Price Action Trading System

Hey guys the purpose of this thread is to show traders my approach to analyzing the market and finding high probability trades. I have another thread on here where I discuss some setups and charts I find interesting but in this thread I want to elaborate more on the method itself and how I actually make trade decisions.

Okay so this is going to be quite a detailed thread and it will definitely require more than one post. There are various concepts that I want to go over that will help you guys understand how I develop my trade plans. These are the topics that we will be going over in the next couple of days:

*How I use supply and demand zones in my trading
*Market structure
*Lower timeframe entry techniques I use
*How I manage my risk
*Support and Resistance levels
*How I look for targets
*The importance of the weekly and monthly open
*Building a story with price

There may be other things that I might add as well but off the top of my head those are the most significant areas I will go over. Please also note I am not trying to force my way of thinking onto you as the reader, I am just trying to share a method that has worked for me and maybe you can take elements of it and apply it in your own trading :slight_smile:

The first concept I want to go over is supply and demand. There is another really good thread in here from another trader that goes over what supply and demand trading is and how to identify zones. I suggest you read that first because I won’t be discussing that here. I want to elaborate more on how I use those zones in my trading. I prefer taking trades based off of the 4 hour, daily and weekly supply and demand levels.

I’m sure we all know by now that sometimes your setup wont always present itself how you would want it to. People that trade mechanical systems don’t really have this problem but with discretionary systems such as mine, you have to have some level of flexibility in your approach. For this reason over the years through observation and improving my execution, I basically narrowed down 4 scenarios that I anticipate to happen at supply and demand zones. These scenarios are what I want to discuss in this first post.

The first scenario I anticipate when price approaches a supply or demand zone is that the zone will hold and price should reverse from that level.


Here is an example of what this looks like on the charts. This is a trade I took earlier on in the year

My rules for this scenario are simple. Either I wait for a lower timeframe entry trigger or if I have string conviction the zone will hold I would enter with a limit order at the open/close of the zone and my stop would be at the bottom/top of the zone. This is the ideal trade everyone wants to get into when you are trading supply and demand. Unfortunately price doesn’t always make it that easy for you lol.

This brings us the Scenario 2. In this situation price actually breaches the zone and reverses. I’m sure you have been in multiple trades where price reversed just as soon as it took out your stop. These situations can be very frustrating but they are unavoidable, it happens. This is basically what it looks like.

After going through a number of my previous trades I came up with rules to navigate through this scenario if it plays out. Lets say you have identified a demand zone that price should trade higher from and your stop is placed below the low. If price raids the low, my rule is to wait for a 1 hour or 4 hour bullish candle close above the raided low and re-enter my long position. Same applies in the opposite for short trades. The point of waiting for a bullish candle close is to confirm that price really does want to go higher and my bias is still correct. I would only re-enter using this rule IF the market conditions that got me into the trade prior are still in play. This is very important. When you get really good at picking supply and demand zones, you will notice that price would normally trade straight through the zone. This brings us to Scenario 3.

In Scenario 3 price trades straight through a supply or demand zone. As I mentioned before, there will be times when price makes a very volatile move straight through a zone. In situations like this, sometimes it is possible to flip your bias and re-enter when price retraces back to that zone. So for example if price trades straight through a demand zone, sometimes it will retrace back towards the demand zone and provide you with the opportunity to go short instead. Here’s an example of what this looks like:

When you have a really strong demand zone or supply zone that gets traded through with a lot of volatility this is a big sign that sentiment is shifting in the market and you need to reassess your bias. Sometimes price will not give you the opportunity to enter on the retest, it happens. My rule for these trades are to wait for a pull back and then wait for price to confirm that the zone will hold the new bias I have for the trade. I rarely ever enter these type of trades with limit orders, I always wait for confirmation in the zone. The reason for this is because of stop placement issues. In my experience price can make a really deep retracements with this setup and I have found it is much easier to wait for lower timeframe confirmation. Doing that gives me the ability to get a tighter stop off the lower timeframe structure and I am getting added confirmation the zone is holding. Honestly this set up could be a topic on its own, I can expand on this later if requested. Also its very important to note that there will be times when a zone is broken and that doesn’t necessarily mean your bias has changed. Price could be reaching for a zone further below/above your initial zone and the move you initially anticipated could play out from there instead. Here’s an example of what a zone reversal looks like on the charts:

The 4th scenario I look out for is for price to consolidate around the zone. Normally if I am trading a zone and I have been stopped out more than once at the zone, price is normally just consolidating around that area and you do not want to be trading in these market conditions. The best thing to do in this situation is stay out and wait until price gives you a clearer picture of where it is headed next. A lot of people overlook this part of trading, there is always the possibility that the market conditions will not be conducive to your edge and you need to learn when to stay out and preserve your capital or look for better opportunities in other pairs. This is an example of what this looks like:

I hope you find this useful. If there is anything you want me to expand on please let me know :slight_smile: I will be adding more to the thread soon.

