Price Action Hero

Trading Systems
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After a year and a half of learning and growing, it’s fine time I presented my own methodology of trading the forex market. I don’t rely on any set system for entry. Right off the bat I know that’s going to turn a lot of readers away. Reason being is that your average forex trader does not want to learn how to trade, but rather be shown how to trade. Frankly, it doesn’t work like that.

Indicators do have their value and function. However, failure lies in when one only looks at indicators to make all their entries and exits. We all know that indicators lag. So you’ll never be able to perfectly time and entry and exit with your standard set of indicators. Logic dictates that for you.

I do use indicators when trading. However, I keep them minimal and only use them to have a look at the overall picture. My primary concentration is on price. When I do use indicators, I look to see how price is reacting around any indicator I have on my chart.

As this thread develops, I won’t fill it with charts of past events. Anyone can look at a chart, toss whatever indicator based system they use, and explain how successful their system is. Hindsight is clear as day, and if we were allowed to trade in the past, the market would be so perfect it wouldn’t even exist.

With that said, any chart I do post will be as close as real time as possible. If I happen to be on my laptop when a see a viable entry, I’ll take a screenshot and post it on here along with any applicable notes explaining my reasoning for entries and exits.

As I do chart on my phone and call my orders in quite frequently, it’s not likely that every single one of my trades will be on here. Besides, that’s too time consuming. It’s not my intent to turn into any time of signal service for anyone, but rather assist folks in how to trade profitably.

My charts generally consist of RSI (6), trend-lines, and occasionally Fibonacci makes an appearance. While this can be pretty much traded on any timeframe or pair, I’ll be sticking to a one hour timeframe.

And lastly, I’ll only refer to units here. Lot size is meaningless. Pip size means nothing. If you have a profitable strategy you should even be able to turn the change in your pocket into a size-able amount of money.

Any questions before I continue?

2 Likes
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I�m so glad that there seems to be someone else out there that wants to get back to true trading.
I have been studying the market ( Forex ) for just over a year now and all of my experience tells me that " Price Action " is the Holy Grail.
The Chart doesn�t lie the truth is there if only you can see it, and that�s the rub— Seeing the Truth in the Chart is so Difficult.
I know now that there is no quick fix in Forex, Indicators mangle the truth to fit somebodies idea of what the market should be doing, how can a small 30 to 100 kb piece of software possibly match the Human brain. The same applies to EAs.
I want to say that at this time I am a failed Trader as I have relied on Indicators and several EAs and have been rewarded with only losses, Logic tells me that there must be a better way and the Great Traders of the Past didn�t have computers to help them so they must have used a different method. Guess What IT WAS PRICE ACTION ANALYSIS.
So let us all get back to the right way to trade, put in the hours to study and become Great Traders ourselves.

1 Like
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wat exactly is PA analysis

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staring at the charts and trying to predict the future… jk, anyway i like the straight forward approach from this thread

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Price moves up. Price moves down. These two things are a fact.

Price can move in waves. Price can move in patterns.

PA analysis is short for Price Action Analysis. It’s technical trading for the most part where the focal point lies on price and what price is doing. The idea is to watch for the development of patterns that coincide with general trading psychology.

Indicators tell you what happened in the past. So for instance if you’re waiting for price to close past a 9EMA before making your entry, you might already be entering too late. Also, people tend to gravitate to hard rules when using indicators. Such as if MACD moves past 0 line upwards sell, and if it moves below 0 line sell. While it make work once and awhile, in the long run it’ll prove to not be profitable.

Now everyone knows that you cannot profit trading only one indicator. So what do they do. They toss in another indicator. Then another one. Then another one. It’s an endless system of trial and error in search for a Holy Grail that doesn’t exist.

There are no hard rules when monitoring price action. It’s completely subjective and can adapt to the ever evolving Forex market.

Now, again, I’m not against indicators, as from time to time I use them as well. However, I always look to see what price itself is doing and allow indicators to paint an overall question.

I fear I’ve over answered your question. :slight_smile:

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Here’s an example of how my chart looks at the moment. The last candle is the close of the weekend. I do not hold trades over the weekend, and very rarely would I open a trade at the start of the next week, but I wanted to show you some analysis. For all purposes of illustration, let’s assume this chart represents the middle of the week.

