In this article, we will teach you one of the best price action trading strategies. It is simple to learn, and not confusing, mainly because it does not require any indicators on your chart.
This is forex price action trading to its core. You will also benefit from this strategy by learning a price action trading method, the best price action tutorial, daily price action, price action trading setups, price action day trading, and more.
Before diving into this price action trading strategy, I am going to explain the core elements of price action. So that you, as a trader, are fully equipped to trade the strategy I am teaching. Also, read about the Forex Mentors and the best investment you can make.
What is Price Action?
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 to identifying 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 to see a clean chart with no indicators. In fact, some traders make a living trading without ever looking at an indicator.
This price action strategy will focus entirely on a price pattern called pin bars. This candle is simply the price hitting a certain level and being “rejected” from it. This bar has a long tail on it with a small body. A pin bar can look like this:
There are different types of characteristics for a particular pin bar. For instance, the long end of the candle is the wick, while the small end (the opposite side of the body) is called the nose. Most agree the long tail, or “wick,” will be at least two-thirds the total length of the pin bar itself. The other part of the pin bar will naturally be, at the most, one-third of the candle. The open price of the candle and the close should be relatively the same price. This forms the ‘Body.’
To confirm a pin bar, you must wait for the candle to close. Just because the current candle “looks” like a pin bar, does not necessarily mean it is. in the example above, the price movement could have continued upward and closed at the top of the candle. In turn, it would not be considered a pin bar. Learn more about Candlestick Trading here.
- Timeframe - ANY
- Market - ANY
- Indicators - NONE
- OTHER - Trend lines, horizontal lines, support resistance lines (anything to help you find these areas)
Step 1: Find a Pin Bar On Your Chart
*Note This is a stock price action strategy, and a forex price action strategy. I will use a currency pair as an example. Price action charts are with any market and timeframe.
First, identify a pin bar that has formed. In the example, this is considered a bullish pin bar because of the long wick below the body.
As you can see, the pin bar “wick” is below the body, which is considered a bullish pin bar.
In this case, we are looking for a continuation of this uptrend. This is a 1 hour time chart AUDJPY currency pair.
You can see the Bears tried their hardest to stop this uptrend from occurring. The Bulls were too strong, which is why you see the pin bar form.
This is a perfect example of a pin bar price action reversal setup.
So what happened?
Step 2: Look for Past Price Action to Determine Why The Pin Bar Formed.
Why did the reversal suddenly hit a price, and then continue back to the upside?
Let’s zoom out a bit on this one hour chart. We'll figure out if we can see anything that explains what happened.
Note** you can either look at the current time frame you are on, in this case, a 1-hour time period. Or you can bump up one or two periods to gather information.
Aha! So take a look at those resistance price areas the wick touched.
Resistance in the past can mean support in the future. What happened is the price hit this level but failed to break through it.
Since the long bullish wick formed, we decide it is time to enter this trade based on what we learned from the prior days.
This is what Price Action is all about. No two trades are the same. However, we can take what we've learned from the past. Then make the best judgment as to where the price is going in the future.
You are essentially like a detective when you trade price action. The point is to gather many pieces of evidence to back up your conclusion. You are trading with confluence. Sometimes simple is best. Study the charts and form an educated conclusion as to where the price will go.
Step 3: Trade entry
You just enter the trade 2-3 pips from the break of the nose of the pin bar.
Step 4: Stop loss
Place the stop loss 3-5 pips away from the wick. The end of the wick will be a support area. So if this is broken the trend may continue downward. Which is why you place your stop 3-5 pips away from this.
Step 5: Exit Strategy
Your exit strategy is when you hit the first level of support or resistance on your chart. As you can see, the price hit a point then stalled out. Once we see the price action stalling out, we exit the trade immediately.
Price action is another fundamental element to learn when trading the market. There are thousands of strategies you can use with price action. It is important to find something that works for you.
These pin bars are hard to miss. They are relatively accurate when you learn why a pin bar formed. Pin bar candles are shown in any time frame. The rule of thumb is, the higher the time frame, the stronger the signals. But that does not mean that this will not work on a five-minute time frame.
Do not trade every pin bar you see that forms. Gather up key information from the charts. Then form the best conclusion to determine if you should enter the trade based on the rules.
If you would like to read a strategy that uses indicators check out our Fibonacci trendline trading strategy. This strategy focuses on the retracement of a trend.
Try the price action trading strategy out on a demo account first and see if it works for you! If you find something that you think can improve it, let us know! We love hearing from you guys. Also, please give this strategy a 5 star if you enjoyed it!
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