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Forex Daily Topic Forex Fibonacci Forex Price-Action Strategies

Generating Trading Signals Using Fibonacci Tools

Introduction

In our previous educational article, we reviewed how the identification of double top and double bottom formations could provide a trading setup, which, according to its technical configuration, returns a risk to reward ratio equivalent to 1:1.

In this educational article, we’ll review the use of Fibonacci retracements and extensions to generate trading signals.

Trading the Market Corrections

Trading based on corrective movements has its origin in the idea that when the price action makes an impulsive move, the market develops a corrective movement before continuing to develop a new motive move.

This method’s risk derives from the possibility of false breakouts, which, depending on the primary trend, could be a “bearish trap” or “bullish trap.”

Considering that there is a broad range of Fibonacci ratios, Fischer & Fischer propose filtering the trading volume using the 61.8% level as a conservative level. The use of 61.8% provides the technical trader the possibility to invest risking a reduced part of its capital.

As a second entry filter criteria, traders could use the swing size average of the asset under analysis. Considering that every financial asset holds a different personality and volatility, this filter demands the technical trader to develop statistical backtesting to understand the asset’s inherent volatility under study.

Trade Setup

Entry Setup: Considering that the entry rule requires a unique Fibonacci level, the entry will occur once the price touches and closes above (or below) the level 61.8%. This criterion could help shield the technical investor against a potential false breakout.

Stop-Loss: The trade invalidation level will be set above/below the last peak/valley preceding the entry-level. The benefit of trading using the 61.8% level as the point of market entry is the reduced risk compared with other typical Fibonacci levels, such as 38.2% or 50%.

Trailing Stop as Profit Protector: This method by itself doesn’t make the use of a profit target level. As an alternative, the use of a trailing stop could help protect profits with a trailing criterion of the last peak or valley. The disadvantage of this method is that, constrained by the volatility observed in the real market, it is unlikely that the resulting risk to reward ratio goes beyond a mere 1:1.

Trading the Market Progress

As the Elliott Wave Theory states, the price tends to advance in three or five waves. This method uses Fibonacci extensions to define target levels.

In general, when the price action develops a price movement on strong momentum and, then, its correction doesn’t violate the starting level of the initial move, it means the market is not building a bullish or bearish trap; thus, it is likely the action will continue progressing in the direction of the first move.

Entry Rule:  In the same way as in the case of a price correction setup, the entry should be set when the price retraces and closes, starting a new impulsive move. This condition doesn’t require that the price retraces to the 61.8% level of the initial movement.

Stop-Loss: The invalidation level of the trade setup should be located below the last peak or valley preceding the entry-level.

Profit Target (Three Movements Case): When the price evolves following a three-move sequence, the profit target should be set at 161.8% of the projection of the first sequence, as illustrated in the next figure.

Profit Target (Five Movements Case): This scenario considers two options. The first one is when the progress happens in the third segment and the second one when the price action has completed the third move and could be initiating its fifth movement. These scenarios are illustrated in the following figure.

Conclusions

In this educational article, we reviewed two cases in which to use as Fibonacci retracements as the extensions tool. Both methods presented in this article offer specific risks. The use of the corrections method provides a reduced risk to the technical trader, due to the trailing stop use criterion, this doesn’t mean that it could deliver a risk to reward ratio of over 1:1.

On the other hand, the use of the Fibonacci extensions, according to Fischer & Fischer, always means to invest against the trend. However, a combination of both methods could provide an opportunity to enter in favor of the market direction.

To reduce the noise and risk in the investment process, the technical trader must evaluate the performance strategy developing statistical backtesting with historical data before risking real money.

Suggested Readings

  • Fischer, R., Fischer J.; Candlesticks, Fibonacci, and Chart Patterns Trading Tools; John Wiley & Sons; 1st Edition (2003).

 

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Forex Chart Basics Forex Daily Topic Forex Price-Action Strategies

Spotting Out Support/Resistance is an Art

Support/Resistance levels are one of the most important factors in trading. In today’s lesson, we are going to demonstrate an example of adjustment in determining the support/resistance level.

Forex market gets volatile from time to time. It often produces spikes. Sometimes traders have to count those spikes to determine support/resistance level, and sometimes they do not have to do that. We try to learn when we have to count, and when we do not have to count those.

This is an H1 chart. However, any chart may look like this. If we are to draw support/resistance levels here, we may find out the two most significant points where the price bounces and where it gets a rejection from. Let us proceed to the next chart with those two lines.

