the
trend
 3. Bearish 5. First setup bar
Pressure Zone not triggered

2. Price continued the bull

trend with momentum.

4. Bullish 6. Second
Anxiety Zone setup bar
triggered

1. The market tried to reverse this

bullish Pin Bar for 11 bars but failed.
 2. Bearish Marubozu
trapped bears and
formed Anxiety Zone.

1. Bearish
Anti-climax

4. Bullish
setup bar

3. These two bars freaked

out traders who went short.
 3. Anxiety Zone based on
bearish Anti-climax setup

2. Pushing the trend

higher with momentum

5. Second setup bar

which also
completed a bullish
Pressure Zone

1. Tested low did not 4. First setup bar

clear the last swing low.
 Trend line tests

Congestion Zones

Bullish Pressure Zone

Outside bar
as setup bar

Second setup bar

Long Pressure Zone setup

with trend line support
 3. Bullish setup
bar not triggered

4. Bar cleared below

limit line, implying a
bearish bias

1. Bullish
Anti-climax

2. Limit line
 3. Bullish setup bar
implied bullish bias here

1. Bullish 2. Bearish setup bar

Pressure Zone implied bullish bias here
 2. Long Congestion
Break-out Failure 5. Short
setup bar Congestion
Zone setup

3. Limit line of
Bullish Anti-climax
1. Original 4. This bar signalled
bullish bias the failure of both
long setups.
 1. Price has moved
far below the bear
4. Ignored two
trend line.
bearish Decelerations

5. Failure of 6. Long
the 1st Congestion
3. Signalled bearish Break-out
2. Bullish success of bullish Deceleration Failure Setup
Deceleration Deceleration
 3. Failed bearish
Pressure Zone

1. Failed bearish 4. Successful

Anti-climax bearish Anti-Climax

2. Bullish Congestion
Break-out Failure setup
 1. The bearish Anti-climax
referred to in Figure 10-9

2. Turned out to
be the beginning
of a down trend
 3. Successful bearish
Pressure Zone

1. Pushed below
last swing low
with momentum

2. Failed bullish
Deceleration
 4. This bar cleared above the
1. Bearish setup bar, indicating a setup
Pressure failure that prevented re-entry.
Zone

3. Projected from the high

of the short setup bar

2. Bearish bar
as setup bar
 3. Projected from
2. Long setup bar the high of the
long setup bar

4. This bar cleared above

the setup bar and the setup
was considered successful.

1. Bullish
Pressure Zone 5. Do not look for re-entry
after stop-loss was hit
 2. Original
setup bar

5. Re-entry setup
bar (bullish bar)

3. Low of original
setup bar

1. Four-bar Deceleration
4. Clear buying pressure
that ended with a bullish
Pressure Zone
1. Short Congestion
Break-out Failure setup 3. Stopped out
with bearish Deceleration by the entry bar
5. More possible
re-entries

4. Re-entry setup
2. Original bar (bearish bar)
setup bar
2. Original setup bar
(skipped)

4. Re-entry setup bar

(bought here)

3. Traders who entered

1. Bullish with the first setup bar
Deceleration got stopped out here.
 3. Bullish Anti-climax
with support from
2. But none of the Congestion Zone
tested highs showed
strong momentum

4. Re-entry
setup bar
1. Broke above trend
line and made a basic
low above the trend line
 Original entry

Stopped out Timing Problem

st
1 re-entry

Stopped out

nd
2 re-entry

Stopped out

rd
3 re-entry

And so on…
Market Bias Problem
 Setups that did not
reach our targets

Assuming that we targeted the amount equal to

the trade risk each time, 6 out of 8 entries using
the simple two-bar reversals hit their targets.
 Weak up thrust

Horizontal shape
1. Congestion Zone projected from a five-bar congestion pattern

5. Highly
probable target
3. Massive
congestion

4. 5th rejection from the

Congestion Zone (buy)
2. Bear trend line drawn after this bar made a new market low
 1. Session has been plummeting

3. Bearish
Deceleration?

2. After bouncing above the

bull trend line twice, the
market broke it decisively.
Equal highs do
not fit definition.

