Price Action is a Forex trading approach, which is based on pure price behavior. This trading strategy completely excludes indicators use. Price Action trading is carried out only by price patterns. According to this trading strategy candlesticks reflect everything that is happening on the market. Candlestick formations allow you to understand current market condition and therefore make the best trading decisions.

Price Action tools include:

1

Support and resistance levels, trends, channels;

2

Graphic shapes (“triangle”, “flag”, “wedge”, “diamond”, “head and shoulders”, etc.);

3

Candlestick patterns (“hammer”, “hung”, “morning star”, etc.);

4

Gaps (gaps between the closing price of one candle and the opening price of the next candle).

Basic patterns of the Price Action trading strategy

1

Pin Bar is the most common Price Action pattern. The pin bar is a candle with a very small body, but at the same time long shadows. The name of the pattern was given by analogy with the name of the wooden boy Pinocchio. He had a distinctive feature: every time he lied, his wooden nose lengthened. So this pin bar with long shows is trying to deceive you.

For example, if price went down to the previous support level, a pin bar appeared, and then the price went up. A pin bar shows that the price is trying to deceive you, it will not go down, you can safely open bullish entries. The same with the second pin bar, the price steadily went up, and then the pin bar appeared showing that bullish trend is coming to its end. So it happened, the price starts to fall.

The next important Price Action pattern is called Outside Bar or Takeover. The Outside Bar pattern appears when the price movement range of a particular candle is greater than the movement range of the previous candle. There are two types for this pattern: bullish takeover and bearish takeover.

The price movement needs to have an opposite direction and a larger range. This means that the probability of a trend change is high. However, in order to start acting you should look at the next candle and if it confirms a trend change, then you can open trades.

The inside bar

is a combination of two candles. The Inside Bar pattern appears when the price range of the second candle is within the price range of the first candle. The inside bar is not a reversal pattern. And it is also not a continuation model. The price can go both up and down. It should be considered as an attention signal.

Summary of the Price Action Trading Strategy

Price Action is not a complete trading system, but rather a technical analysis. Each trader develops his/her own strategy, starting from the simple basic price action principles: no indicators, only a clean chart. Furthermore, you should:

  • Remove all indicators and advisors from the chart.

  • Look for important levels.

  • Open trades when one of candlestick patterns appears near important levels.

There are a lot of different patterns and pricing models. In this lesson only the basic pattern were described, but even those simple Price Actions patterns can help you become more profitable in Forex.

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