ElectroFX Pure Price Action Trading

[efxpa]

Hello BabyPips Members,

I would like to start this thread to discuss trading Forex using nothing but Price Action, some people like to call it Naked Trading but I am dressed so I will stick with Price Action Trading

[U]THIS IS A SET AND FORGET APPROACH TO TRADING THE MARKET ACCURATELY WITH LESS TIME STARING AT CHARTS AND THEREFORE LESS EMOTION[/U]

[B]My first message will be to Newbies:[/B]
You are actually very lucky in some respects. You have a fresh perspective, do NOT cloud your new fresh Forex eyes with silly Indicators and squiggly lines. Everything you need to know lies within the price charts themselves. It keeps it very simple, gives you accurate information to base your decisions on without needing all the planets to align.

[B]If you are not a Newbie:[/B]
Even if you have been working with fancy Indicators I implore you to focus more on Price Action. Unless of course you have something that works for you continuously throughout all the different market conditions. If you do then perhaps having extensive knowledge of Price Action concepts will help you to become even more accurate. Either way this thread will contain no Indicators.

[U]Moving on…[/U]
I will introduce you to what I mean briefly then wait to see who is interested in hearing my opinions on trading, please post your interest and I will gladly continue the thread .

[B]What exactly do I mean by Price Action and how do I trade?[/B]
Price Action is a massive topic that will take many posts and many questions but in summary price action can be broken down like this.

[B]Support/Resistance (SR):[/B]
Also know as Supply and Demand, SR are simply areas on your chart where price is likely to change direction. SR could be traded all by itself if you were smart about your Money Management and Risk Reward but in my world it is just 1 of the core price action concepts that I combine.

[B]Trend Lines (TL’s):[/B]
Trend Lines can be very accurate tools but it is important to only place them when there is an obvious trend being born. They can be looked at as Angled SR and I like to use TL zones instead of single TL’s just as I look at SR as a small area and not just a single price.

[B]Highs and Lows (PA):[/B]
You’re probably thinking why have I abbreviated this “PA”. The quick answer is that everything else to do with Price Action has it’s own name like SR, TL’s etc… so instead of having to say “The highs and lows being made in price swings” or “The swing highs and lows” I just call this price action (PA)

[B]Candlesticks:[/B]
I don’t need to abbreviate this piece of price action because it is just one word :). Candlesticks are basically little pictures that tell you a small story about a specific period of time. If you use 4 hour charts for example then each candle can, at a glance, tell you a small story about that 4 hours. They will show you when there is Indecision or not. At the correct location (determined by SR, TL’s and PA) you can use these little pictures to act as entry triggers.

[B]Psychological Levels (PL’s):[/B]
A final part of the trade decision process is to check for nearby levels of interest like 1.61000 as a major example. I break this down in to Major, Secondary, and Minor Psychological Levels. This is the final part of the entry point decision and only leaves for you to check the Risk Reward on the trade you are about to enter, make sure it is worth your time.

[B]Money Management (MM):[/B]
I like to keep this one simple and generally round it off to safe trading being 0.1lot per $2000 in your account. I occasionally get aggressive and consider 0.1lot per $1000 in your account to be a maximum level of aggression.

[B]Risk/Reward (RR) [/B]
This can make or break a trader right here. RR should not be ignored. I mean, what is the point of risking more than are aiming to get? It makes no sense but lots of amateur traders do it anyway. When you trade purely from price action then you have an exact price that you are waiting to enter the market at, you already know what your stop loss (SL) will be and you are able to see what a conservative take profit (TP) is also. This means that before you enter the trade you can judge your RR. If you always maintain that 1:1 minimum then winning 60-70% of your trades will make you a successful trader. However, when trading all these price action concepts I outline you are able to trade with the trend resulting in many trades that are 1:2 or 1:3. If your 1:1 is a minimum but you are trading with the trend and many times you get 1:2 or 1:3 then winning even 50% of your trades makes you a successful trader.

All that said, a 70-80% win rate is obtainable if you maintain a level of patience and discipline.

[U]Well, that is my opening blabber and as I said I would be happy to continue if there is interest.[/U]
I have been teaching people all about price action trading for a few years now and I love watching people succeed, I will warn you though that my experience in teaching has shown me that it does take a while for anyone to get all of the price action concepts and get used to using them harmonically together.