Look at the level of drawn support. The price bounces at the level and produces a bullish inside bar. It comes back at the level and bounces twice. At the second bounce, it produces a long lower shadow and heads towards the North. We may skip counting the spike here and draw the level of support at where the price produces a bullish inside bar and bounces twice later.

Look at the level of resistance. This is where we have counted spikes since the price reacts at the level earlier. However, we may have to adjust it later. We will be able to find this out later as far as price action is concerned.

When the price comes back down, it breaches the level of support and produces a good bullish candle. However, there is a gap, and the price goes back within the previous level of support. Thus, we may still consider the drawn level as a significant level of support.

The price heads towards the North and breaches the level of drawn resistance. The price comes back within the drawn level again. The drawn level is still a significant level of resistance since the price reacts to it. However, we have a new highest high, which must be counted.

The price heads towards the South and reacts to the level of drawn support again. Upon producing a bullish inside bar, it heads towards the North again. Here are two questions.

  1. Where would you set your take profit level as a buyer?
  2. Do you have anything else to do here?

As a buyer, you may consider taking your profit at the previously drawn level. Here we have drawn the level of resistance with a little adjustment. Have you noticed it? Yes, this is what you have to do. Spotting out significant points and monitoring price action around them are two most important things to be able to make adjustments with the support/resistance level. To be able to trade accordingly, we often need to do this. Thus, we must learn the art of adjusting the support/resistance level.

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Forex Price-Action Strategies

Do not Forget to Check the Daily Chart

In today’s lesson, we demonstrate an example of an H4 chart and try to evaluate its price movement after breakouts. The chart shows that the price makes three breakouts altogether. The first two breakouts do not create that much momentum towards the breakout, but the last one does. We try to find out the reason behind it.

This is an H4 chart. The chart shows that the price makes a bullish move and consolidates. It seems that the price has found its support since it has already produced a bullish engulfing candle. The buyers may go long in the pair above consolidation resistance.

The chart shows that consolidation resistance is a strong level of resistance where the price gets rejection several times. Since it is an H4 chart, three times rejections, on the same level, means that it is a daily level of resistance. Thus, an H4 breakout may not create that much momentum all the time.

The chart shows that the price after making a breakout consolidates for a long time again. It is because of the daily resistance factor. The daily candle confirms the breakout. Thus, the price in the H4 chart consolidates. Look at the last candle. This comes out as a bullish candle breaching consolidation resistance. Let us find out what happens next.

The last H4 bearish inside bar is the last candle of the day. It means the daily candle comes out as a bullish candle after the daily breakout, breakout confirmation, and daily reversal candle.

The price consolidates with one more candle to start the next trading day. A bullish reversal candle may push the price towards the North with good bullish momentum. Since the chart now belongs to the H4 traders as well.

Here it is. The chart produces a bullish engulfing candle closing well above consolidation resistance. The length of consolidation is shallow. However, the bullish reversal candle looks to be a perfect signal candle.

There she goes. The price heads towards the North with extreme bullish momentum. The last candle suggests that the price may continue its bullish journey. Let’s look at the last move. The price does not consolidate with enough depth, but it makes a strong bullish move. On the other hand, on the first two occasions, it consolidates well, but its breakout does not create good momentum. It is because, on the first two occasions, there is a daily resistance factor. The level of daily resistance makes the H4 traders wait for more. Once the price makes a breakout on the daily chart, it heads towards the breakout direction with good momentum. The H4 traders are to check the daily chart before taking entry. This is one more reason to check that one thoroughly.

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Forex Price-Action Strategies

Price Action Trading: Dealing with Daily Chart’s Support/Resistance

In today’s price action lesson, we are going to demonstrate an example of a daily chart where the price reacts to support and resistance. We will dig into the chart and find out what message it has to offer us.

The chart shows that the price heads towards the North upon producing a bullish track rail pattern. The next candle comes out as another bullish candle. However, the price finds its resistance. The level has been working as a level of resistance where the price has rejection twice already. Look at the last candle on the chart. It comes out as a bearish inside bar. However, the level is now triple top resistance. Intraday sellers may look to go short in the pair and drive the price towards the South.

As expected, the pair produces another bearish candle. The last swing low offers enough space for the sellers to go short in the pair. Thus, they may still go short in the pair and drive the price towards the South further. The daily sellers are to wait for the price to consolidate and produce a bearish reversal candle to offer them a short entry. Let us see what happens next.

