Hey Garuhhh. Just thought I would share with you a trade that just closed successfully in my favor and the thought processes that drove it.
As I mentioned, I trade a very simple Price Action strategy. It’s a very popular and effective method because it focuses less on what indicators are telling you the market has done and more on what the participants are doing.
So this first chart is just a weekly AUDUSD chart. As we can see, for the past couple of months we have been in a fairly consistent downtrend. That means I’m only interested in taking Sell orders on this pair.
This second chart is the AUDUSD daily chart.
Alright, the first point we want to look at is the ovals drawn on the chart. I’ve identified a zone of Support turned Resistance at about the 1.0375 mark. As we can see from the two white ovals; the price touched and pushed off and struggled to once again get through that area. However, towards the end of the second white oval, we can see that price broke through the level and descended. It pulled back to the same level and stalled- indicating that this zone is likely to act as a level of Resistance.
I entered a trade on the candlestick indicated by the white arrow. As we can see, there was a nice pullback to resistance and then a good but not great engulfing bar formed with the combination of the bar indicated by the arrow and the one before it. (Combining two bars to interpret it as a single Engulfing bar is valid because of how weak the previous bar was and it’s failure to pierce the Resistance zone.)
Now we get into personal preference territory. When I place a trade I always aim to make 2:1; period. If I don’t think I can make at least 2:1 on a trade I don’t take it. So when I entered there was about a 75 pip Stop Loss placed behind the area of Resistance (indicated by the aqua line). My Take Profit is twice that (indicated by the yellow line).
I go the 2:1 route for a few reasons. I did used to try to micromanage trades to take every pip out of the market possible. I came to realize that was kind of dumb because all the time I spent doing that I could spend doing more gainful activities elsewhere. I had seen 2:1 thrown around a lot and finally settled on it due to some advice I got from a neighbor as a child that stuck with me. “Find a way to turn 1 dollar into 2 dollars and you’ll have all the money you ever need.”
In my own learning curve I discovered that yes there were plenty of trades I could get more than 2:1 off of- but there were a lot of other trades where I would have a secured a 2:1 return with a Take Profit before the currency pulled back. This way my exposure in the market is much more limited. I’m not interested in huge returns; just consistent ones.
As we can see from the chart, it took a couple of weeks for price to reach my TP. If I was still trading like when I first started, I probably would have hovered over the chart and cancelled the trade to “minimize my losses” because it didn’t go my way very soon. While that works for some strategies; it doesn’t work for this style of trading.
That candlestick formation and zone of Resistance are valid until price closes above them. Now since my Stop is placed there; I know I’m going to be taken out when the signal and resistance stop being valid. Therefore there is no reason for me to meddle with or even look at this trade again until it either stops out or hits take profit. I just have to be patient and let the market do what it’s going to do.
Trading isn’t something I do full-time or even want to do full-time. I spend about 30 minutes looking over about 30ish currency pairs for set ups like this one every week day after the NY close, place my trade, and get on with the other stuff I have to do. It’s simple to do because I know what I’m looking for. I first look for the appropriate candlestick formation; if it’s not there I move to the next. If it is there, I check the weekly chart for general direction. If it’s in favor of the trend/direction of the trade I want to place; I then look for S/R levels that will either help or hinder my trade.
If all those things check out; I place my trade. If any of them do not; on to the next pair.
I tried several different strategies before I found Price Action. The pure simplicity of Price Action is what really appealed to me. All you’re really doing is looking for the signals that a majority of the other pair’s participants are going to see and respond to.
It works with varying degrees on about any time frame. I’ve scalped a few times with Price Actions with decent results. It’s not something I do very often though.
