Lesson 1
Price Action Integration
Price is the arbiter of conflicting views. Use macro for direction, price for timing. When they align, trade with conviction. When they diverge, trade small or not at all.
The 5-Basket Framework gives you context. Price action tells you if the market agrees with your thesis.
Price Confirms or Denies:
Your analysis says 'bullish.' Price should confirm:
- Higher lows
- Breakouts holding
- Breadth expanding
- Pullbacks bought
If price doesn't confirm, either:
- Your timing is early (be patient)
- Your analysis is wrong (reassess)
- Market knows something you don't (be humble)
Key Price Action Signals:
Failed Breakouts:
- Bullish breakout fails = bearish
- Bearish breakdown fails = bullish
- Failed moves are stronger signals than successful ones
Divergences:
- New highs with lower RSI = topping
- New lows with higher RSI = bottoming
- Price/breadth divergence = trouble brewing
Volume:
- High volume on direction confirms trend
- Low volume on direction questions trend
- Volume spike on reversal = capitulation possible
The Integration:
Macro says 'regime is bullish.' Check price:
- If price agrees: Add exposure
- If price disagrees: Wait or reduce
- Never fight both macro AND price
Check your understanding
Lesson Quiz
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Quiz Check
Your macro analysis says 'bullish' but a stock breaks down from its 200 DMA with heavy selling volume. What should you do?