I’ve drawn a line of support/resistance at 1.3012. That’s not a hard number and I wouldn’t necessarily open or close a trade specifically on that number, but it does give me an overall picture of how price has been reacting.

On the 22nd, price had a hard time breaking that line of resistance. It hung around the price for a good portion of the day until it finally broke through. Price than retraced and bounced right back off the same area of resistance which is now acting as a line of support.

There were some trading opportunities as price rose, but as mentioned by the first post, we’re going to focus on the now, and not tell you how you could have gotten rich in the past.

Price finally peaked at 1.3300. It bounced twice off that line and then a bearish evening star appeared. Also, take note at RSI. Just as the evening start pattern was completed it broke the trend-line I had drawn. Finally, I drew a trend-line along the bullish move. Take note that after price dropped below the trend-line, it spiked back up, the bears took over and it closed below the trend-line. There was a final push up and price hit the trend-line and fell back down as the trend-line is looking to now appear as a line of resistance.

To complete this image, I drew Fibs. I drew it from the line of support at 1.3012 all the way up to the line of resistance at 1.3300. As you can see, price hit the 23.6 line and pulled back a bit. However, the candle there after proved to still be a bearish inside bar candle.

So I’m left with three options. I can buy. I can sell. Or I can stay on the sidelines.

There would make no sense for me to buy. Price did not want to head past 1.3300. RSI was already overbought and now the trend-line was broken. And price broke a trend-line and then shown it to act as a line of resistance. I think that if the 23.6 Fib line was going to act as a stronger line of support, the last candle would not have been so easily pushed off by the trend-line.

A sell is looking pretty darn decent at the moment. However, I would want to ensure that price can break through the 23.6 line. A close below it would certainly be of interest and might even cause me to pull the trigger. A sell stop set 5-10 pips below 23.6 wouldn’t be a bad idea either. Also if price goes below the 23.6 fib line it would mean it also broke past the low of the bearish inside bar. A stop-loss would be placed above 1.3300. And as far as a profit target is concerned, I would allow price action to determine that at each of the Fib levels moving down to an ideal profit target around 1.3130.

Like I said in my original post. This isn’t just a couple indicators splashed together to create a system. Work is involved here. Thinking is involved here. As a result this will not be a popular thread. But I do assure you… it will be a profitable thread.

Any questions?

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I like your trading style. clean understandable and thaught through. I do personally use indicators to help make decisions when i trade but more as confirmation of the trend that i am looking at rather than the indicators telling me when and which direction to trade.

I belive that primarily traders should use more of the basic systems set in place when you first start trading such as head and shoulders candle patterns and of course support and resistance to make the best decisions.

best regards

pt~

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well done!

great thread!

as you’ve already said indicators focus on what HAS happened and not what IS happening, now what good is that to a forex trader? if anything it just disheartens us as we see them as missed opportunities and further clouds our trading judgement…

now price action on the other hand, thats where the real profit lies…

i tend to only use rsi, support and resistance, fibonacci and i also look at the tick chart to make my own judgement on the pairs momentum.

i would also just like to add one other thing to your thread

ALL pairs behave diferently which is someting that no indicator can take into consideration where as if you primarily look at price action you can focus on one or two pairs over a period of time and begin to understand how those particular pairs behave, the momentum and speed at which they move, whether they often have definitive trends or constant retracements, their daily range, how they behave at S + R lines and Fib Lines…

learn to interpret the pairs and the market, NOT the indicators

good luck everyone :slight_smile:

lee

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Excellent thread.

It seems that Tess, Jocelyn and co may get some competition :wink:

I quite agree that the evening star, visible on EUR/USD 4H is enticing. However on daily the uptrend is still unbroken although fridays candle does have an upper wick suggesting price may be about to turn back down.

I’m looking at EUR/JPY as a possible long based on daily time frame.
Price has recently bounced off of the lower Bollinger band, it also seems to be turning up again at the 128 level which was resistance back in december 2008.
The lowest it went was to 126, which represent another old resistance level from late jan/ early feb 08.
Peak and trough analysis shows that a higher high has been formed and that we may be watching the higher low right now, but this pattern is therefore only half formed.
Last, but not least, (number one really) is that price on 22-23 april formed a bullish outside bar. Friday 23 was a doji but the lower wick was substantially longer than the upper.