[efxpa]

Just so you can understand how my charts look

[efxpa]

I will be teaching you all about using Price Action for:

Swing Trading
&
Breakout Trading

The main focus is swing trading but various breakout techniques can be used to add to your position as it goes further in to profit. I will save that for much later on though.

1 thing at a time

[efxpa]

Using that same image above here is a clear cut swing trade that set up based on my rules… which as you will see soon enough are very black and white.

[mrchilled]

Thanks for the info. Could you give us some background on yourself:

1. Do you live trade
2. Which pairs
3. What time periods
4. what platform do you use
5. are you profitable? If so what kind of numbers
6. will this thread ultimately lead to a push for a sale of your services or an EA? (sorry for being sceptical, but this is what usually happens at which point I remove myself from the thread)

[efxpa]

Thanks for the info. Could you give us some background on yourself:

1. Do you live trade
2. Which pairs
3. What time periods
4. what platform do you use
5. are you profitable? If so what kind of numbers
6. will this thread ultimately lead to a push for a sale of your services or an EA? (sorry for being sceptical, but this is what usually happens at which point I remove myself from the thread)

No problem… being skeptical is fine but ultimately you should decide if this is working for you or not by what you read and see and test by yourself. A big problem with many Newbies is they don’t learn to trust themselves and instead rely on what others say. I try to teach all of my students to think for themselves after learning all the core concepts of price action.

1. Yes I trade live for around 5 years now

2. I trade EU, GU, EJ, GJ and AU because I have 5 large monitors and I like 1 pair per monitor (no switching around)

3. Depends on my day and schedule but I watch and trade Daily, H4, or M30 if I am sitting around my house.
   (My trades are all based on a closed candle so I either have to check once a day, once every 4 hours, or once every 30 minutes. The price action techniques I use will work on any timeframe but I don’t bother going lower than M30 as it starts to get flimsy)

4. MT4

5. Yes, I have learnt that my numbers won’t be the same as other people so I don’t give the false hope

6. I am not allowed to advertise my website here so I am just here to share some knowledge, I do run a website though that gives away a free eBook, I also have training videos, a live classroom, a VPS service and EA’s that help you trade with minimal effort but I don’t believe in full automation, my EA’s need orders from a human and then they will take care of the rest. I will not be posting a link to my website here though. You would have to PM me for that (if thats allowed of course)

[efxpa]

So in this Image we have what I called the Core Trade.

Price broke through an Established TL
The PA created a Lower Low,
then in order to judge our Lower High entry with reasonable SL,
(and not have to use the previous High for SL)
We watched a new Resistance area be created,
then once that Resistance area was re-tested and a PinBar formed,
There is a nice entry point, SL, and TP all mapped out before entry.
This allows RR to be judged which in this case was 1:2

[efxpa]

So lets use the last image I posted just above and make sure everyone understands everything I explained about that particular trade… even right down to the reasons behind me drawing that TL where I did.

So please ask questions or at least confirm that you understand every single element of the trade as I explained it.

I believe everyone should understand each example in full before moving on to the next.

One more explanation from me before you ask questions though:

When I look at the move UP I see 3 waves of movement upwards with the 2 pullback waves. By looking at that alone I am able to understand what the current market swing sizes are, therefore giving me a scale of relativity to judge the future waves by.

I see that the last wave of movement up was much weaker than the previous wave of movement up signifying a weakening of that trend. This is then followed by a wave of movement down with is much more powerful that the previous wave of movement down (the pullback on the TL) AND it broke the previous swing low that was made on that TL.

It is at that point that you know you are waiting for a wave of movement up to reach an area of resistance that will help it maintain a lower high than the high created before the TL was broken. This will then give you the Lower Low Lower High scenario AFTER a TL break that is required for this type of trade… the Core Trade.

In this particular case I was waiting for price to come back to point A on the attached picture and give me some Indecision candles so I could find a trade but instead price pulled back to a different area and created a new area of Resistance which I have labelled point B on the attached picture.

Since point B was created as the new Resistance I then waited for the area to be re-tested and confirmed so I could enter a trade

Price came back and re-tested the area with a nice PinBar (please ask if you don’t know what that is) and so at the time that PinBar closed I was able to find a price just below it to enter on, my SL would clearly be the new Resistance area and because we are following the lower low lower high scenario we are expecting another lower low, therefore aiming for a slightly higher low or equal low is playing it very safe.

