Price Action That Matters

[Piping_Hot]

From the chart you posted , I think you must be set your pending before the market close (which is 1 of the common mistake that many have done). Always set a pending after the price close to confirm a signal.

2nd will be , we must find long signal at swing low instead of go for short at swing low.

3rd will be, that candlestick doesn’t seems like a valid signal for me to enter a trade , you should find a big and obvious bullish pin bar instead of indecision candle there.

Lastly , from the volume indicators , we can see that the bullish seems not strong enough as the volume seems lower compared to previous one.

No offense , just my 2 cents. =)

Shane.

I agree with Shane’s analyse. Retracement is inexistant. That would mean using a bearish pinbar as a continuation signal instead of reversal.

But I still wanted to add, well done for daring to post your first chart, it is not an easy thing to do. And beside the lack of retracement issue, there was a lot of good in your analyse which shows that you are getting the overall concept.

Yves

[MikeWolski]

This is my real chart. But problem is I think it’s not ny close. I think it’s london or something. So, I know I’m breaking the rules here, but just take a look anyway. That’s why I went to Aaron’s marketscope broker and posted it originally from that.

Bear with me. I’m practicing putting up charts.
Look at that volumn spike bar at the end. I would like to know if you guys have anything like that on your charts.

[MikeWolski]

Here’s a close up. On my real chart.

Practicing again.

[Piping_Hot]

@Mike Wolski

This is my real chart. But problem is I think it’s not ny close. I think it’s london or something. So, I know I’m breaking the rules here, but just take a look anyway. That’s why I went to Aaron’s marketscope broker and posted it originally from that.


Bear with me. I’m practicing putting up charts.
Look at that volumn spike bar at the end. I would like to know if you guys have anything like that on your charts.

My chart looks the same but I don’t have the volume spike. Now that I look at it more carefully, it wasn’t a pinbar, be careful ! Check my profile picture for acceptable pinbars. (at least it can be useful sometimes.)

[MikeWolski]

Thanks Yves.
I hear ya loud and clear.
I’m not gonna do anything with this. Just have it on my “watch list”.
BTW… I appreciate all of your posts around here!
It’s nice having big brothers around.

[shane]

Thanks Shane!
Hey, surely no offense taken. I need all the criticism I can get! That was the first time for me. I’ve been an onlooker for to long now. Time to get into the game myself.
But, anyway, you make good sense. I was just thinking that the latest pin bar, and the candle before it looks like a carbon copy from just what happened. Look at the 7th 6th and 5th candles from the end. And the last candle seems to have some kind of pin bar. I was thinking that was the retracement long to look for.
I’m just throwing this out there. I’ll be watching this when the market opens for sure though.
Thanks Shane!

You are welcome mate. =) And 1 more thing , always trade with the trend , trend is our best friend ~

[Piping_Hot]

Thanks Yves.
I hear ya loud and clear.
I’m not gonna do anything with this. Just have it on my “watch list”.
BTW… I appreciate all of your posts around here!
It’s nice having big brothers around.

Thanks very much for the great feedback ! it means a lot to me as it isn’t that long ago when I posted my first chart just like you !

[shane]

@Mike Wolski

This is my real chart. But problem is I think it’s not ny close. I think it’s london or something. So, I know I’m breaking the rules here, but just take a look anyway. That’s why I went to Aaron’s marketscope broker and posted it originally from that.


Bear with me. I’m practicing putting up charts.
Look at that volumn spike bar at the end. I would like to know if you guys have anything like that on your charts.

I just checked my chart too. All the candles are alike except the last spike of volume. My volume indicator doesn’t show any spike there

[Kasravi]

@krugman25

Step 3:Watching for Price Action at Key S/R Levels

Three steps to finding price action setups

1.Identifying a Trend
2.Finding Key S/R Areas
3.Watching for Price Action at Key S/R Levels

What are Price Action Candles?

