Support and Resistance
Even more important than the trend direction, is key support and resistance levels. The reason support and resistance is so important is because that’s what the rest of the market is also looking at. Forex is the best market in the world for support and resistance working over and over. Whilst these support and resistance levels will not always hold, they will very often act as key levels to make profitable trades from.
Price Action traders are constantly looking for key support and resistance levels to trade from. A simple look at any Forex chart will show you just how often these levels are respected.
To make a successful trade, price action traders need to plot these support and resistance levels. When price then gets to these levels it is about waiting for price to make a signal for entry.
Below is a chart example of obvious support and resistance levels:
~ Introduction to Johnathon Fox's Price Action Trading Strategy
Video Lessons ~ Live Price Action Trading
Introduction to Becoming a High Probability Price Action Trader
Price Action trading is the most common form of trading amongst professional traders. Price Action trading involves analyzing just the raw price action data on a clean chart with no indicators whatsoever. What so many traders fail to realize is that the indicators they are using in their trading are built from using old price data to give them a lagging indicator, whilst price action traders are taking the live price as it is continually being printed onto their charts to make high probability trade setups.
As I said above; Price Action is more than just looking at the last candle to make a trade. That is what pattern traders do, but successful price action traders use the whole chart to make trading decisions. Price is always telling us something and learning how to use that information is critical in learning how to read and trade the price action story.
When trading with the trend, traders are looking to take trades in the direction of the current trend. Whilst a very simple strategy it is quite often overlooked by many trades. You would most likely have heard saying such as “The trend is your friend until it bends” and this is very true. The best trades will be found when trading with the trend.
In the Forex markets solid trends are not always available. The majority of the time you will find the market ranging which just means there is not an obvious trend one way or another. For price action traders this does not matter because whether the market is trending or ranging there can still be great trades to be played.
To identify trends in the market with price action is very simple. When looking to trade with the trend we only want to be trading with the very obvious trends. If the trend isn’t obvious then chances are it is not a very strong trend and we may need to look for other trades such as range trades.
The reason a clean chart is so important is because we need to be able to see what price is doing. This is critical when looking for trends. Notice in the clean raw price chart below, price is clearly trending higher. This is a very obvious trend and the only trades to play in this market are to buy and trade in line with the trend.
What is Price Action?
Below is an example of how a trader can use these support and resistance levels to make a trade. The chart shows a Pin Bar that has formed at a key support level. Price then rejects the support level and moves higher.
Put very simply;
"Price action trading is the skill of being able to read the price and make trades on any chart, in any market, in any time frame and without the use of any indicators at all."
Price Action is everything that price is doing on any trading instrument, being represented on a chart for a trader to see.
In very basic terms Price Action illustrates in a way that a trader can see exactly on a chart, what a certain pair did for a particular time frame. For example the individual candle sticks or bars will show how high the pair went, how low the pair went and also the open and closing prices. Most charting platforms can produce candle sticks and bars for time frames varying from 1 minute to 1 month.
Another way to think about it is; Price Action is everything traders are doing and how they are doing it, shown in a chart form.
This basic explanation of Price Action is not subjective. What I see on my chart is exactly what another trader will see on their chart, providing they are using the same charting equipment.
Below is a chart showing a really clear example of a price action chart that you want to be using in your trading.
Notice how the only thing on this chart is a strategically placed support level and NOTHING else? There are not a heap of indicators and moving averages crossing over and who knows what going everywhere. The price is the most important factor and we need a clean chart so that we can analyse the price action story.
Example of a clean price action chart;
Not all Pin Bar’s are created equal. Price Action traders use more than just the last candle to decide whether to take a trade or not. The whole price chart is information that the trader will take in when deciding to make a trade or not. The very best Pin Bar’s will be traded when they are with the obvious trend and at key support or resistance levels in the market.
Below is an example of a Pin Bar at a key resistance level.
What Else do Price Action Traders Use to Make Super High Probability Trade Setups?
What is a Price Action Trading System?
Price Action trading is a method that is commonly used by professional traders. Most professional traders use a very logical system that is not complicated, whereas most amateur Forex traders are hung up looking for the “Holy Grail” system and indicators that will bring them all their riches overnight.
Price Action is a system that is very logical and has clear rules in place. Instead of using indicators that cannot adapt to different types of markets, price action involves the trader making trades based of key signals forming in the market.
Traders have been using price action in different markets for literally hundreds of years to trade with. The same just cannot be said for other flash in the pan methods. Price action trading is a logical trading method that has been around for a long time and will continue to be around for a long time to come.
How Can You Use Price Action to Consistently Profit?
Price Action traders are using the information gained from the price action chart to make their trading decisions. Price action traders have key signals they are looking to present in the market for them to make a trade.
Price action traders are using information they can see in the price such as:
Using the price data the price action trader can plot the key supply and demand level on their charts. They can also identify when price is about to either break out or reverse, and use this information to take profitable trades.
Below are two videos that were made whilst trading live price action setups. These videos highlight just how high probability these price action trading setups can be when you play them from the correct areas on the charts.
Both of these trade setups were taken using the same high probability methods that are taught in the Forex School Online Lifetime Membership Price Action Course such as trading from the key daily support/resistance level, looking to trade within the obvious trend and using a price action trigger signal such as a pin bar for confirmation.
What Are The Types of Trades Price Action Traders Take?
Price Action traders are constantly assessing price for any signals they could use to take a trade or manage open trades. Price action traders use key candlestick patterns at key areas on their charts to enter into trades. One example of a price action signal is the Pin Bar.
The Pin Bar is a reversal signal that can be found on any chart and on any time frame. A Pin Bar is a powerful price action signal that is made up of 1 candle. Pin Bar’s can be used to pick both long and short trades (buy or sell) and will often be the signal to change the current trend. (The Pin Bar is just one price action pattern of many the price action trader can use. Other price action setups can include engulfing bars, 2 bar reversals, inside bars, continuations, breakouts and false break patterns).
A Pin Bar must have:
– Open and close within previous bar
– Candle wick minimum 3 times the length of the candle body
– Long nose protruding from all other bars (must stick out from all other candles)
Below is an example of a bearish Pin Bar :