Learning Price Action, help appreciated!

Hi guys,

I decided to do some quantitative checking in the past to see some reversal and continuation patterns, and I’d like to hear your opinions just to see if I have missed some others.

The problem is that for now, the only patterns I know to recognize are pinbars (well, pinbar-ish) and double pinbars for reversals, and upside down pinbars for continuation.

Here are some pictures, red squares around the patterns I saw. The problem is that these patterns occur once a while, and I was wondering if I can get at least 2 of them each week. Ofc, I won’t be creating patterns if there are none.






Thank you for your contribution!!!

Wllen1

You’ve missed a few pinbars even in those charts - its easy just to look at the pinbars where price reverses. There are also a few pinbars where price does not reverse.

Yes, as GM pointed out you have missed a few but that is not that important. I think you are on the right track here and are making progress. You will never get every trade so forget about those you have missed. With more experience you will get better and better at it.

One thing I’d like to point out; especially in that third chart- not all pin-bars are “valid”. It’s difficult to counter-trend trade with Price Action because you don’t typically use any kind of volume indicators and have to wait for a counter signal to appear. It’s usually advised to not counter-trend trade Price Action because chances are pretty good you’re not going to get a good return versus your risk.

tyvm guys, your help is much helped!

My next quesiton is now about false breakouts and fakeys. Could anyone give me some examples and explaination about this pattern, and whether it is a frequent pattern on a 4hr chart?

Many thanks!

Wllen1

Well the concept is pretty simple. It just moves past the point of S/R and rebounds instead of continuing. As a rule of thumb, I don’t really consider a breakout legitimate unless it closes at least 50 pips past the point of S/R. If it does, then I consider it to be a valid signal and will enter accordingly.

Yes, they occur on four charts with some regularity. There’s really nothing spectacular about looking for false breakouts… Just look for a point of S/R where price move past and then rebounded back behind the level.

You can probably just google forex Fakeys to find examples and information on them. I don’t trade them so won’t comment.

The only person I am aware of that uses the term “fakey” to describe price action is Nial Fuller. I don’t know if that is whom you picked the term up from but if so (or if not), visit his Youtube vids or his website Nial Fuller | Learn To Trade Price Action | Forex Trading Education

As far as false breakouts, Phil Newton’s Youtube channel has quite a bit of info on false breakouts YouTube as do his vids on FXStreet.com

If you are looking for generic and applied price action information, search the BP threads. There are plenty of them and some are quite good. Here are three of the more popular:
http://forums.babypips.com/newbie-island/45414-understanding-price-action-chris-capre.html
http://forums.babypips.com/free-forex-trading-systems/42378-forex-price-action.html
and of course:
http://forums.babypips.com/newbie-island/39634-pure-price-action-dummies.html

If your missing bars and doing this by hand. Its not quantitative. You are simply filtering and selecting the data thereby creating bias. You either need to define what you want to select and then collect data for EVERY instance. Or start over but now you have introduced bias since you have already seen the data set once, which may lead you to filter out “losers” cause you already saw what happened.

Treat your data with care

+1 on that. Data is what it is and it comes down how you interpret it. You need to know what you are looking for and then go find it if it’s there.

TYVM guys!

I will try to take the data more objectively in the future. This is why I hesitate a bit about this pattern I found on USDJPY today.


What do you think about this inside bar? I don’t believe that this is a continuation pattern, as it needs to be a bit more pinbar-ish to be a continuation. I’m thinking of going long if I see a false breakout tomorrow.

What you think of this pattern?

Thanks!

Wllen1

It’s not a pattern until the candlestick closes (I can’t 100% tell if it is or not, it might be hidden under the hash marks). I would want to see a clear, solid signal before I entered long. Note that the bar before it closed below the 100 level.

I’m not a big fan of entering on continuation signals, I instead use them to figure out if I want to stay in an already active trade or not. If I was going to trade this pair, I would wait for either a bounce and an engulfing to form or a solid break to the downside to go short. I think either has potential because it is at the VBRN of 100.

Thanks Michael, always appreciate your help!

Today I made a fairly big discovery. Regarding the continuation of inside bar, there is one detail that changes everything: The mother candle must not have a big price rejection. Otherwise, the inside bar could be a upside pinbar and suggesting a continuation, the pair would probably still reverse. This is because the rejection dominates on the upside down pinbar. Therefore, the inside bar wouldn’t mean much.

This is a typical example of the big rejection in the mother candle which invaliding the inside bar:


However, if there isn’t a big rejection in the mother candle, then the inside bar will probably signify a continuation, such as this daily chart of EURUSD:


Conclusion: I believe that if I seek for continuation pattern, I shall go for the mother candles without the big, ugly and choppy rejections. I know that some of you guys aren’t big fans of trading continuation patterns, but I still have to learn them just in case there are no reversal patterns in sight, like this week.

What do you think?

Thanks!