High of this bar

should be higher
 Target (33.3%)

20 ticks

Entry price

10 ticks

Stop-loss (66.6%)
 Positive Expectancy

Negative Expectancy
 2. Stop-loss order almost hit

3. Bearish
Pressure Zone

4. Trailed
stop-loss here

1. Bearish Congestion
Break-out Failure;
shorted here
 D
1
1. Closing above bullish
wide range bars
C
1

B
A 1 3. When price closes
D
1 above these bars, the
1
stop-loss can be
C adjusted higher again
B 1
1
2. And their corresponding
trailing stop-loss level
A
1
 1. First trail

A
3. Choose the tightest
1 stop-loss option

B
1
A
1

B
2. This bar was the first close 1
below four bearish wide range bar
1. Bearish
Anti-climax in
a bull trend

4. Using pivot lows for trailing

stop-losses is the right way

2. Long Anxiety 3. If we moved the stop-loss to

Zone setup bar breakeven without an analytical
basis, we would be stopped out here.
 4. Sold here with
3. Measured a limit order
move target
based on
this thrust

2. Bought here

1. Long Congestion
Break-out Failure
 2. The market
continued to rise.

1. We exited here.
 1. Short Pressure
Zone setup bar

4. Low of
previous session 2. Previous
extreme low

3. Merged Congestion Zone

5. Session low two sessions ago

 Highest opening price
1. Nine-bar
bearish thrust
2. Measure distance between

Lowest closing price

3. Project the
same distance

4. Projected target hit here

3 solid lines are the
projected targets
 2. Short Congestion Break-
out Failure setup bar

1. Price broke below the

last swing low and the bull
trend line with momentum

3. Bullish Anti-climax
 2. Starting point of
last bull trend line 1. Shorted here

Tested low

Valid low
3. Bullish Anti-climax was the
second test of the valid low
 1. The same short
Congestion Zone setup

3. See how the

market flew

2. Congestion within congestion

 1. Bear trend line drawn
with this valid high

2. Bearish Deceleration setup bar

with resistance from Congestion
Zone, trend line, and last basic pivot

3. Congestion Zone projected 4. New Congestion Zones were a

from many sessions ago. clear signal to cover our shorts.
1. Shorted
with this bar 3. The market cleared above
the Merge Congestion Zone

4. Tested Merged Congestion

2. Covered here Zone twice and rose sharply
 3. Two-bar thrust
projection

2. Last
extreme high

4. Another bullish
Pressure Zone

1. Long Pressure Zone setup

2. Congestion Zone 3. Two-bar thrust
projection

1. Long Pressure Zone setup

3. Tested pivot high

2. Basic pivot high

1. Bullish
Anti-climax
Tested pivot high
3. Target projected
from four-bar thrust
2. Target projected
from three-bar thrust

Basic pivot high

1. Bullish
Anti-climax
 4. Four major
resistance
areas above

3. Projected target 2. Confluence of Congestion Zone,

with six-bar thrust resistance level, and last extreme high

1. Long Pressure
Zone setup bar
 4. Price reversed right
below the lowest resistance

3. Projected target hit

2. Price pushed through the

Congestion Zone with ease

1. Long Pressure
Zone setup bar
2. There was a 40% chance that
the market will reach this target
before hitting our stop-loss order.
4. Target was above
the R2R projection

3. R2R projected
minimum target

1. Bullish setup bar

2. There was a 40% chance that 3. R2R projected
the market will reach this target minimum target
before hitting our stop-loss order.

4. Target was below

the R2R projection

1. Bullish setup bar

4. Price trapped between two
trend lines; unclear bias

2. Strong bull thrust

5. Bearish
warning against
momentum
taking short positions
below bull trend
line; bearish turn

1. Gap open below 6. Five bullish

bear trend line bars did not reach
3. First valid low last pivot high.
1. Congestion Zone and bear trend line acting as resistance

2. Bearish
Pressure Zone

3. Setup bar implying

trade risk of 9 ticks
 2. Valid low (33) 1. Tested low (27)

3. Session low (87)

 2. Strong bull thrust might
be a sign that the bias has
changed to bullish
6. With this new high, the
bull trend line was adjusted
to the shallower solid line

5. Bear trend line acted

as resistance for a
1. Gap open while before breaking
below bear
trend line

3. First tested low

showed relatively
weak momentum 4. Valid low that allowed us to
draw the dotted bull trend line
 2. This bar did not
clear above the
Congestion Zone.