This all together with some fundamental reading suggesting yen may hurt in coming weeks, tell me that going long on EUR/JPY would have the odds in one’s favor.

Reading DailyFX’s weekly outlook would give the opposite view. They are clearly bearish on the pair. I choose to put faith in my own view. Let’s see who’s right - me or DailyFX… Sort of David and Goliath huh

Thoughts?

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I trade mainly off the 1HR charts. Right now EURJPY too me is looking like it was set to go down. As I see it now, every few hours it would appear that the price is fighting for a reversal. However, it smacks the downward trend-line and keeps going down. I generally only trade at the beginning of what I spy to be a reversal, so I would wait for some more confirmation other than just candlestick patterns.

As it stands, I would need RSI to break the current trend-line I have drawn coupled with a solid candlestick pattern before I would consider a long.

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Seeing that there wasn’t much of a gap at all between the close of Friday and the open of this week on EURUSD, I decided to go ahead and short when it broke though 23.6.

As illustrated by the diagram above, I drew a downward trend-line on the price and another on RSI. Price trickled down the trend-line rather smoothly. When price hit the 38.2 fib line, it stalled for a bit. It was at that point I was already up around 30 pips so I moved the stop loss from where I had it at 1.3305 to break even. From then on I was in a free trade for the evening.

Price eventually broke though the 38.2 fib line and down to the 50.0 where it finally ran out of steam. For three hours I watched the price consolidate. It was at that point I was ready to pull profit. It’s still possible that the price will continue downward, but being as I was already up 50 pips, I was content with taking my profits and calling it a night.

For those that plan to trade the London session, I would keep an eye out for a breakout on this pair.

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I am a 3-month forex newbie, but after reading pipsology school and testing several systems/EA’s it is obvious that price action is the way to go. So, I thank you for writing this thread and giving examples for us to follow - I had such trouble drawing fibonacci lines, but following your example in this thread I drew my first one! It helped tremendously.

My questions are regarding using your phone for charting, as I know nothing about it:

  1. does the trading platform reside on your phone or does your phone control your computer to trade?
  2. if the platform is on your phone, I assume you still have the freedom to draw trendlines, fibonacci, etc? Is screen size a disadvantage?
  3. can you please share what phone and broker you use?
  4. what kind of bandwidth (and thus fees) are typically involved?

Cheers and I look forward to learning from your examples! :slight_smile:

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Gunner -

I’m having a great deal of difficulty seeing your charts. The black background sure doesn’t help and I can’t seem to enlarge the chart picture - is there some way to do this? Great thread as I’ve read a lot of Tess & Company’s comments on several threads plus TakeMoney’s KISS thread, same ideas but each with a little different interpretation. Makes one think (ouch!). d.

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I must join dobro in this, the charts are quite small and hard to see.

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  1. I use metatrader mobile. The entire application rests on the phone itself.

  2. Sometimes it’s a pain drawing trend-lines, but it’s not that difficult. When you get used to seeing where trend-lines are, you don’t need for them to look as pretty as it could be on a desktop or laptop. The screen size is sufficient for me.

  3. I have a Samsung Omnia and I would prefer not to mention my broker.

  4. I have an unlimited data plan on my phone. Fees vary from carrier to carrier. With my carrier it costs roughly $30 a month.

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I don’t know how to make the picture bigger. I’m currently hosting the pictures on a free blogger website and just popping in the image address. For whatever reason, this is the size it defaults too. I am open to any suggestions on how to enlarge the images.

You said it best when you mentioned “little different interpretations”. That’s the heart of the market as you know. And when it comes to price action it’s entirely subjective in nature. There’s no such thing as drawing perfect trend-lines or fibonacci lines. Just as long as you recognize how price reacts to various support and resistance lines, you’ll be good to go.

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I found a way to enlarge the last picture. The first picture is long gone. However, the one I enlarged must have been a bit low on the resolution and is looks a bit goofy. I’ll try to correct that with the next image I post. Apologies while I work out these kinks.

