Price Action

Methodology inspired by publicly taught price action trading frameworks; all text is an original paraphrase.

Defaults

Preflight

Run canonical pre-flight per contracts/preflight.md. Propagate X-Agentii-Trace per contracts/x-agentii-trace-header.md.

Data Source Priority

1. Price action framework — references/market-structure.md (bundled market structure methodology)
2. Real-time price data — get_realtime_quote for OHLCV and VIX context
3. Technical setups — search_technical_setups for matching pattern setups

Methodology

Retrieval Scope

structured_only

Retrieval Strategy

This skill follows Branch (d) Simple Lookup from contracts/retrieval.md: the methodology framework is bundled in references/market-structure.md. Real-time price data supplements via get_realtime_quote. Matched technical setups via search_technical_setups(market_condition=...). No unstructured document retrieval.

Temporal Scope

See frontmatter temporal_scope block.

Tool Allowlist

See frontmatter allowed_tools.

Protocol

This skill implements the price action trading framework: market structure analysis using price action alone — no indicators except a 20-bar EMA. The core thesis: every market is always in one of two states — Trend or Trading Range. If uncertain, it is a Trading Range. Detailed methodology, definitions, and decision rules are in references/market-structure.md.

Step 1 — Macro Context (Mode C — degrade-gracefully)

Assess the broader market environment before analyzing individual setups.

1. Query get_realtime_quote for a broad market proxy (SPY/SPX) to assess VIX levels.
2. Determine the macro regime from upstream analysis (expansion/contraction/stagflation/recovery).
3. VIX assessment: elevated (> 25) → tighten position sizing, favor defined-risk setups. Low (< 15) → standard sizing.

Step 2 — Market Structure Identification

Answer the most important question in price action: Trend or Trading Range?

1. Cycle Phase Identification:
   • Trend = Series of higher highs/lows (bull) or lower highs/lows (bear). Contains breakout→channel sub-phases.
   • Trading Range = Sideways movement. ≥ 20 bars = full TR. < 20 bars within a trend = Pullback.
   • Reversal Signal = Trading Range at a trend extreme that transitions into opposite trend.
2. Trend Strength Classification:
   • Strong Trend (Breakout/Spike): Big bodies, small tails, consecutive bars with little overlap.
   • Weak Trend (Channel): Bars with visible tails and overlap, contained between two parallel lines.
3. Pullback vs Trading Range Rule:
   • Pullback = < 20 bars pause; breakout likely in trend direction.
   • Trading Range = ≥ 20 bars; direction lost; breakout equally likely either way.
   • Fractal check: what appears as a pullback on this timeframe may be a trading range on a lower timeframe.

Step 3 — Directional Bias

Determine the directional bias using the Always In framework.

1. Ask: "If forced to enter the market right now, long or short?" Your answer = Always In direction.
2. If unclear: the market is in a Trading Range. Confusion = hallmark of TR.
3. Directional bias rules:
   • Always In Long → only consider long setups; ignore short signals even if they look strong.
   • Always In Short → only consider short setups; ignore long signals.
   • No clear Always In → Trading Range mode: Buy Low, Sell High, scalp only.

Step 4 — Pressure Analysis

Identify which side (bulls/bears) is applying dominant pressure.

1. Bar-by-bar assessment:
   • Close near high = bulls dominated through bar's life.
   • Close near low = bears dominated.
   • Long tail above = bears aggressively sold higher prices → failed breakout upward.
   • Long tail below = bulls aggressively bought lower prices → failed breakout downward.
2. Every tail is a failed breakout — it was once a strong trend body that got reversed. Tails signal the failure of one side.
3. Context override: A small body in a strong trend behaves as a trend bar. A big body in a sideways market behaves as a trading range bar. Context always overrides individual bar appearance.

Step 5 — Momentum Assessment

Assess momentum using the 20-60 day framework: Technical Analysis (patterns/formations) provides the big picture over weeks to months. Price Action (momentum) provides the near-term directional signal over days to weeks. Both must align for a trade to have favorable timing.

1. RSI (Relative Strength Index) — 14-day and 20-day:

   • Above 70 = overbought; below 30 = oversold.
   • RSI reversing from overbought = momentum fading from the upward move.
   • Avoid entering longs when RSI is overbought and falling; avoid shorts when RSI is oversold and rising.
   • Treat "overbought" and "oversold" with caution: a strong trend can stay overbought/oversold for extended periods.

2. Moving Averages — SMA and EMA at 20, 60, 120, and 250 periods:

   • Price above rising MA = bullish momentum confirmed.
   • Price below falling MA = bearish momentum confirmed.
   • MA convergence/flattening = momentum weakening, potential transition.

3. MACD (Moving Average Convergence Divergence):

   • Standard: (12, 26, 9). Extended: (20, 60, 10) and (20, 60, 20) for longer timeframes.
   • MACD line crossing above signal line = bullish momentum shift.
   • MACD line crossing below signal line = bearish momentum shift.
   • Divergence between MACD and price = potential reversal signal.

4. Heikin Ashi Candles: Use for smoothing price action and identifying sustained momentum. Consecutive Heikin Ashi bars without lower shadows = strong bull momentum. Without upper shadows = strong bear momentum.

5. Timing Assessment (Traffic-Light System):

   • Green: Market structure + momentum + Always In direction all aligned → favorable entry timing.
   • Amber: Partial alignment, some conflicting signals → caution; reduce position size or wait.
   • Red: Conflicting signals across structure/momentum/direction → do not enter; wait for clearer conditions.

Step 6 — Setup Context Handoff

Produce the market structure output to be consumed by downstream skills.

1. Output classification:
   • market_condition: trending_up / trending_down / ranging
   • trend_strength: strong / weak / none
   • always_in_direction: long / short / neutral
   • cycle_phase: breakout / channel / trading_range / reversal
2. Handoff to chart-patterns: The context above determines which patterns are valid. In a strong bull trend, only long patterns are valid — all short patterns are ignored regardless of how strong they appear.
3. MCP retrieval: search_technical_setups(market_condition=<derived>) for rough matching against gold.technical_setups.

Output File

{ticker}/{YYYY-MM-DD_HHMM}_price-action_{affix}.md

Output Structure

1. Executive Summary — Market state (Trend/TR), Always In direction, cycle phase with confidence level
2. Market Structure Analysis — Trend strength, cycle phase, pullback vs trading range classification with specific bar counts
3. Always In Assessment — Directional bias, rationale, confidence level
4. Pressure Analysis — Bull/bear dominance assessment, key tail/bodie signals on recent bars
5. Transition Signals — Early warning signals of cycle phase change (channel flattening, TR forming at extreme)
6. Pattern Context — Valid pattern directions for downstream chart-patterns skill
7. Coverage Gaps — Data limitations and degraded-mode annotations

Error Handling

Memory Load

See contracts/memory-load.md.

Snapshot

See contracts/snapshot-synthesis.md.

Final Summary (TUI)

Include ### Key Citations block with 0-10 clickable /v/ URLs.

References

• references/market-structure.md
• contracts/citation-and-memory.md
• contracts/output-frontmatter-schema.md
• contracts/memory-load.md
• contracts/snapshot-synthesis.md
• contracts/preflight.md
• contracts/retrieval.md