7 Price Action Secrets That You Must Consider!
Posted by sgtmarkets
from the Finance category at
27 Mar 2021 06:13:03 am.
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1. Multi-candle patterns are more reliable
The more candles a specific pattern contains, the more reliable it usually is. 3 candle patterns are better than single candle patterns. 30 candle patterns are usually better than 3 candle patterns.
Here’s an example:
Patterns like head and shoulders, double and triple tops are among my favorites, exactly because of this reason. They consistently result in higher probability trades, which is what we’re all after. It doesn’t mean that a good pin bar setup won’t work, it just means there’s a higher probability of having these multi-candle setups resulting in a winning trade.
2. Know where to place your stop loss
Knowing where to place an order is just the beginning. Where do you place your stop loss? Fixed pips stop loss levels are hardly a good approach since the market volatility can change and every trade should be looked at within the context of the recent market history.
3. Always look for confluence
This is absolutely one of the most important secrets you have to know about. Confluence is everything.
So you’ve found a sweet price action setup. Great! Now make sure it has confluence, meaning that it coincides with other valid signals that support your trading idea.
4. Tell a story of what happened
Every chart tells a story. It might be a story of clear direction or a story of messy back-and-forth battling between buyers and sellers. In a similar way, we can talk about clean price action vs messy price action. It is up to the trader to find the story and better understand what the market might do.
5. Context is everything
Depending on where a price action setup occurs, you should interpret it differently. The same pin bar could be bullish or bearish, depending on if they show up at the bottom of a downtrend or top of an uptrend, respectively. Not all patterns are also worth taking if they are not preceded by the right price action and happen at the levels that are in one way or the other of significance.
This next chart shows exactly what I mean. There are multiple pin bars on the way up, but they’re not really meaningful as they don’t occur at levels that are significant. It’s clear that every single one of the pin bars lacks follow through and instead of a reversal, the price keeps grinding higher. Keep in mind that the context of price action is everything.
6. The best price action is clean to the left
When you look at a price action setup on a chart, you will find that the best setups are usually clean to the left. What I mean by that is that ideally, the candles that precede the price action setup haven’t been around the same price levels that your price action setup is in.
This chart shows a head and shoulders setup with a lot of “white†space to the left. For the past 30 or so candles, the market hasn’t touched the price levels the head and shoulders pattern is in. The reason professional traders prefer these kinds of charts is that when the price hasn’t been trading at the current levels for a while, it’s likely that there are fewer traders having pending orders on these levels, which in turn will make the price action pattern more meaningful.
7. Identify key support & resistance zones
Support and resistance (or S&R for short) are terms used to denote areas where price reverses at its lowest point (support) and the highest point (resistance) on a chart. Often, these zones are “tested†multiple times as traders look for an increased buyer and seller activity around these levels. It’s important to note that support and resistance are usually not thin lines, but rather zones.
The Bottom Line
The price action strategy is a way more powerful and most fundamental analysis strategy. The line between traders and markets money depends on the strategy. So, a great move can be a huge advantage to extract much amount of money. Also, using VIP forex signals can be a great idea.
Thank you!
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