The chart produces a bullish inside bar. The sellers on the daily chart may go short if the next daily candle comes out as a bearish reversal candle. They are to keep this chart on their watch list.

The next candle comes out as a bearish engulfing candle. This means the sellers on the daily chart may go short in the pair and drive the price towards the last swing low as far as price action trading is concerned. If the next daily candle breaches the level of support (last swing low), they may keep holding the position to grab more pips. Let us find out what happens next.

The next candle comes out as a bearish candle closing within the last swing low though. The sellers make some green pips. It might be time for them to close the trade since the candle closes within the level of support. If the candle closes below the level of support, it would surely be a different ball game for the sellers.

Intraday traders obey Support/Resistance on the daily chart a lot. Thus, daily support/resistance plays a significant role in the Forex market to make a reversal/correction/consolidation. Thus, if we take entry even based on the daily chart, we must count those to manage our entries.

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Forex Price-Action Strategies

Good Things Come to Those Who Wait

Patience is a virtue. Forex traders need to keep patience and must not get carried away. It is not easy, but to be successful in trading, traders must be patient. A trader needs to have a sniper approach. He is to wait for the best trade setup to trigger an entry. The Forex market often produces entry with less chance. If a trader can restrain himself from taking those entries, he would be able to keep a better winning ratio. In the end, it gives him more confidence and makes him a good trader. In today’s lesson, we are going to demonstrate an example of an entry with less chance and a good entry. Let us get started.

The chart shows that the price makes a strong bullish move. Upon finding its resistance, it makes a bearish correction. It finds its support and produces a bullish engulfing candle. Such a nice price action for the buyers this is! However, it takes one more candle to make a breakout at consolidation resistance. As far as the breakout trading strategy is concerned, this is not an A+ trade setup. The price may come back down and consolidates again. Thus, it is better to skip such an entry.

The chart produces two more bullish candles, but the price does not go too further up. It rather starts having consolidation. The buyers may keep an eye on this chart to see whether it produces a bullish engulfing candle.

The chart does not take long to produce such a good-looking bullish engulfing candle closing well above consolidation resistance. This is an A+ trade setup. The buyers may trigger a long entry right after the last candle closes by setting stop loss below consolidation support and by setting take profit with 1R. Let’s proceed to the next chart to find out how the entry goes.

The chart produces another bullish candle. The last two candles suggest that the bull has taken control. It may hit the target soon.

As expected, the price hits the target. The last candle comes out as a bullish candle having an upper shadow. The price may reverse now. Anyway, the buyers have made some green pips. Their plan has worked well.

If we look back to the chart, we find that the first entry would not be that good an entry. It would make them wait too long. Often the price goes the other way and hits the stop loss. The second one comes out as an excellent entry. It does not make them wait but hits the target in a hurry. Traders must remember that if they want to avoid waiting with their entry to hit the target, they must wait and calculate well before triggering an entry.

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Forex Price-Action Strategies

The Longer It Ranges, The Harder It Breaks

Price action traders usually look for entries on the chart that has a clear trend. However, even a choppy chart end up providing good entry to the traders. In today’s lesson, we are going to show how a choppy chart ends up producing a good entry. Let us get started.

The chart shows that the price has been choppy. It bounces at a level of support three times. As far as resistance is concerned, the price has a rejection at a level once and comes back down. Then, it heads towards the upside and finds its resistance getting rejection twice. The level of support seems stronger than the resistance here.

The price finds its resistance, and at the second rejection, it makes a breakout. As mentioned, the price bounces three times at the level of support. Thus, the breakout is strong as well. The sellers are to wait for the price to be held by the breakout level and a bearish reversal candle to go short in the pair.

The next candle comes out as a doji candle closing within the breakout level. The breakout comes out as a valid breakout. The sellers are to wait for the level to create a bearish reversal candle to trigger a short entry.

Here it comes. The last candle on the chart comes out as a bearish engulfing candle closing well below the last swing low. The sellers may trigger a short entry right after the candle closes by setting stop loss above the resistance and by setting take profit with 1R. Let us proceed to the next chart to find out how the entry goes.

The price heads towards the South with good bearish momentum. The price hits the take profit (1R). The last candle suggests that the price may head towards the South further. Some traders may take partial profits and let the rest of the trade run to make more pips.