Price action is simply price in action and encompasses every tick movement that price makes. Price action isn’t contained to certain candlesticks or time frames. As price action traders we make sense of this price action by grouping price action together in various time frames and viewing that price in the form of candlesticks. These price action candles tell us the story of how the market is treating a given asset. Price action tells us if the market is bullish/bearish, if a reversal is looming or if price is winding up for a break out. We don’t need indicators; price alone gives us the most pure picture of what the market has already done and what it may do in the future. We can look at the entire candlestick chart to get an overview of how the market has historically treated a given asset, and we can also watch individual candles forming to get an immediate look at what the market is doing.

Watching candles form on the chart is like getting an up to the minute news report on what the market is doing. Because the information is so telling and at times so clear, it can almost seem wrong. The reason why people have such a hard time believing price action works is because it is such a simple approach to the markets. Humans have a way of creating over complicated solutions, and because of that many people believe price action doesn’t work.

Why do Price Action Candles Work?

The reason price action work is because it tells us exactly what the market doing and thinking, and it does it in real time. Price movements are the result of supply and demand. Because humans are predictable and tend to buy and sell in patterns, we can use that predictability of humans to make trades with high probabilities of success. I will explain price action using this simple illustration. Where I live in Iowa, as cold weather starts moving in the animals begin acting in a certain way. The actions and habits of various animals begin to change depending on the upcoming season. Even before the actual cold whether arrives some animal’s sense the warm season is coming to an end, and begin acting differently. Even when it is 90 degrees outside, I know once the animals begin acting a certain way, the cold season is right around the corner. As it gets closer, the changes in the animal’s behavior become more obvious. They repeat this behavior over and over every year, and because of this we can link their behavior to the weather and seasons with fairly high probability.

In the exact same way the market also act in a certain way before reversals or breakouts. We can see price begin to act in a certain way as it approaches a key S/R level. As price gets closer to these key levels, the market becomes more aware of it, and can react in ways that tip us off to predictable outcomes. For example, when price is trending strong and runs into an S/R line, the market can form a pin bar. This tips us off to a rejection of higher prices and can tell us with fairly high probability that a price reversal is right around the corner. We can use certain price action patterns and candlesticks to predict future movements in the market, and all because of the predictable nature of the market.

What are Price Action Candles Actually Telling Me?

Price action candles can signal both reversals and continuations in price. When certain candles form at key S/R levels, they can tip us off to what the market is planning on doing in the near future. In the example of a reversal if price is moving in a strong bull trend, reaches a key S/R level and forms a large bearish pin bar at that level; that can tip us off to a potential price reversal. The same pin bar candle can also signal a continuation in price. If price is in a strong bull trend, pauses and then forms a large bullish pin bar that can tell us that the market was taking a break but is ready to resume the trend. Another price action candle that can tip us off to future price movements is the inside bar. If there is a strong bull trend and price breaks through a key S/R level then forms an inside bar above this level, it can mean the market is taking profit before the next move higher. In the same example of a strong bull trend, if price reaches a key S/R level but the inside bar forms below this level, it can mean the market does not have the strength to break through the level and is getting ready for a reversal.

As you grow in your skills of price action you can learn these candle formation and the chart context that they form in to trade in line with the predictable movements that usually follow. While they don’t always play out, they have a high probability. A high probability setup is called having an edge. This “edge” is what we rely on as traders to make consistent profits. While a single trade may fail, if you trade with an edge, your profit will outperform your losses. Candlesticks by themselves can have multiple meanings, but when we combine these price action candlesticks with key support and resistance levels, the trader’s edge is greatly increased. This is why as price action traders we never just trade S/R levels, and we never just trade price action candles. We wait for those price action candles to form at the key S/R levels to give us the greatest edge.

Bringing it All Together

With the 3 steps laid out we now know the basics to finding price action setups. First we find out the overall market structure (is it trending or ranging). This helps us figuring out “what“ support and resistance tools we will use, and also helps us find out “what” direction we need to trade to have the greatest edge. Next we find the key S/R levels. The best levels will be those at the daily and weekly timeframe. The higher in timeframe you get your levels from, the stronger they will be. The S/R levels tell us “where” to be looking for price action. Once we have identified the levels are looking to, we wait for price to reach these key levels and form our price action candlesticks. These candlesticks tell us “when” to enter the trade. With these three steps we can know the “what”, “where” and “when”. The only thing we are missing is the “why”. All three of these steps together tell us the why. If you ask yourself “Why does this trade have an edge?” these three steps can answer “because it is with the trend, and it has formed at a key S/R area, and a high probability candlestick has tipped me off to what the market may do in the near future”. Now that we have the what, where, when and why we now have the basis for finding high probability setups using price action.

