How the Price Action Algo Trading System Works?
We started this section on the PAAT Journals to show how it works in various markets. But before you see the video of each trading day journal, let us review briefly what PAAT is and how it works.
The PAAT is a trend-following Price Action Trading system with a high win rate that uses three timeframes of Macro (highest timeframe), Structure (Middle timeframe), and Trading (smaller timeframe) charts. The difference between each time frame is about 3-10 folds, allowing one to see smaller price swing waves within the higher ones.
The use of three charts creates 27 possibilities based on the combination of all chart patterns, from which only 6 of them are tradable and 21 need to be filtered due to high risks:
The Macro chart defines the trading risks and is evaluated by a pre-algorithm check section of the trading plan to see if the entry risk is suitable based on the trader’s experience:
The Structure Chart is used to recognize the trend in the middle timeframe and analyze its momentum. The Trading Chart is used to find pullbacks along with the direction of the main trend (HPTA: High Probability Trading Area) and pinpoint entry area that provides good R/R:
This is done by 5 conditional algorithms plus an entry signal confirmation as explained briefly here:
Algo 1- Analysis of Trends: Confirms that the Structure Chart pattern is trendy.
Algo 2: Analysis of Momentum: Confirms that the trend is strong and not weakened (end of the trend) on the Structure Chart.
Algo 3: Analysis of High Probability Trading Area (HPTA): Confirms that the Trading Chart pattern is trendy, and its direction is aligned with that of the Structure chart (both uptrends and or downtrends).
Algo 4: Analysis of OB/OS: Confirm that the price in the Trading Chart reached an Oversold (OS) area in an uptrend or an Overbought (OB) area in a downtrend.
Algo 5: Analysis of R/R: Confirm that the price in the Trading Chart has a suitable initial Risk to Reward Ratio at the point of entry.
This was briefly the core of this high win rate price action trading system that works like a powerful engine for a modern vehicle. This engine is embedded within a robust Trading Plan that provides all safety features of the modern vehicles to make sure traders follow important psychology and risk management elements before and during the trading session:
The trading Plan is in form of a smart excel checklist that develops right safety habits and has also important Post-Trading Session Journal, which is important for trading personalization at the beginning and performance improvement later with the trader’s coach. We will review some live trades that are taken by the PAAT system and journaled using the smart trading plan excel file.
Examples of PAAT SYSTEM Daily Trades
These are examples of PAAT system daily trades provided by our graduate students and instructors for the educational purpose only, so we hope it will help you to understand how the PAAT System works in the live markets. Please read the disclaimer footnote and the link to the Limitation of Liabilities before proceeding to see the below sections.