The chart produces a bullish inside bar. The chart still favors the Bear. However, it may be time for the sellers to give it a second thought to close the whole trade. If we look at the chart, the price heads towards the downside and hits the target without producing any bullish candle in between. This is how it usually goes if the price makes a breakout within a long choppy market. Thus, traders may keep their eyes on the choppy charts to see whether the price makes a breakout to offer them an entry. A breakout in a choppy market is often very rewarding.

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Forex Price-Action Strategies

Forex Price Action: Do Not Be Over Confident

Engulfing candle is the strongest reversal candle. In a bearish market, the buyers wait for a bullish engulfing candle and flip over to the minor chart to take entry. It does not usually go wrong. However, from time to time, things may not go according to traders’ expectations, even with engulfing candle. In today’s lesson, we are going to demonstrate an example of that. Let us proceed.

This is a daily chart. The chart shows that the price makes a bearish move and finds its support. It produces a bullish engulfing candle. Thus, the H4 breakout traders may flip over to the H4 chart and wait for the price to consolidate and to create a bullish engulfing candle to go long in the pair. Let us flip over to the H4 chart.

The H4 chart also looks very bullish. The price starts having consolidation. Then, it produces a hammer. It seems the chart may not take too long to produce a bullish engulfing candle breaching consolidation resistance.

The chart produces another bullish candle closing within consolidation resistance. The price heads towards the South to search for its support. It has been taking longer than the buyers’ expectations. They must not be impatient but keep their eyes on the chart.

The price finds its support and produces a bullish engulfing candle. The candle closes well above consolidation resistance. The buyers may trigger a long entry right after the last candle closes by setting stop loss below the level of support and by setting take profit with 1R. The signal candle suggests that the buyers find a good deal here. Let us proceed to the next chart to find out what the price does.

I do not think that the buyers are ready for this. The last candle comes out as a bearish inside bar, but it closes within consolidation resistance and support. It does not hit stop loss yet. The buyers still have a chance to win this. This looks ominous for them, though.

The price hits stop loss now. The last candle comes out as a bearish candle closing below consolidation support this time. All of a sudden, it becomes the sellers’ territory. The H4 buyers must avoid this chart for a while.

The lesson we get from today’s example is a chart, which looks only for the buyers’ turns into opposite within two candles. Things get changed anytime in the Forex market. Thus, traders should not be overconfident with their analysis, strategy at any point in their trading life.

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Forex Daily Topic Forex Price-Action Strategies

Forex Price Action: A Losing Trade

Forex trading is considered one of the riskiest businesses. The market is volatile and it gets unpredictable from time to time. There is no trading strategy, which can guarantee one hundred per cent success. Thus, Forex traders must be mentally prepared to take losses. In today’s lesson, we are going to demonstrate an example of a losing trade.

The chart shows that the price upon finding its resistance heads towards the South with good bearish momentum. The first candle comes out as a bearish engulfing candle followed by two bearish candles. These suggest that the bear takes control. The sellers are to wait for the price to consolidate and a bearish engulfing candle to go short in the pair. Let us proceed to the next chart to find out what the price does.

The price finds its support. It produces a bullish inside bar followed by two doji candles. It seems that the price has been searching for its resistance. The sellers are to keep their eyes on this chart.

The price finds its resistance. It produces a bearish engulfing candle closing below consolidation resistance. Without any doubt, this is an A+ breakout candle. The sellers may trigger a short entry right after the candle closes by setting stop loss above consolidation resistance and by setting take profit with 1R. Let us find out how the trade goes.

It looks fantastic for the sellers. The next candle comes out as a bearish candle as well. Consecutive two bearish candles suggest that the bear is in a hurry to hit the take profit. The sellers may not have to wait too long to achieve their target as far as the price action in this chart is concerned.

Would you believe it? The next candle comes out as an inverted hammer. The upper shadow hits the stop loss. The sellers are out with their entry with a loss. That was beyond their imagination some might say. However, it happens a lot in the Forex market. Thus, traders must not be overconfident with any entry. Discipline and money management are to be maintained with every single trade.

Some traders, especially at the beginning can’t take losses easily. It bugs them up. Losing money may make them think something is wrong with their strategy. There is nothing wrong if traders want to try to develop new strategies. However, they should not just lose the belief and abandon a long proven strategy all of a sudden.

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Forex Price-Action Strategies

Breakout With and Without Momentum

A Breakout without momentum often does not push the price towards the trend. The price seems to come back at the breakout level again. On the other hand, a breakout with momentum pushes the price towards the trend in most of the cases. In today’s lesson, we are going to demonstrate a chart, which has two types of breakouts. Let us get started.

