Have you been looking for a strong, simplistic, and useful price action trading strategy lately? This price action strategy will teach you how to spot dead zones, red zones, and end zones. Be ready to hear some Football terminology! This sounds a bit complex. But, trust me, you are going to want to pay special attention to this trading strategy. It might be all you need to become a full-time trader. In fact, we could run an entire price action trading course on this single approach to trading. We think we have uncovered that best price action trading strategy. Make sure you read, study, and take notes on this approach to trading. Also, please leave a comment below to give us some feedback. We will do our best to answer your questions.
This is a stock price action strategy, a forex price action strategy, and an options trading strategy. The pure price action trading system needs no price action indicator to help you trade. Also, read about Scaling in and Scaling out in Forex.
Price action is simply how the price will react at certain levels of resistance or support. This technical analysis approach will help you learn things from the price history. You'll learn how to identify the swing high/swing low, trend lines, and past support or resistance areas.
Now, this could be the price testing a support or resistance area. It could even be when the price movement creates a swing high or swing low.
Price action requires no lagging indicators or moving averages to distract you from the price. The chart will have a clean look to it. It’s refreshing sometimes to see a clean chart with no indicators. In fact, some traders make a living trading without ever looking at an indicator.
You can apply moving averages, MACD, stochastic, RSI, Fibonacci retracement, Bollinger bands, and more to your charts. Keep in mind, when you are searching for the red zones base off this strategy, that we will get into in a bit, these indicators could distract you and cause you to make a bad trading decision. So with that being said, we recommend no indicators for this strategy.
Trading Time Frames
We recommend this strategy to be for swing traders and day traders. Anything under an hour time period you will not see us using this strategy. The reason we have develop day trading strategies using price action patterns is that the price action signals behave more consistent on larger time frames. That doesn't mean this strategy won't work with scalping. But with our testing, we revealed this strategy works best on a one hour time chart and above.
Price Action Strategy
Price Action Setups: The Dead Zone
Nobody likes the dead zone in trading. This "dead zone" indicates that the price action is going nowhere. It's not making higher highs or lower lows. The buyers and sellers are at a standoff and no one is winning the fight. It's almost like in a soccer match when the two teams play an entire game only to end up in a tie or draw. They fought the whole game only to end up with a mediocre result. This could be interpreted to us traders as this. We entered a trading in the dead zone only to come up with a 3 pip winning trade or a 0 pip trade that you held onto for six or so hours. We do not want mediocre results we want to WIN. Winning is our main objective so this "dead zone" we want to avoid at all costs.
Here is what a "dead zone" in trading looks like in trading:
So if you see this occurring, you know that no indicator on earth will make you 1,000s of pips here. Scalpers will enjoy those small retracements, but for this price action strategy, we are not interested in this small channel or consolidation.
Let's dig a little deeper as to what is really happening here.
As you can see, buyers get on a short run only to get taken over by sellers. Then sellers get on a run and then hit a floor and get take over by buyers. There are no higher highs or lower lows being taken out. This process will go on and on until a district winner is validated. It's simply traders making trading decisions!
So since we now know what the dead zone looks like we can go to step #2 in this price action analysis process and determine where the "RedZone" is.
Price Action Setups: The Red Zone
If you know anything about American football, you know that the red zone the area between the 20-yard line and goal line. As you can imagine this is where all the action happens. This where a team will be most focused because they can see the finish line. The team can see that they only need just a few more yard until they reach their goal of a touchdown. Same can be applied to this price action approach. We saw that the dead zone was stagnant and boring. Hardly any movement and not many pips to come by. But once we get in a red zone, traders get razor sharp in their approach to get to their end goal of a 20, 60, maybe even a 100 pip winner!
Let's take a look at what a red zone will look like:
Using our example, if the price would have hit our red zone and continued to the upside, we would have been interested in a buy trade since it made a new higher high and gave us an indication that this will become an uptrend.
Same with when the sellers took over. If the price would have hit this red zone and continued to the downside, we would have been interested in a sell trade since there were new lower lows and it gave us an indication that this will become a downtrend.
To explain how you draw a red zone, you simply find a "dead zone" currency pair, stock, etc... Then you draw a red zone rectangle above the resistance and below the support. I highlighted these zones in one of the images above for reference. This could be anywhere between 10-20 pips wide. Here is the example of this:
Let's go a little further in time and see what happened when it hit the red zone:
As you can see when the price action broke the dead zone, if you would have placed a buy entry order you would have grabbed about 35 quick pips if you would have closed the trade right away.
Have you ever heard the saying, "A picture is worth 1000 words?" That statement could be so true with the chart image above. You see on this hour time chart, many traders got in at the Red zone pushed the price up only about 40 pips and then they got out immediately. As a result, the price continued to draw down to our red zone again and now is hitting a new support level. Remember, resistance in the past means support in the future.
Now, since we know what the red zone looks like and how to identify it, let's get into the last step which is the "Endzone."
Price Action Setups: The End Zone
This is our end goal. We want to go from the red zone to the end zone consistently with this price action strategy. To do this, simply draw a rectangle on your charts similar to our drawings. You only trade these zones with this price action red zone trading strategy. I like to draw the red zones anywhere from 10-20 pips wide, but you can adjust these accordingly. This gives a little room for the price action to do its normal "retracement" before heading to the upside or downside.
So looking back at our price action trading example, here is what you would have done:
This red zone is where many traders are making buying or selling decisions. Once you determine that the price action will not return into the dead zone, you can go ahead and make the buy trade here.
Note**If the price action was in the lower red zone then we would be looking for a sell trade.
Using our example, we saw a breakout candle occur from the red zone so this is where you would have entered the trade.
Place your stop loss in the lower red zone. If the price action would make its way down to the lower red zone, then the trend is obviously not going up anymore and you want to get out this trade immediately.
You can exit the trade when you see that the trend is mostly likely over (due to consolidation in price action.) We saw that the price bounced off if this resistance so that is why you would have exited this trade in profit.
This price action strategy is a great day trading price action strategy to use. There may not be hundreds of price action setups a day, but when you find a trade that follows the Price Action Red Zone Trading Strategy you should see great results. Be sure to leave us a comment below and tell us what you think of this strategy, and how you trade using price action analysis. Also, make sure you check out one of the most popular strategies that we call the 80-20 RSI strategy.
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