Why Chain is the important element in Price Action Trading?
Why Chain is the important element in Price Action Trading?
The Chain is a critical element of price of Price Action Trading. Chain integrates the imbalances and trendlines and gives the detailed picture of the demand and supply.
As described in a previous lesson a potential imbalance is valid once,
• An opposing imbalance is taken out
• A trendline is broken with one or more full OCHL candles
The idea behind drawing a trendline by connecting the last two valleys and peaks is to connect the latest two impulses (bullish or bearish). If we start seeing impulses in the opposite direction then the dynamics for that timeframe in particular will probably be changing and we should lean on a bigger timeframe before we start trading in the same direction where the last impulses happened. These concepts are the core of the realignment rules that will be explained in the next episode.
THE CHAIN:
There is a relationship between the trendline break connecting the last two impulses and when an imbalance is created. We will be referring to this relationship as the Chain from now on. This chain connects both core concepts and provide us with a very objective methodology to locate potential tradable imbalances on any price chart and timeframe.