The chart shows that it heads towards the North. Upon finding its resistance, it makes a bearish correction. It finds its support and produces a bullish engulfing candle. The price heads towards the North again. It makes a breakout with a candle having a long upper shadow. It is a breakout. However, the breakout takes place with two bullish candles. Let us proceed to the next chart to find out what the price does.

Despite making a breakout, the price does not head towards the North. It rather consolidates around the breakout level. The breakout level still holds the price. Nevertheless, it does not look that good for the buyers. The price may come back within those two levels and hit the lower support. Let us find out what happens next.

The price does not come back within the breakout level. It makes another breakout at consolidation resistance. It takes only one candle to make the breakout. Breakout traders want to get this kind of breakout to trigger a long entry. The buyers may trigger a long entry right after the last candle closes by setting stop loss below consolidation support and by setting take profit with 1R.

The price heads towards the North with good bullish momentum. The next candle comes out as a strong bullish candle. It suggests that the bull has taken control. It seems the price may hit 1R in a hurry as well. This is what the breakout traders want.

As anticipated, the chart produces another bullish candle and hits the target. It takes two candles to achieve 1R. It gives traders more confidence about the strategy and saves their time. They can concentrate on other charts to look for entries. It does not mean it goes like this every single time though.

The above charts show that a breakout by two candles does not generate the momentum towards the trend. However, when the breakout takes place with a single candle, the price heads towards the trend’s direction in no time. Thus, if we do not want to hang around with our entries and keep an amazing winning rate, we may take entries on a breakout that takes place with good momentum.

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Forex Daily Topic Forex Price-Action Strategies

Price Action Trading and Trade Management

Trade management is such an important factor in Forex trading. Managing trades effectively saves traders from making a loss or help them secure their profit. Sometimes traders are to close their trades earlier or lock the profit. This shall be done only when trading is done on major time frames such as the H4, the daily, or the weekly, though. In today’s lesson, we are going to demonstrate an example of an early exit in the H4 chart.

The chart shows that the price makes a strong bearish move. It makes a breakout and produces a bullish inside bar. The H4 breakout traders are to wait for the price to find its resistance and produce a bearish engulfing candle to offer them a short entry. The price is at the breakout level. It seems that the breakout level is going to play a vital role here.

The chart produces a bearish spinning top and a bullish candle. However, the breakout level works as a level of resistance and produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the candle closes by setting stop-loss above the breakout level and by setting take profit with 1R. The signal candle suggests that the sellers do not have to wait too long to achieve their target.

As expected, the next candle comes out as a bearish Marubozu candle as well. The sellers would love to get a bit longer bearish candle. However, as long as it comes out as a bearish candle, they should be happy with it. Remember, this is an H4 chart. Thus, a bearish Marubozu candle means a lot for the sellers. It seems the price is going to take one more candle to hit the target.

The next candle comes out as a Bearish Marubozu candle as well. However, it does not hit the target 1R. A very few pips are left to achieve the target. The sellers must wait. The last candle suggests that it is only a matter of time for the sellers to reach their destination. Let us proceed to the next chart and find out what happens next.

The last candle comes out as a bullish engulfing candle. This does not convey a good message for the sellers. The price is yet to hit the target. They have some profit running in the trade. What should the sellers do here?

If it is an inside bar bullish candle, the sellers should keep holding the position to hit the target. However, the last candle comes out as a bullish engulfing candle (in an H4 chart). This means a lot for the minor intraday buyers. Thus, the best thing to do would be if the trade is closed manually, right after the last candle closes. It gets the sellers some profit, at least. Yes, the target is not achieved, and some profit is lost. Take it easy. Things go according to plan and sometimes don’t. This is what trading is all about.

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Forex Price-Action Strategies

Price Action Trading: The Morning Star at a Breakout Level

Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.

The breakout level plays an important role, which often becomes consolidation support/resistance and produces the reversal candle. Sometimes a breakout level produces even stronger reversal patterns such as Morning Star and Evening Star. When that happens, it attracts more traders and brings more liquidity. In today’s lesson, we are going to demonstrate an example where the breakout level holds the price as support; produces the Morning Star to offer a long entry. Let us get started.