Conclusion

These three steps are all that is required to identify price action setups. These steps are at the core of what I do as a price action trade. No matter how advanced my trading knowledge becomes, these steps are always at the core of what I do. Many price action traders may be doing part or all of these steps without realizing it. I think once traders are aware of the steps they can begin focusing on developing those skills and strengthening their ability to find high quality setups. Once a trader has learned these core steps they can start focusing on the various dynamics of each trade to help them make even better trading decisions.

Specific Price Action Setups

There are many different price action candlesticks and price action patterns. Here I will briefly cover a few of the most popular price action candles and how they can be using to find continuations or reversals in price.

Pin Bar

The pin bar signals a rejection of price. In the example below the large upper wick shows that during the time frame of this candle, the market pushed prices high and then pulled it right back. When pin bars form at key support and resistance levels it can tell us that the mainstreet traders jumped in because they thought a breakout was occurring, and the savvy trader pulled prices right back. Because the savvy and institutional traders are often on the right side of price movements, and the mainstreet traders are often on the wrong side, we can use these types of price action setups to trade in line with the savvy/institutional traders. Not only do we know the story behind why pin bars form, but we can also know why they can play out so well. The reason pin bars can play out so well are because many mainstreet traders are still holding onto their positions in hopes that price will make a second successful breakout. As prices begin moving farther against these traders they begin liquidating their postions. This type of sudden liquidation is called a long/short squeeze. These squeezes can create a firestorm of buying/selling and fuel a reversal.

Inside Bar

This price action candle can also signal a reversal or continuation in price. While inside bars can be more difficult to trade because they can have many meanings, if traded in context of the trend and S/R lines, they can still give the trader an edge. An inside bar can show the market is taking a break after a strong trend. Mainstreet traders may perceive this break as a reversal and begin taking positions against the trend, once price resumes the trend it can create a long/short squeeze and the breakout of inside bars can be very powerful. This can serve to validate that the trend is not over and price may continue to trend into the near/mid future. In the example below I have shows an inside bar that turned into a continuation signal. Any price action trader who went long at the break of the inside bar would now be with the trend and clearly have an edge with this trade.

There you go, if anyone hasn’t got a trading plan yet(written down and not in your head) this is what you can start with.
Cheers

[Kasravi]

I just checked my chart too. All the candles are alike except the last spike of volume. My volume indicator doesn’t show any spike there

Volume spikes like that could be an error from time to time and is most likely going to get readjusted once market opens.
Nonetheless I hope it get’s higher I was scalping long since 0.8904.(saw an easy opportunity an took it).

Cheers

[wm247]

It’s nice having [U]big brothers[/U] around.

Don’t worry. Big brother is watching you. Haha…

[AlexUnder]

Hello everyone. My name is Alex. I am very new to Forex, have only 4 months experience. This is my first post here, however I have been reading this forum for couple of months. Obviously I am on demo account
I have few spots for oncoming week. Would like to ask for any comments and advice. Thank you in advance.

First pair is EUR/USD, daily.

Seems to me EUR might go up. We have 2 broken, major resistance levels (purple lines). It was very strong resistance zone, unbroken since end of year 2011. As we know dollar was and still is struggling, mostly because of government shutdown. Most of economic reports after approved weakness of dollar. It might means there is no fuel for dollar to reverse. Euro zone is getting stronger or at least is more stabilised. Either weekly and daily charts shows that.

I was thinking to do pending order. Green lines shows “what” and “when”.
Wait until price will go down in last resistance zone and buy EUR. I hope I will get more clear sign after Monday candle shows up.
Pros:
Trading with trend
Broken strong resistance level
Weak dollar and so signs for change

Cons:
Not sure… I am little afraid of possible resistance at 1.40000 level.