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price action is a trading strategy under which you make trading decisions based on what you notice about the market and its present conditions. There is hardly any fundamental analysis that you need to carry out before trading, rather your decisions are mostly influenced by the price movements of the recent past.

For trading using price action, you can make use of various technical analysis tools like charts, trend lines, swings, etc. Trader’s position decisions are subjective. Many traders decide to take a short position after a particular price is hit, while another trader may opt for a long position at the same price.

Always keep multiple options open for yourself as far as trading platforms, entry and exit norms, order types, stop loss and take profit are concerned. This will help you to earn better when you are using price action strategy. When you start to use this strategy, be active to look and identify any opportunity coming up your way, for example, a stock reaching to a desired price level or any other stock that you think can give you good returns in the future.

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hey there
iam just around here from time to time to see how things are going on this forum …

just saw your thread Rico and read em and iam sure this here will be one of the most helpful thread on the whole forum in my opinion !..
the stuff you mentioned so far for your entry methods on s/d zones are already enough to make money and transform every trader into a profitable one (if they put in the work and repeat repeat repeat the stuff on there own charts over and over untill they cant unsee this things)
this is more or less exactly what i do now … i started years ago with just s/d trading(got an old thread about my journey here somewhere) , going over technical analyse and simple price action(got another thread about that too) and now i have all this stuff combined with my favorit pattern or favorit trading zone the Quasimodo ( love this structure)
…anyway i just wanna say i love your methodology and your look at the market already (not only cause its similiar to mine hehe )
never stop learning in this bizznes full of sharks !!
rock on mate rock on !!

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Wow thank you so much man I really appreciate that! Just trying to help out all those who really want to learn :slight_smile:

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Market Structure

This diagram basically shows how I define a break in market structure. When price approaches a resistance or support level, you want to see price confirm that the level will hold. This confirmation is seen in the form of a break in market structure. In the example below the break in market structure would indicate that price wants to trade lower.

ms

This is an example of a break in MS on a support level.

Let’s look at an example on an actual chart and how you can spot this type of price action to make trading decisions.

This is the daily chart on the USDZAR pair. Notice the strong demand zone that resulted in that big move up. This area should provide a sizeable trade move on a retest. We want to see if price will hold this level and confirmation would be a break in market structure on the lower time frame.

This is the 15 min chart as price approached the support level. We confirm that the level will hold by looking for a break in market structure on the lower time frame. You can use a 15min or a 5 min chart but I find the 15 min chart more reliable.

You can also change the chart to a line chart when it reaches these levels so that you can see a break in market structure more clearly

After you get a break in market structure you can either:

  1. Wait for a pullback and enter anywhere below the high that was broken.
  2. Enter the market after you get a candle close above the high that was broken. (sometimes you won’t get a pullback so this method can be useful.)

You would place your stop at the absolute low or high of the move that caused market structure to break. This is the point that would invalidate the trade idea.
There are pro’s and cons to using this entry technique on the lower timeframe.
Pro’s:

  1. You can get tighter stops which increases your reward potential.
  2. Waiting for confirmation will allow you to filter out levels that don’t show signs of holding.
    Con’s:
  3. You might not get the entry signal and end up missing the move. Sometimes price reacts sharply at higher timeframe levels. The market might not spend a considerable amount of time at those levels to provide you with a break in market structure.
  4. You might get stopped out more than once since you are using tighter stops. This is especially the case when the market starts going into choppy conditions.

Its important to highlight that you want to frame these types of trades on higher timeframe levels. Your most profitable trades will come from trading at these levels.

Also note, I generally use this concept to gauge whether price is bullish or bearish on the higher timeframe. This is one of the concepts that helps me form my bias on a pair, I don’t just use it as an entry technique. There are other entry techniques I use that I will be discussing in the next post. If you have any questions let me know!

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Hi, would you be able to tell us this link please

Hi @RicoDinero, thanks for sharing your knowledge. I really like trading based on naked chart especially S/D. Could you continue these topics, please?

And how do you filter out which one S/D area that would work for future price?

great tip!

May I request you to please post a link to that thread? Thanks!

@QuadPip @joeyoe13 if u wanna check out some S/D trading and how i discovered that style of trading and analyse feel free to check out my old supply and demand trade thread (its already3-4 years old and evolution took place …means s/d is now just another piece of the puzzle TO ME not a method on its own but if u know nothing about this topic you can maybe pick up 1 or 2 things :slight_smile: )

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I 'm also interested in that thread, please. Could you please upload it?

Awesome… Supply and Demand trading is by far the best system that earn me pips consistently