The chart shows that the price heads towards the North with good bullish momentum. On its way, it makes a breakout at the highest high. The pair then produces a bearish reversal candle to consolidate around the breakout level. The buyers are to keep an eye on this chart. If the breakout level produces a bullish engulfing candle closing well above consolidation resistance, they may trigger a long entry.

The chart produces a Doji candle (tiny bullish body with long shadows both sides). The breakout level holds the price, for which the buyers are going to be very keen to keep an eye on this pair. If the next candle comes out as a bullish engulfing candle, it would also form a candlestick pattern called Morning Star.

The chart produces a bullish engulfing candle closing well above consolidation resistance. A bullish engulfing candle is enough to attract the buyers to go long in this chart. The combination of the last three candle forms Morning Star, which is a strong bullish reversal candlestick pattern. The buyers may trigger a long entry right after the last candle closes. Stop Loss is to be set below the breakout level and Take Profit is to be set with 1R. Let us proceed to the next chart to see how the trade goes.

The next candle comes out as a bullish candle. The buyers seem to have taken control. The price may hit the target soon.

It takes only two candles to hit the target. Traders make some green pips in a hurry. If we analyze this trade, we find

  1. The price makes a bullish breakout and comes back at the breakout level.
  2. The breakout level works as support and holds the price
  3. It produces a bullish engulfing candle closing above consolidation resistance.
  4. It produces a candlestick pattern called Morning Star as well.
Categories
Forex Daily Topic Forex Price-Action Strategies

Example of a Breakout Unfit for an Entry

 

In today’s lesson, we are going to demonstrate an example of a breakout on the H4 chart. The chart shows that the price heads towards the North with good momentum. It makes a bullish breakout upon consolidation. However, the breakout is not the kind that the breakout traders look for. Thus, this is going to be an example which we should skip taking entry. Let us now have a look at what happens.

The chart shows that it produces a bullish candle followed by a bearish inside bar. The next candle comes out as a bullish engulfing candle. Do you notice something here? Yes, this is an entry for the buyers. However, this is not where we concentrate today. Let us proceed to the next chart to dig out the main story.

The price keeps going towards the North. The buyers are to wait for the price to consolidate and produce another bullish engulfing candle to offer them entry. The way it has been going, it seems that the buyers hold the key and dominate over the sellers.

The price makes a bearish correction and finds its support. The first bullish reversal candle comes out as a bullish inside bar. This is not a strong bullish reversal candle. It produces three more bullish candles but the price does not make a breakout at the level of resistance. The last candle closes within the level of resistance, which is a point to be noticed. It means even the next candle makes a breakout, it would be a breakout right from the level of resistance.

The next candle closes well above the level of resistance. This is a breakout but not the kind of breakout that the breakout buyers wait for. The price is trending towards the upside; it consolidates and makes a bullish breakout. These three equations suggest that the buyers may take a long entry. They must not forget that the breakout candle does not make an explicit breakout. If a breakout takes place by one bullish engulfing candle that brings momentum. Over here, it needs four candles to make the breakout. Moreover, the breakout candle forms right at the level of resistance (now support). The buyers may restrain themselves from taking such entry. Let us find out what the price does next.

The price comes back to the breakout level. This is what usually happens when the price does not make a breakout with an A+ breakout candle. The price may still head towards the North, but 1 out of 3 times, it may come back in and hits the stop loss. Thus, to have winning consistency, we might as well skip taking entry in such price action.

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Forex Price-Action Strategies

A Classic Example of the H4 Breakout Trading

In our trading lesson, we have been demonstrating H1 breakout strategies in our last five lessons. Today, we are going to demonstrate an H4 breakout trade setup, which is a classic example of price action breakout trading. The price makes a bullish breakout at the last highest high; comes back at the breakout level and produces a beautiful bullish engulfing candle closing well above consolidation resistance to offer a long entry. Let us proceed and see how it occurs.

The chart shows that the price heads towards the North with good bullish momentum. On its way towards the North, it does not produce even a single bearish reversal. It suggests that the buyers have been very confident. It makes a breakout at the last swing high. The breakout is not explicit though. However, the price continues to go towards the North after the breakout. Then, it finds its resistance and produces two bearish reversal candles. Look at the last candle. It closes within the last highest high (breakout level), which is a flipped support now. This is one of the most important factors in price action trading. The price reacts to such levels and produces reversal candles.

As mentioned, the level produces a bullish engulfing candle closing well above consolidation resistance. The buyers may trigger a long entry right after the candle closes by setting stop loss below the level of support and by take profit with 1R. Let us proceed to the next chart how the trade goes.