It is at this point that you have an entry point plotted out, a SL and a TP also pre-planned (previous post picture), and you can now check to make sure you are not risking more than you are trying to gain (RR). Because this trade is going with the current trends direction in this example you are risking half the amount you are trying to gain and so this trade is an all systems go.

Thats about as detailed as I can get in typed words so please do ask questions about anything you don’t understand.

EXTRA INFO:
This type of trade will work on any timeframe and you will always need a closed candle to decide on a trade. This means if you trade the H4 chart you only have to look at your charts once every 4 hours, if you trade an M30 chart you only have to look at your charts once every 30 minutes… and so on

[efxpa]

OK, so hopefully everyone is up to speed so far but I still want to break this first example down further because it is important that you understand every aspect of what you are doing. I am sorry this is a slow process but my experience in teaching has proven to me that this is the best way.

It is easy for people to tell you some way to find entries, but entering is only 1 piece of the puzzle if you wish to be successful on a consistent basis.

So looking at the same example again, everyone should understand how PA, SR, and TL’s where used to intelligently find the trade.

Let’s just take an even closer look at the exact entry point for the trade and why, the exact place for a SL and TP and why. There is a reason for everything you do, or at least there should be. This way when you are in a trade or just entering a trade there are no unanswered questions going on in you head. It is almost robotic because you know exactly what you are doing and why.

So in the picture I have outlined the Entry point, SL and TP once again.

The entry point was just below the Pinbar that had re-confirmed the new Resistance area and consequently what I believed would then be the Lower High that followed the Lower Low.

The SL was just above the newly confirmed Resistance area

The TP at a conservative level was a slightly Higher Low even though we were expecting a Lower Low due to the current PA and because even that level provided almost a 1:2 RR scenario which is very acceptable.

(in the next post I will explain the thought process during the trade)

[efxpa]

Now that you are in the trade and you have an intelligent SL and TP, plus before you entered you made sure the RR was also intelligent.

How do you manage this trade also using just Price Action to make your decisions?

In this picture you will see I have looked down and to the left of price at the time of entry and found any “Obstacles” that may get in the way of the trade.

Point A is the first obstacle but it is too close to the entry point for my style of trading so it is ignored, if however you are a very safe player then this would be a good point to move your SL to Break Even (BE).

Point B is the next obstacle and this is where I moved my SL to BE, if you had already moved your SL to BE at Point A then Point B would be used to move you SL to actually lock in some profit.

Point C is of course the conservative TP initially mapped out. If you are a more aggressive trader then you would not actually place your TP at Point C but an Alert instead. This way if price was moving nice and fast you have a chance to grab some extra pips.

Advanced Note: As you will learn later Point C is also right before a HL Breakout trade that I keep my eye on as a place to add to my already entered swing position, this can only be achieved if you used an alert at your initially mapped out TP instead of a hard TP

[efxpa]

When it comes to candlesticks, the higher the timeframe the more powerful they become as a standalone tool. This is why they end up becoming part of my entry trigger. Since they are already a signal of their own, having them at the right location (judged by PA, SR, and TL’s) makes them very powerful indeed.

I have simplified Candlesticks because there are so many names that people give them and only a few that I care for myself.

A Pinbar for me is simply a Candle that has a lot of wick and not much body, this way the name Pinbar for me covers what others call a Hammer, Hanging Man, Shooting Star, Inverted Hammer, Spinning Top, even Doji’s really.

It is the Indecision I am interested in and although certain types of Pinbar are more powerful than others it can be generalized for simplicity at the beginner level.

The other Candle Patterns I look for are InsideBars, TweezerTops and Engulfing Patterns (always at the correct location)
*Engulfing patterns I ended up calling CeC’s btw… candle eats candle.

I whipped this picture up to help simplify Candlesticks a little.

Don’t forget that when we have the correct Candle Pattern at the correct location I then want that Pattern to be broken in the correct direction to enter the trade. This can be done via Pending Orders and you do not have to stare at the charts.

[efxpa]

I will wait at this point for interest in me going on or questions on what I have covered so far.

[gforce1]

Hi Efx,

Thankyou for starting this thread and sharing this info. I am new to fx, and am just beginning to study price action. I am very interested in what you have to share. I hope you continue with this thread.

Best wishes, G-bloke

[efxpa]

I think I have been thorough enough in explaining that first trade and since there seem to be no questions yet I will answer them later if/as they come in.

