Mastering Price Action in Trading Four Secrets Every Trader Should Know

But, when the market is trending downwards, the currency pair price makes lower highs and lower lows. Similarly for price action trading, things like candlestick patterns, support, and resistance, trend lines, etc. are components that make up price action trading. Essentially, support and resistance levels are points on a chart where price action tends to bounce off or stall. Most traders prefer combining the price-based information about the currency pairs with technical indicators to confirm the market’s trend direction. Start trading with Blueberry Markets, a global trading platform.

1. The inside bar strategy consists of two bars, where the second bar (inside bar) is always smaller than the first bar (mother bar).
2. Thanks a lot Ray I’ve been trading for a little under a year now and with your content I’ve become quite consistent I appreciate all the help you have given me.
3. When we know we’re in an uptrend or a downtrend, we can adjust our trading strategy accordingly.
4. Below are the key insights into why this book should be on your reading list.
5. You can identify potential buying and selling pressure to enter and exit your trades.
6. The use of leverage can lead to large losses as well as gains.

Mastering Price Action in Trading Four Secrets Every Trader Should Know

Let’s look at a supply and demand example, coupled with trading with the trend. The USD/CAD chart below shows an overall downtrend on this 4-hour chart. As you can interpret, the price rallies, puts in a swing high, declines and then enters a short-term downtrend, before rallying back to the prior high. Given that the trend is down and the price has entered a supply area, this is a potential short trade.

Indian Stock Market Crashes as Global and Domestic Factors Weigh Heavy

1. Some of these patterns are rising and falling wedges, double and triple tops and bottoms, and head and shoulder patterns.
2. They used different closing times for their candles and, thus, the charts look slightly different.
3. Price action is arguably one of the most crucial aspects of trading with technical analysis.
4. In my own trading, I pay a lot of attention to the location.
5. A too steep trend may be more likely to reverse, even if such a reversal is temporary.

You should only trade in these products if you fully understand the risks involved and can afford to incur losses. Price Action Trading is a strategy based on a currency pair’s price movement instead of indicators or technical analysis. The next key secret when you are using the price action strategy is known as consolidations. A consolidation is a phase when a price is in a tight range.

Eventually, you find the level of equilibrium before the buyers take control and push the price back up higher once again. Charting presentations and scenarios are presented as examples only secrets of price action trading and were prepared with the benefit of hindsight. They include patterns like head and shoulders, double tops and bottoms, triangles, and more. However, just knowing the name of a pattern isn’t enough. If a trend is relatively new or has been interrupted frequently, that suggests a weaker trend, as it hasn’t been able to establish itself as strongly in the market. Always be cautious and do your own research before making any trades.

You can identify potential buying and selling pressure to enter and exit your trades. If a correction continues for a long time and if its intensity increases, a correction can also lead to a complete trend reversal and initiate a new trend. Like breakouts, trend reversal scenarios, thus, signal a transition in prices from one market phase to the next. The buyers and the sellers are in equilibrium during a sideways phase. If the strength ratio between the buyers and the sellers changes during consolidations and one side of the market players wins the majority, a breakout occurs from such a sideways phase. Breakouts are, therefore, a link between consolidations and new trends.

When I talk about predicting, I’m not trying to say I can predict how high the S&P 500 will reach before it reverses, nor the lows of the market. This is the key thing – you trade what you see and not what you think. That gives you an objective view of the markets because it cannot be distorted to fit your bias. You’ve seen earlier that indicators which can be manipulated by changing the settings to give you different biases where bearish can become bullish, or vice versa. This is why the price got rejected and it closed back within the range.

This is maybe one of the most misunderstood price action secrets. Stop looking for shortcuts and do not wait for textbook patterns – learn to think and trade like a pro. During an upward trend, long rising trend waves that are not interrupted by correction waves show that buyers have the majority. On the other hand, smaller trend waves or slowing trend waves show that a trend is not strong or is losing its strength. The figure below shows that the trending phases are clearly described by long price waves into the underlying trend direction. The Silver price returns sooner and sooner to the same resistance level, as the arrows indicate.

How to trade supply and demand with price action

The troughs and peaks of trendlines​​ float between lines of support and resistance​​ on a price chart. The price of a financial asset, such as a share, currency pair or commodity, is essential to trading, as ultimately, it is the shift in price that produces profit or loss. You can set the stop loss above the right shoulder to minimise trade risk. To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers.

Unlike strategies that only work in specific conditions (like trend-following strategies that perform poorly during range-bound markets), price action can be applied universally. This versatility makes it a vital skill for traders who want to remain profitable in all market conditions. You can control risk by placing a stop-loss order​ on each trade.

Thank you Rayner T for simplifying price action trading strategies. I have been following your post for some times now, its really an eye opener. As a price action trader, if you follow the price, more often than not the price will tend to continue in its initial direction. As a price action trader, you can predict what the markets will do. The next screenshot shows various confirmed trend lines with more than three contact points in each case. Interestingly, every break of a trend line is preceded by a change in the highs and lows first and a break of a more objective horizontal breakout.

The Japanese yen remains under pressure, trading near a five-month low against the US dollar. This trend is primarily driven by differences in monetary policy approaches. Learn tried-and-true methods, resources, and tactics for trading that will enable you to turn a profit every time.

Rayner Teo is known for his clear and easy-to-understand teaching style, and this book is no exception. Price action can be studied through our online trading platform, Next Generation, where all of the above technical indicators are available. You can make use of our technical tools, including drawing and price projection tools, as well as our customisable charts. Let’s look at the same crude oil chart as above, but this time an RSI is added.

#5 Stop looking for textbook patterns

You can enter a long trade when the price breaks below the support level but quickly retraces, indicating a bullish reversal. You can enter a short trade when the price breaks above the resistance level but quickly retraces, indicating a bearish reversal. The stop-loss orders can be placed below the false breakout level when entering a long trade and above the false breakout level when entering a short trade. The cup and handle strategy helps traders identify a market reversal and trade against the current trend.