The last candle comes out as a spinning top. Not a good start for the buyers, but the buyers must keep patience here. Trading on the H4 chart allows traders to manage their trade and take early exit. However, they must not think taking an early exit here. The last candle is not a strong bullish candle, but it is not a strong bearish reversal either. Let us proceed to the next chart. It may take one good candle to hit the target.

The price does not take too long to hit the target. It hits the target with the last candle. This is a classic example of trading on the H4 breakout trading. After the breakout, the price comes back at the breakout level. It produces a bullish reversal candle right at the breakout level. The bullish reversal candle comes out as an engulfing candle closing well above consolidation resistance. Price actions traders wait for the price to behave like this to take an entry.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

H1 Breakout Trading: Keep Holding Your Positions

Price action traders are to maintain discipline with their entry and trade management. As far as trade management is concerned, it varies on time frames. Trade management on the H4 chart and the H1 chart is different. A reversal candle on an H4 chart has more potential to change the existent trend. Thus, traders may need to think about an early exit. On the other hand, H1 breakout traders may keep holding their positions until it reaches the target. In today’s lesson, we are going to demonstrate an example of this.

The chart shows that the price after being bullish has rejections at a level of resistance. The price heads towards the North but does not make any breakout. It has been in the bearish correction again. Let us see whether it finds its support and makes a bullish breakout or not.

Here it comes. The price finds its support and produces a bullish engulfing candle breaching the level of resistance. This is an A+ breakout candle. The buyers are to wait for the next candle to close above the breakout candle to trigger a long entry.

The next candle comes out as a bullish candle as well. It has an upper shadow, but the last 15 candle comes out as a bullish candle. The buyers may trigger a long entry right after the last candle closes by setting stop loss below the support level and take profit with 1R.

The price heads towards the North. However, it seems that the price does not head towards the target with good bullish momentum. Moreover, the last candle comes out as a bearish engulfing candle. This is ominous for the buyers. Do not forget this is an H1 chart, and the buyers are not supposed to take an early exit. They should keep holding their position and wait for the price to do the rest.

The price gets rather choppy. It has been testing traders’ patience. It is hard to keep holding positions. However, traders must not keep looking at the chart. Meanwhile, they might as well concentrate on other charts to find out potential entries.

Patience pays back to the buyers at last. The last candle comes out as a bullish candle, which helps the buyers to reach their take profit target. In the end, the trade goes well for the buyers. It may have gone the other way, but H1 breakout traders should stick with their plan and keep discipline.

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Forex Daily Topic Forex Price-Action Strategies

Breakout Length: Key to Trend’s Strength

In today’s lesson, we are going to demonstrate the relation between the trend’s strength and breakout length. The breakout length usually represents one-fourth of a potential trend. If the breakout length is 25 pips, the trend may sustain up to 100 pips before making a big correction or long consolidation. It is important for breakout traders since the market often makes a breakout; confirms the breakout. However, the price does not head towards the trend direction. Let us clarify this by the examples below.

The price has been bearish upon making a bearish engulfing candle. The last swing low is quite far. This means the breakout length looks good for the sellers. The more the breakout length, the better it is for the traders.

The chart produces a bullish engulfing candle in between. This is bad for the sellers. The price may find its new resistance to produce a bearish reversal candle to make a breakout at the lowest low. This means the breakout length most probably needs to be adjusted.

The price seems to have found its new resistance here. It produces a do candle followed by a bearish engulfing candle. This means it produces an evening star. If the price heads towards the South and makes a breakout, the sellers may go short upon breakout confirmation. However, they must calculate new breakout length from the new resistance to the lowest low.

Here comes the breakout candle. This is an explicit breakout. The sellers are to wait for the price to make a breakout confirmation. If the next candle closes below the breakout candle, the sellers may trigger a short entry.

The confirmation candle looks to be an A+ breakout confirmation candle as well. However, do not forget the distance the price has already crossed. The price has crossed about 70% length considering the breakout length. Thus, the price may make a bullish correction. It usually happens when the price finds a new level of support/resistance. Let us proceed to the next chart.

The chart produces a big bullish engulfing candle, which changes the entire scenario. It happens when the price is about to make a correction. Sometimes corrective wave changes the trend. The sellers if the blindly trigger a short entry after the breakout confirmation without calculating breakout length and trend’s strength, they are to take a loss here.

