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In my Opinion, learning to trade forex with candlestick patterns is the key to long term success.

Follow just the price, and riches will follow

 

For today’s article, I will be introducing traders to ‘price action signals for Foreign Exchange (FOREX)

 

Today I am presenting an introduction to what price action is, and will provide a basic price action pattern for traders to use in their trading.

What is price action?

 

Price action can be simply defined as trading from a naked price chart, with no other inputs. We display a bar or candle chart on time frames such as daily, weekly or hourly etc. The term price action signal will be given to any pre determined pattern/trigger which develops from a single price bar or series of price bars.

 

Most traders will remember my core philosophy is to KISS,’ keep is simple stupid’. Price action is trading from a first tier piece of information. Our decisions are based on 1 input i.e.: price. Conversely, when we trade from indicators and fancy patterns etc, there is subjectivity and multiple inputs. Trading price action is trading the here and now, with no lag or delay. Price action allows the trader to trade what he is seeing first hand, without subjectivity.

 

How can a trader make life easier?

 

When a trader has to make fewer decisions in regards to every trade, his life becomes livable and stress free. Contrary to what most so called experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial, economic news, world news etc etc. Another input might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to friends opinions about what or when to make a trade (except us of course)

 

Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those bits of information you come across. Attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how traders will react to the plethora of news items is often a haphazard and illogical process to go through. It is really a guessing game that most so called experts are unable to consistently figure out.

 

The best alternative is trading price action!

 

In a nutshell, great forex traders, always go back to the very foundation of a price chart, (a raw blank candle or bar chart), and make decisions based on the truest information available.

 

Observe the price behavior.

 

Without any indicators, a market can be seen as trending, hitting resistance or support, congesting sideways, etc etc. No computer or indicator, or news item will provide this information perfectly, except the human brain.

 

Brining it together to trade.

 

This article was not designed to teach a complete method of price action entries, but merely introduce you to the concept of trading from raw price charts and to remove all other variables.

 

The remainder of the article will help you discover one pattern which has a statistical edge in trading.

 

Example of a price action entry in 3 steps

 

Refer to the daily AUDJPY currency chart below.

 

audjpy123.gif

 

 

1. We have observed price behavior as trending UP. We can see over the last 30 days prices had been moving higher and higher,. There was clearly, low volatility and no trading congestion, the market was in a runaway trend.

 

Step 2. With our assumption that the trend is up , we naturally would be happy to go long (buy), if a price action signal developed. We are now on the look our for a trigger bar, or series of bars.

 

Step 3 Find an entry trigger -

 

Introducing the “The pin bar reversal” entry trigger

 

A pin bar reversal is a key reversal candle or price bar on a chart which shows an obvious change in sentiment during that period. The candle typically has an obvious shadow (long tail), with the close near or above the open.

 

A logical example is when a market opens, moves down 1 percent and then rallies hard to close above the open.

 

The bar looks like a “Pinocchio Nose”, thus the term “Pin Bar”.

 

See below

 

AUDJPY daily

 

audjpy1.gif

 

Where to trade a pin bar

 

The pin bar is traded best from support or resistance, trendline or from a key moving average , potentially even a 55% retracement of some form.

 

Keep a look out for the obvious pin bars, and trade in the opposite direction of the tail. If the price moves up to recent highs and prints a pin bar with tall upper shadow, then the signal is to short. The opposite is true for longs.

 

Pin bars are often created near extremes in price swing, and often occur at false breaks, but thats another article in itself.

 

See below EURUSD examples of very obvious signals

 

Below, the EURUSD charts has 2 examples.

 

eurusd.jpg

 

1. A very large bearish pin bar after prices broke to a new false high. Subsequent behavior was negative. False break outs to new recent highs or lows often result in pin bars.

 

2. Trading a very large pin bar from the 50% retracement zone, subsequent behavior was bullish.

 

3. Pin bar within trend

 

In summary,

 

Price action is a golden tool, because we can combine very simple multiple price inputs together.

 

I.e.:

Support and Resistance in conjunction with a pin bar.

A trend retracement level with a pin bar.

Or simply, follow a short term trend with pin bar entry.

 

Try to back test past occurrences of these pin bar reversal patterns on your daily and weekly charts at first, do research on them and begin master them.

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Trading candlestick "patterns" without knowing what those bars mean (hint: the imbalance of supply and demand) is fairly worthless.

 

Take it one step beyond and dig into:

Why does a Harami form or

What is the supply and demand dynamic of why a Doji forms?

 

If you can dig into the MEANING of the bars, instead of just blindly following patterns, you will be further ahead than most.

 

FYI: What I am telling you is the hard road. If you are willing to do the work, the rewards are great!

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As the Author of This post, I dont understand why there is negativity here?

I offered TL forums genuine content on trading strategies, It was approved by a moderator.

 

 

Since nobody pressed the "Report" key... I guess it is not as "negative" as it looks.

 

 

My suggestion is -- Carry On !

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My suggestion is -- Carry On !

 

Indeed. Those interested in the original post could do a lot worse than search the interweb for posters called Trader Dante and James16. They have written a lot about this sort of approach.

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Maybe because the post is 9 months old and no one cares except you who decided to dig it up with your first post here? I cynical person would say that you are the spammer for resurrecting this and drawing attention to it.

Touche'

Well that will teach me to look at the date next time:haha:

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