What do you think?
Cheers,
Alex

[Mr_B_A_Barracus]

Hi Alex

Welcome to the thread, just looking at your charts and wondered what signal you are seeing to make you want to enter these?

BA

[AlexUnder]

My second pair is USD/JPY. I have spotted this about 2 weeks ago and still waiting for clear sign which way it may goes… I saw this spot in one of babypips blog as well. Waiting for more clear sign.

[AlexUnder]

BA
Well, I am waiting until Monday candle shows up. I don’t see clear signal yet, but price action. Hope to see more tomorrow evening.

[Piping_Hot]

Ever wanted to know what the market is doing before your broker opens ? What is the gap going to look like ?

Forex Rates | Live Forex Rates | Cross Currency Pairs | FX Rate | Exchange Rates UK

[krugman25]

My second pair is USD/JPY. I have spotted this about 2 weeks ago and still waiting for clear sign which way it may goes… I saw this spot in one of babypips blog as well. Waiting for more clear sign.

Hey Alex, I noticed you posted a pennant and symmetrical triangle pattern. I don’t know if you will trade them as patterns on just enter on the trend line breakout of if you will wait for a price action candlestick signal but an important thing to note with these patterns is if price stays contained within the pattern past the 2/3 mark, they have a weaker breakout and much higher chance of a false break. In both of the patterns you posted price is almost to the apex, so they have really lost their edge as patterns. What I am expecting is price to break out, and then pull back to the apex, generally the apex will act as a S/R line and you can trade a price action candlestick from this level for a high probability setup. I will post a picture if I get a chance today.

[krugman25]

Hi Rick,

are you telling us that based on your experience, the accuracy of your trade is at its peak using Daily tf, but not at both lower and higher tf than D1? Interesting.

I mean it’s a bit weird to say that Weekly and Monthly timeframe are similar to H4 and H1 tf, that they are getting less and less accurate than Daily tf.

I might be wrong here, so feel free to correct me, Krugman. I thought the accuracy should be higher and higher as you move to the higher and higher tf proportionally, shouldn’t it? If a daily chart is like building a house out of legos, and the lower TFs are like building a house out of cards, shouldn’t the corollary for that is the higher TFs are like building a house out of bricks?

I think what he is saying is correct but maybe he didn’t word it the best. I think he was also talking about 2 different things. Let me rephrase it. When you drop to timeframes below the daily, the qualities of your signal must increase. This is because your trades are more at risk of short term volatility and your stop losses are tighter, and more susceptible to being hit. This higher risk of low time frame trades means we need larger and more obvious signals to mitigate the risk. This simple means I hold my lower timeframe trades at a higher standard. This is the same mindset when trading a CT trade. To achieve a 5 star quality trade on a CT trade, the signal must be much larger and well define, because there is much more risk to mitigate in a counter trend trade, than a trade with the trend.

The second thing he mentioned was weekly charts. It is price volatility that helps create the big and obvious price action candles we are looking for. As you go higher in time frame, you are absorbing and watering down a lot of the volatility that happens at the lower time frames. The size and definition of a signal becomes less important the higher you go. As a matter of fact I know some traders who trade the monthly/quarterly charts just touch trading S/R levels. Everything about higher time frame charts is inherently safer. The reason why the lower time frame charts are attractive is that you can get in a trade using a smaller signal, but you can still TP at the daily/weekly S/R levels and achieve those large RR setups.

[Mr_B_A_Barracus]

[QUOTE=“Piping Hot;556845”]Ever wanted to know what the market is doing before your broker opens ? What is the gap going to look like ?

Forex Rates | Live Forex Rates | Cross Currency Pairs | FX Rate | Exchange Rates UK[/QUOTE]

Hi Piping

Thanks for this, looks like a handy tool to keep tabs on the market over the weekend. Will bookmark this!

[AlexUnder]

Hi krugman,
I would expecting breakout as well, but didn’t think about pull back… This is my lack of experience. After possible pull back wait for action candlestick and than go for trade.
I have 2 more spots for this week, will try post it tonight.