Price Action Entry Rules: How to ‘Enter' at the Break
Where you enter your trade can have a massive impact on whether you come out a winner or a loser.
Entering a trade straight into a key support or resistance area or where the big market players are just about to take profits is a sure way to stacking the odds against your trade and blowing your trading account up for the long run. There are ways to cut out a lot of the losses and make price action entries that are more high probability and that’s what this article is going to go through.
Using Confirmation – Taking Entry at Break
There are many powerful price action signals, but for the ease of explanations and because the pin bar is so popular among traders I am going to use the pin bar as the price action signal in the demonstrations.
The pin bar can be a really powerful price action signal when it is traded correctly. Over the last 10 years and especially the last five years, it has become a super popular candlestick for traders to use as an entry signal.
A major problem a lot of traders are running into when trying to make the pin bar profitable is that they are both trading them from the incorrect positions, which I speak about in-depth here in this tutorial: Where traders keep going wrong with the pin bar and because they are entering the pin bar before it has been confirmed which is making it really hard for them to make it a profitable trading signal.
Confirming Trades With Break Higher or Lower
The pin bar is not confirmed until it has completely finished closing and then the next candle has gone on to break the low or high of the pin bar.
The most important rule and most basic rule that traders must follow if they are pin bar traders is that the pin bar MUST be closed before setting orders to enter. The worst thing a trader can do is try and be clever and think they will outsmart the market and get in whilst the pin bar is still forming.
If the pin bar has not finished forming the trader cannot know where the high or low is for sure and not know where they will need to set their orders for entry. This will make more sense in a minute.
After the pin bar has finished forming, the trader will then be able to work out where the high or low of the candle is and be able to work out where to set the entry.
The pin bar is not confirmed until price has broken through and moved through the low or high of the pin bar. This can often be quite confusing for new traders, so I have put pictures below to help illustrate. If you have any questions, put them in the comments below and I will answer them to clear any confusion.
Where most confusion comes in is traders often mistakenly think price has to close through the high or low of the candle and this is not the case. Price does not have to close in the next candle, it simply has to trade through the low or the high of the pin bar to activate the entry and when it does the trade entry would be opened via a pending order which will be discussed below.
As soon as price moves through the high or low of the pin bar, the pin bar is confirmed and the entry is taken. The candle does not have to close, it simple has to move past the high or low. See pictures below:
The chart below shows price breaking below a bearish pin bar. The trader taking this setup would have been entered into the trade once price moved below the low of the pin bar and confirmed the pin bar.
The chart below shows that price did not break below the pin bar and the trader would not have been entered into the trade and would have avoided a full loss.
How to Use Price Action Entry Rules on Other Setups
Taking the break and using confirmation is not just used for entry on the pin bar to increase win rates and cut out losses, but for many price action signals. Another very powerful price action signal where losses can be cut out and the win rate increased with taking the break is the engulfing bar.
The same method applies with taking the break on the engulfing bar. See the picture below: Below a Bullish Engulfing Bar (BUEB) has formed and the trader using this method would take entry when price confirms the BUEB once price moves above the BUEB high.
In the chart below; price does not confirm the BUEB and does not break the through the high. The trader playing this setup would be saved a full stop loss because their entry would have not been triggered.
Important Note: Price does not always go on and confirm the price action signal straight away especially with reversal signals such as the pin bar and engulfing bar.
It can sometimes take time for price to build up the required orders to push price in the opposite direction to confirm the trade.
This is often when traders will get jumpy for no reason and start looking for reasons to pull their trades and do things they wouldn’t normally.
They will start looking for excuses to over manage and micromanage their trades and to even take their entry off all together. Unless something has completely changed from when you first put your trade on, which is extremely rare, the market can take time to do what it has to do. You have to remember you put your trade on for a reason.
Setting Pending Orders
The best traders are the ones who let the market come to them and don’t stress over every little move that happens. The best orders that Forex & Futures brokers have are the “pending orders” because it allows the trader to know they don’t have to be at their computer and they can still be entered into a trade or have their stops/profits executed for them.
Setting pending orders is the best way to get into trades at the break of price action trades.
Using MT4 or MT5; traders can set up a pending order to enter a trade at the break whilst at the same time setting their profit target and stop on the same trade. The picture below shows how using MT4 a trader can set up a whole trade using pending orders.
Using a pending order the trader would wait for the price action signal to completely finish forming and then close. The close of the candle is crucial.
Nothing can be done and no orders can be set until the candle has closed. Once the candle has closed, the trader finds the high or low depending on whether the price action signal was bullish or bearish and then sets the pending order. The trader will then set the pending order for price to trigger them into the trade once price moves above or below the low or the high of the price action signal.
The trader can also set their stops and first targets whilst setting these pending orders. If the trader does not want to set any targets they need to at least set their stops in place for all trades. EVERY trade should ALWAYS have a stop in place.
When setting orders to enter trades with pending orders, the order types to enter will always be stops. If you are looking to go long with a pending order you will be buying with a “buy stop” and if you are looking to sell with a pending order you will be selling with a “sell stop”.
Risk Reward Scenarios
A question I get asked a lot when new traders are just getting their head around not taking random retrace entries and using confirmation, revolves around risk reward (Risk/Reward is the amount the trader is Risking – Risk, compared to how much they are making – Reward) ; “Won’t taking entry at the break make my risk/reward smaller?”.
Basically the answer is yes, but it will take out a lot of the losses you never should have been taking on in the first place that are eating away at your account for no reason. One of the biggest myths that go’s around the internet is about risk reward and it gets spread from one unprofitable trader to the next.
At some point each trader has to stop and ask themselves when they are not making money and they are still striving for these massive risk reward trades; what is the point of hitting really high risk reward winners if I am not a profitable trader and not making any profits at the end of it all? You can read more about the myth or risk reward here: The Myth of Risk Reward
Taking the break and using confirmation will mean your potential risk/reward will be smaller, but this is more than made up for with the increased win rate and the losses that use to cripple your account no longer occurring. In other words; when you take entries via a retracement method you are ensuring that you take every losing trade, where as if you take the break you are cutting out all the trades that never go onto confirm.
The aim in the Forex trading business is not who can hit the biggest winning trade. The one and only aim in Forex & Futures trading is to make a profit consistently.
It does not matter if you make a massive 20/1 risk/reward winning trade or a 20 times your risk winning trade. If you lose money at the end of the month or end of the year, that winning trade counts for nothing. If that massive winner still doesn't cover your losses then your business is not making money. What does count is when you make consistent profits and you keep those profits.
Live Pin Bar Video
The video I have attached below is a live 4hr pin bar trade I played where I discuss why the trade is a A+ high probability setup, how I enter it at the break of the pin bar and how I am looking to manage it. After reading this article I recommend traders view it to cement what they have just learned. To watch the other video lessons and live trades see here: Forex School Online Videos
Entering at the break is just one entry method and something you should consider testing if you are continually entering into false breaks or are not having much success with what you are using.
The best place to try any new method or technique is on a free demo account. On a demo account you can apply and test out new techniques to see if a method works for yourself whilst at the same time getting use to using new orders on the MT4 platform.
Safe trading and all the success,
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