Price Action Forex Trading

Price action is a type of technical Forex trading that is based on the bare prices and charts instead of the usual indicators. Traders that employ various price action trading techniques believe that bare prices and charts can tell us everything we need and that indicators, while being helpful for calculating some statistical dependencies, create a time lag that can be critical in Forex. In fact, all indicators and any other methods are based on the data that is a part of a price action. So, price action is just a broad definition for the rather raw technical market data. The four techniques that are presented here aren’t the full set of price action trading instruments; they are just the most popular and interesting ones.

Tape Reading. The term refers to the times when the stock quotes came to the trading houses (more like the modern betting firms) in a form of a tape telegram. Traders analyzed the changes in the quotes, their speed and volume and, basing on this analysis, issued their trade orders. Modern tape reading in Forex is somewhat different — you just analyze the quote as it’s displayed in your broker’s terminal and then trade using your analysis of the data. It’s the most basic way of trading and some new traders start from it without knowing how is it called. Tape reading is mostly suitable for scalping and can’t be used for the long-term entries.

Japanese Candlestick Patterns. Many different patterns, formed by the Japanese candles, are recognized by the Forex traders. Such patterns are usually quite small (they consist of 1 to 4 candles) and can be spotted on all timeframes. Japanese candlestick patterns aren’t too reliable but the abundance of symbols compensates the low winning rate. This type of trading is a part of price action but it requires some basic chart analysis.

Chart Patterns. Patterns formed by the price fluctuations of the chart are numerous — triangles, wedges, double-tops, double-bottoms, head-and-shoulders and many others are all part of this trading technique. Opposite to the Japanese candlestick patterns these patterns are usually formed by many chart bars and often serve only for the long-term market evaluation. Chart patterns sometimes have a strong fundamental basement and are thus valued by the professional traders and the Forex market tends to «follow» them simply due to their popularity.

Point-and-Figure Charts. This type is a bit more difficult than everything else in the price action domain. It’s also arguable that point-and-figure can be considered a price action technique at all. P&F charts are built based on the price changes, independently on time. The columns of X’s are formed when the price is rising, while the columns of O’s are formed during falling trends. The columns of X’s and O’s follow each after another. A price should pass a certain amount to form an O or X or reverse in an opposite direction for a significantly higher amount to start forming a new column. Trends can be easily read in such charts and many Forex traders use the strategy to buy and sell exactly at the new column’s start to catch the new trend.

Not all traders can use price action techniques successfully, the same as not everyone can trade with the indicators profitably. Price action can be used alone but it also can be interesting for other methods’ confirmation. With price action techniques you can always scale in and out and flexibly change your strategies as well.

The Pin Bar Trading System - Free forex strategy

The Pin Bar Trading System is a very small, easy and neat little system that anyone can easily adopt as his long term trading strategy. This strategy does not need long hours of endless charting like a hawk in front of the screen, but will just need a few minutes to eyeball the chart everyday at the close of the daily bar. As it works on the daily timeframe.

What you need to do is, you need to wait for the daily bar to close, use a bar chart. After it closes, we need to identify whether it is a pin bar or not. A pin bar is a long bar but with the close and open to be almost at the same level or very few pips apart. In candlesticks, we will say that it is a candle with a very small body and a long tail. Here in this screenshot, you can find both a bullish and a bearish pin bar.

As I said, this strategy works well on the daily timeframe and as I will be detailing, it has a high risk/reward ratio. It is imperative that you wait for the pin bar to close and the next bar to open before you can work on this pin bar. Once you have correctly identify a bar as a pin bar, you need to take your fibonacci tool which is available in most trading platforms and draw the fibonacci levels on the pin bar itself. If its a bullish pin bar, you draw the fibonacci level from the low to the high of the bar and if it is a bearish pin bar, you draw the fibonacci from the high to the low. Consider the example below, in our example, a bullish pin bar has just been identified. Observe this screenshot below:

So after I have identified this pin bar, I drew the fibonacci levels. The only level which interest me is the 50% retracement level or the 0.5 level. What I do now is, I place a pending order just at this level speculating that price should normally retrace to this level before going in the desired direction. I place the stoploss 5 to 10 pips above the high of the pin bar and if it would have been a bearish pin bar, I would have place the stoploss on the opposite side of the bar. As you can note, we have our stoploss very close to the entry and this decrease our risk per trade drastically. If the stoploss gets hit, as it can happen a few times as well, then we would be losing except a little from our trade. However, if the price retrace, trigger our order then goes in our direction, then we are sure to make at least 2x from what we risk in terms of profits. We can even make as much as 10x or more. Since we are dealing with the daily chart, we should be patient, the trades can last for weeks!

You should not be risking more than 5% of your capital per trade. If you do not have time to monitor your trades, you can use a fixed takeprofit which can be twice the distance of your stoploss for example... or you can use a trailing stop to trail your orders. However, trailing stops are not very good as it tends to reduce the room for the trade to properly develop and reduce the profit potential as well.

Some rules to be observed when using this system:

1. Always wait for the pin bar to close and new bar to open.
2. We work on the daily timeframe, this would not work great on lower timeframes
3. We look for pin bars which develops at Support/Resistance levels, Fibonacci retracement level, pivots or we look for pin bars which appear at the bounce of a trendline.
4. We never use instant order, we always place a pending order at the 50% retracement level
5. We never risk more than 5% of our capital per trade
6. We breakeven our trades as soon as we can, but not too early as well, we breakeven only when we have around 30-50 pips of profit. From this point, we will be trading with 0 risk and we can wait for days expecting price to go as far as it can.
7. Close the trades when you have an opposite pin bar and open the trade in the other direction.

This is all regarding this wonderful and easy trading system. As with every single trading systems, you need a lot of practice to gain some level of mastery of it. Practice it on all the pairs you have on your broker demo account for a few weeks. If you are working on 20+ pairs, you should be having at least some 5 trade signals per week. And most of them will give you lots of profits. You can download the package from the link below. Read more...