3. Confluence of support
from Congestion Zone
1. Three-bar
and bull trend line
congestion pattern
 4. Target projected from bullish thrust

2. Last valid high

1. High of session

3. Most powerful thrust of the session

with consecutive bull trend bars
3. Intended profit target level

2. Minimum required
target level

1. Setup bar
 1. With this valid high
from last session, we 4. But there was no
drew this bear trend line bullish momentum

5. First bar of this

session gapped
up and fell rapidly

2. Bear trend line 3. Pivot lows

broken here formed above
the trend line 6. With this new low, we
adjusted the bear trend line
First bar of the session

First up bar
Support from
last swing low

Last extreme low

 First bar of
the session
2. Bearish Anti- 3. Setup bar
climax rising into a
Congestion Zone

1. Congestion
Zone
 1. Short
setup bar

2. Current session low

4. Congestion 3. Valid low 5. Targets projected

Zone from down thrusts
 1. Great down thrust for
projecting bearish target Short
setup bar
3. Less
ideal thrust

2. Projected target
with first thrust
4. Second projected target
within Congestion Zone
 1. Setup bar
2. Minimum required
target level

3. Intended profit target level

 1. Re-entry
setup bar
2. Required
target level

3. Intended profit target level

1. Bar gapped above the bear
trend line from last session;
started with bullish bias

2. Bearish momentum might 3. This bar confirmed

reverse the bias but none came. the first valid low of
the session.

4. Then, we could draw

this bull trend line.
1. Selling pressure

2. First trend line break

lacked momentum

3. The attempt to continue the bullish trend was

rejected by a bearish outside bar. Note the five-
bar down thrust and the bearish momentum.
1. Congestion Zone 2. Bearish
(dotted box) Pressure Zones
(solid boxes)

3. Short setup bar for two

bearish Pressure Zones
and a Congestion Zone
 2. Intended
short setup bar

3. The market still

1. Seven-bar seemed stuck within this
congestion pattern larger Congestion Zone.
 1. Valid low

2. Current session low

5. Target projected with

five-bar down thrust
3. Congestion Zone
from last session

4. Low of last session

 1. Setup bar

4. Breakeven
stop hit

2. Target hit 3. Warnings to exit

2. Shallow bear
trend line from
last session

1. First bar of the session opened

with a gap past the last swing low

3. Congestion around
low of last session

4. Price continued to fall,

confirming the valid swing high
1. Steep trend line
from Figure 5-33 4. Price has not reached
the last valid high.

3. Tested high could not even

close above the last swing high

2. Four-bar up thrust broke

trend line but did not test
the last swing high
 3. Second Congestion
Zone setup (Re-entry)
1. Congestion Zone
2. Short Congestion
Zone setup

3. Re-entry setup
bar (not triggered)
 1. Short
setup bar

2. Current session low

3. Merged Congestion Zone

from two sessions ago

4. Another Congestion Zone

5. Low of two sessions ago

 2. This five-bar bullish thrust
showed great momentum.

1. This bar made a new high and we

adjusted the trend line (from black to blue).
2. Bearish Pressure Zone as the
basis for a long Anxiety Zone setup.

3. Instead of falling,
the market formed a
bullish Pressure Zone.
1. A successful long
Trend Bar Failure setup
2. Congestion Zone 1. Target projected from
from the previous the five-bar bull thrust
session

3. Target projected from

the three-bar thrust
 3. Intended profit
target level

2. Required target level

for positive expectancy

1. Setup bar
 3. Target hit

1. Setup bar 2. Market made a

strong down thrust.
1. Bear trend line from previous session

2. First bar of
current session

3. First swing of the day

continued bearish momentum
 2. Short Anxiety
Zone setup bar

1. Bearish Anxiety Zone

 Record
Record ex-ante
ex-post

Price Action Expected Actual

Observation Outcome Outcome

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