Wllen1

I think that you’re trying to make opportunities when there are none. The problem with the first graphic you posted is that it could be viewed as a pin-bar because it pulled back and rejected from a level. Under normal circumstances, that would imply that price is about to reverse. In the second graphic, the stuff you have highlighted includes two indecision bars- which are denoted by the long wicks on either side of the body. That just means that price is consolidating as the pair is trying to find direction to determine an overbought/sold state.

Not being able to find a signal during a week happens. I aim to take at least one optimal trade per week. Sometimes there are no optimal trades. That’s just how it goes. If you try and force signals you’re going to end up losing your money. Even if I was a continuation signal trader; I wouldn’t be looking to enter on either of those circumstances you highlighted. The first would require a lot of volatility to the upside to make it worth the risk which is shown to be lacking at the moment from the pullback. And the second because price may have hit the upper end of this current movement and is ready to come back down and bounce. To me, that doesn’t provide a high-probability for a good reward versus my risk.

But- I will also say this is just my opinion. I could be wrong. If you feel sold on the idea, test it extensively in a demo account.

Hello Michael,

Always there to help eh? Haha TY.

I think I haven’t been clear enough on my explaination.

What I was trying to say is that I [B][U]didn’t [/U][/B] trade the pattern on the first screen, simply because just like you said, the rejection seems way to ugly to trade, even though the small inside bar looks like a continuation pattern. I hesitated facing the huge rejection, and didn’t go in.

However, the second one is a bit more complicated. I understand that the pair has a daily close inside the mother candle, and it rejected the lower price level. Therefore, the opportunity was there. Also, there was also some kind of rejection on the top, but this could be simply some profits locked by buyers.

As I said, I believe that the reason why I didn’t enter the second chart and not the first one is because that the rejection isn’t that bad, and it’s on a daily chart instead of the 4hr.

Hope it clarifies more my mentality!

By the way, judging by the fact that six months ago I didn’t know a thing about trading Forex (not even what button to press) I could more than likely be wrong. This is why I want to share my understanding with the forum to see if anyone knows better (like you XDXDXDXD) and could tell me the wrong things. Therefore I could be the wrong guy. I did some backtests with the graph in the past and I’ll maybe post them later today, but there are not a whole lot on the charts TBH.

Finally, like always, TYVM for your comments!

Wllen1

Oh, my fault! I completely misinterpreted the point of the post. And the second one was hard to make it just because the graphic was hard for me to see and utterly blurry when I zoomed it. Either way, I enjoy engaging people in conversation about this stuff; particularly people learning. I think it’s the best way to get more people onboard and successful. After all, we’re not really in competition with one another on a personal level. So healthy discourse is good.

In regards to your rejection on a major candlestick- I read a suggestion somewhere that if the price closed in the favorable 25% of the bar, it was a reasonable assumption that price wanted to continue moving that way. So if you look at the first picture, you can see that the top wick in that large bar makes up about a 1/3rd of the entire candlestick so it’s likely the price movement is losing steam. When I start hitting candlesticks like this I typically exit a trade if I haven’t hit a set TP.

Here’s an example from a trade I exited today. I entered at the candlestick that broke that point of support as I viewed it as a potential breakout. I just let it run once it took off and stayed in the trade while each of those candlesticks was closing near the bottom of each of their sticks. Normally, we wait for candlesticks to close before acting on them. But looking at today’s stick which is a pretty big, close to pin-bar with a ton of wick at the bottom side, it’s now time to close the short position. All said and done, 414 pips at about 4:1 reward to risk.


Why do not you share your views at the existing price action thread? Here it is where you will fund a lot what you want :

http://forums.babypips.com/free-forex-trading-systems/42378-forex-price-action-892.html

Hello Wllen1,

You are also welcome to check out my thread which goes beyond three simple patterns for trading price action. I share the base models for reading price action, so you can understand which moves to be involved in, which ones not to. These models are used to help you determine direction, what type of signals to trade, which ones to avoid, while I also give comments, suggestions, and feedback on trades posted in there.

To learn more, feel free to visit the thread below.

Forex Price Action with Chris Capre

We also have people posting their trades every day, showing the actual trades from their brokers charts in there, where they entered, stop, limit, and exit so you can learn from them as well as we are not waiting around for days, when there are perfectly good setups every day.

Hope this helps and look forward to seeing you there.

Kind Regards,
Chris Capre

Chris, you are a very kind and helpful person and I have enjoyed your input to sites such as forexstreet.

Your post above is helpful for learner traders in that in directs, no actually links them to your thread, the same thread that has it’s number one rule of ‘do not link to other threads’, it’s number two rule is to 'remember rule #1.

Can you see a certain irony, or am I just becoming cynical of this entire ‘educating business’ of trading?

Hello Peterma,

Thanks for the positive comments and am glad you found the information helpful.

As to your question about the ‘irony’, it seems totally different, not even the same. The person of this thread was asking for help (just look at the name of the thread). My thread is focused on sharing a very unique perspective on trading, not diluting it with other approaches.

Plus, there is no rule in this thread about linking, so it seems like these are two different things here.

Hopefully that clarifies the differences.

Kind Regards,
Chris Capre

I didn’t know! I am joining to your thread now…