REMEMBER: the core trade explained I have traded right down to the M2 chart with decent success…
it will work on any timeframe but my crazy 8 hours staring at the screen days are long over with my new trade management EA’s and VPS,
so I now take this trade on M30 and above depending if I am travelling the world or at home.

I will now go prepare a similar step by step process to explain the dynamics behind the next price action trade I will explain… the TL bounce

[efxpa]

Drawing Trend Lines is actually something I should have covered before the 1st trade example but I will cover some basic TL drawing concepts I have before I move on.

The next trade is the TL bounce so it is very important that you draw them correctly.

Firstly there is no point drawing a TL unless there is a Trend, hence the name of the Line I suppose. So how do we determine if a TL is warranted?

There are essentially 2 main conditions I look for to draw a TL. TL’s are used to gauge the Momentum of a move.

1. Confirmed Trend Line Zone:
   Quite simply 3 points to connect that, in the example of a sell, created the Lower High, Lower Low, Lower High, Lower Low scenario.
   *When you look at my charts you will see the gray boxes, these are Support/Resistance boxes, they are not a single price but a small area. Trend Lines are essentially angled Support/Resistance and therefore I also look at them as zones rather than a single line.

2. 2nd wave has greater gains and is much more powerful than the first indicating a possible Impulse wave from the Elliott wave theory. I don’t apply the EW theory too much in my trading except in this kind of scenario where it tends to apply more often than it does not. I won’t go in to Elliott Wave theory here but instead explain in a logical manor. Basically the increase in power and momentum indicates that there is a very high chance of the next wave continuing a Lower High Low pattern so I place a single TL (as it is not a confirmed TL zone by having a 3rd point) to remind me that it is not as solid as a zone, but a predictive momentum line. I do not find these as reliable if the TL is way too steep.

[efxpa]

The one exception to the rule is when price is swinging in large smooth swings yet still making gains in a particular direction.

These TL’s should also not be very steep and remain a single TL to remind you it is a predictive TL and not a confirmed TL

• Do not clutter your charts with TL’s, they are momentum guides and help with 3 of the types of trade I take, The first was of course the Core Trade and the 2nd is the TL bounce which comes next

[efxpa]

So now we move on to another swing trade.

The market moved in nice smooth proportionate looking swings whilst making it’s 1st Lower High, Lower Low scenario, the 2nd wave of movement down does not indicate that the momentum is slowing.

A single TL was drawn (please ignore the TL zone as that applies to the next trade using this same image)

The 3rd hit on that TL was also confirming a Resistance area that was created during the previous wave of selling. It lines up perfectly with the TL, and SR box and gives a place to enter, a place for your SL, and the ability to judge RR before you enter the trade. I will go over that in the next post

[efxpa]

In this example since we have our confirmed Resistance area at the predictive TL and we have our SL.

Using Candlestick patterns the 1st entry opportunity is the IB after the PB.

The black area is an intelligent area to move your SL to BE based on recent historical price action

The Conservative TP is an equal low minus any spikes that stick out by themselves.

Now we can judge RR which as you can see in the picture is greater than 1:1

Notice how I say conservative TP, what I mean is that clearly we are expecting a Lower Low, The waves of movement down have not lost momentum yet, so the RR will be much better in fact.
But if we assume the worst we have locked in Break Even at the next logical place for price to possibly create a Higher Low and we base our RR on the safe outcome of at least an equal low to be conservative. This way if we always look for 1:1 as a minimum TP based on conservative logic but we more often than not will always exceed that 1:1 RR

[efxpa]

As I mentioned before the gray boxes on my chart are Support Resistance areas, but I only have a limited number above and below price at any one time so for that previous trade there were none there.

For this next TL bounce trade using that same picture the gray boxes are there as they were in real time.

In this next trade the confirmed TL zone was not quite reached but a nice Resistance box was created as price headed down on that previous wave, the previous wave of selling was much greater in power than the first 2 waves of selling indicating increased momentum.

The chances of another wave of selling were high so once a Resistance box close to the TL zone was confirmed by that 2nd visit there…

Candlestick patterns were all that was left to wait for.

2 Pinbars side by side was a nice touch and the trade now had an entry point, a SL point, a conservative TP point to judge RR, and an intelligent place to move your SL to BE based on historical price action.

It was just about 1:1 RR at the conservative TP so all systems go.

In this pic though I also marked out a more likely TP that you would have shot for when you saw those nice red candles gaining strength on each one

[gforce1]

No questions as yet, but bound to be some shortly. Absorbing info. Thank’s.