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Okay, let me know if this size above works for you guys, or you would prefer something smaller. For some reason, this just feels a bit too large. Any resolution recommendations?

Moving forward now.

I’ve been watching GBPUSD all day today. I’ve been waiting for a comfortable short entry. Examining the chart, you’ll see that I ran fibs from the lowest low on the chart all the way up to the high of the doji candle. It was the huge bearish candle after the doji that got my attention.

The price was moving strong and fast. I was monitoring from the chart on my phone, but I can only suspect that there was possibly a news release as all the major pairs seem to have been having some significant moves at that time.

I refrain from jumping into a trade just because I see movement. If you don’t know why you’re entering a trade you have no business getting into the trade.

I waited out the retracement then drew the upward trend-line. When the price turned back down, I saw where I could then draw a downward trend-line. And what would you know just happened. I now had a bit of a triangle set up occurring.

Thus far I’m reading the market as bearish, so I was then waiting to see if price would break the downward trend-line. And as you can see it did. However, I wasn’t so fast to pull any triggers just yet.

I like to “know” where price is going, not just suspect where it’s going. So I took note of Fibonacci. 50 and 61.8 lines can sometimes act as a good place for price to retrace. Also, if you draw an imaginary line from the 61.8 line across the chart you’ll see that’s also been acting as a line of support/resistance for the last couple days.

Sure enough price dropped below the 50 line, shot down to the 61.8 line and immediately retraced. It had turned all the way back to the 38.2 line. The scalpers were probably having a good time with those bounces. Check out what was also right along that 38.2 line when price hit it. My downward trend-line. It held up and price faltered back to the 61.8 line.

If price can break that line, I believe it has good potential to continue down a good 50+ pips. I plan to make my entry at 1.4575. My stop loss will be a mental one where I’d pull out depending on how price moves against me. I generally don’t like trades going against me 20-30 pips. It kills me to hear the repetitive story of those of traders that say they lost 100 pips in a trade. At what point where they realizing that price wasn’t going their way? Where they waiting for some indicator to tell them to get out?

Now here’s the lesson I hope someone gets out of this. This is a potential trade that was 10 hours in the making. And it’s possible that price bounces off 61.8 and I never even get an opportunity to enter the short trade. The role of a trader should not be to make a trade. More appropriately, the role of the trader should be to wait for a trade.

Are there any questions?

1 Like
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Perfect picture size!

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It cracked 61.8 and shot straight down to 1.4550. A wiser man would have taken profit at that psych line, let the price retrace, then get in again. Trading’s easy when you’re living in the past isn’t it? :wink:

At 1.4550, I moved my stop to break even. When the price retraced it took out my stop loss and I walked away break even.This is where a trader fights with himself. I had it figured that price would descend the full length of the Fibonnacci lines I drew. However, it was getting late and the fear of loss set in a bit. After the initial retrace, my mind started thinking, "Oh Lord, this is going to be a long night. The market gave you 20 pips and you let it get away. Not again this time. You’ll get in. Get your 20. And get the heck out. "

And that’s exactly what I did. When the price went back down a little past my initial entry, I hopped back in and rode it down 20 pips.

Sure enough price continued to go down, however, I did what I felt was the wisest decision I could make at the time. And that was to not jump back into the trade. Hindsight of course is telling me how wrong I was. However, if given the same choice, I would have done the same.

I exited because my emotions got the best of me. And when you’re in that state it’s best to sit on the sidelines. Last thing I want to do is make some type of revenge trade.

As I write this, price did in fact move all the way down to the 100.0 Fib line. So about 30 pips were left on the table. However 20 pips were gained. Two trades. Two days of this thread. 70 pips in all.

Lessons to be learned here is that even when you’re a successful trader, you still fight your own psychology at times. You can get upset that you missed a move. You can get upset that you cut profits too quick or let losses run to deep. You can be afraid to lose your entire bankroll. You can be greedy and try to get rich in one trade. It’s hard to be a robot when you’re a human isn’t it?

Nonetheless tonight will be chalked up as a victory. From the high of the doji to the low of the last low there was a potential of 174 pips to be gained. Of which, I saw an opportunity where I could take at most 60. Of which, I took 20 pips.

Are there any questions?

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