Breakout strategy traders must calculate breakout length to determine how far the price could go. If it crosses more than 50% to confirm the breakout, it is better to skip such entries.

 

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Forex Price-Action Strategies

When Price Finds New Support/Resistance

Price action traders are to be calculative and watchful. Breakout and breakout confirmation are two things that price action traders keep eyes on. Trend initiating candle is another important factor. We often see that the price upon finding its support/resistance does not make a breakout straightway. It sometimes makes a little correction and then starts trending to make a breakout. This new level of support/resistance plays a significant role in price action breakout trading. In today’s lesson, we are going to demonstrate an example of this.

The chart shows that the price after being bearish makes a bullish correction. It produces a bearish engulfing candle and drives the price towards the downside. However, look at the last candle. It comes out as a bullish engulfing candle. This means the price is to find its resistance again.

It does not take long to find its resistance. The next candle comes out as a bearish engulfing candle. The sellers are to keep their eyes on the pair to get a breakout. It seems that the price may head towards the South and make a breakout this time upon finding its new resistance.

The chart makes the breakout by the next candle. The sellers are to wait for the next candle to close below the breakout candle to trigger a short entry. Do not forget that it makes the breakout upon finding a new resistance.

The next candle comes out as a bearish candle having a long lower shadow. Thus, they should flip over to the 15 M chart to see how the last 15 M candle comes out. Despite having a long lower shadow, the last 15M candle comes out as a bearish candle too. The sellers may trigger a short entry right after the last candle closes. Stop Loss is to be set above the last resistance and Take Profit is to be set with 1R. This is why the new level of support/resistance plays a significant role.

The price heads towards the South but not with strong bearish momentum. It hits 1R though. The distance between new resistance to entry point= Entry point to Take Profit= 1R.

Whenever the price finds its new resistance/breakout, breakout traders must count those to set their stop loss and take profit level. Breakout trading needs the price to make a breakout with good momentum. If it takes any pauses before making a breakout, ignore the last support/resistance. It gives us better risk-reward as well as more chance of winning a trade.

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Forex Price-Action Strategies

Breakout Confirmation Candle and the Difference It Makes

Breakout trading strategy traders first wait for the breakout with good momentum. Then, they are to wait for the breakout confirmation candle. A breakout can be confirmed in two ways. It can take the price towards the trend, or it could come out as in inside bar reversal candle. As long as the candle closes below the breakout level, it confirms the breakout. However, these two types of breakout confirmation push the price towards the trend a bit differently. In today’s article, we are going to demonstrate an example of this.

The price after being bearish makes a bullish correction. The last candle comes out as a bearish pin bar. This is a strong bearish reversal signal. The sellers are to wait for the price to head towards the level of support, where the price has a bounce earlier.

The price heads down with good bearish momentum. It seems that it is going to make a breakout at the drawn level. The breakout sellers are to keep their eyes on the pair closely to take a short entry upon a bearish breakout and breakout confirmation.

Here it comes. The last candle breaches the level of support closing well below it. This is an explicit breakout, which the sellers wait for. If the next candle confirms the breakout, the sellers may drive the price towards the South further.

The next candle comes out as a bullish inside bar. However, it closes within the breakout level. It means the breakout is valid. It is not an A+ breakout confirmation. It offers less reward and does not drive the price towards the trend with good momentum. If the candle came out as a bearish candle closing below the breakout candle, it would be a different ball game. The price may make a move towards the downside by offering 1R at least. Let us see what happens here.

The next candle comes out as a bearish candle. Some sellers may trigger a short entry. In most cases, it does not travel as far as it has traveled to offer the entry.

It produces a strong bearish candle. It seems that the sellers are in control. The question is whether it travels the same distance of Stop Loss-Entry or not. Let us find out from the next chart.

The price starts making an upward correction. It goes back within the breakout level. This chart does not look good for the sellers any more unless it makes a bearish breakout at the last lowest low.

We have seen that the breakout candle and breakout momentum are good. However, the price does not head towards the trend and travel the distance as it usually does. This is what happens if the breakout confirmation candle comes out as an inside bar reversal candle. Thus, it is best if we skip taking such entry.

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Forex Daily Topic Forex Price-Action Strategies

Do Not Give Up Until It Is Void

Forex traders have to have no given up attitude. With patience, discipline, and diligence they have to stick with a chart unless it is completely messed up. In today’s lesson, we are going to demonstrate an example of this.

The chart shows that the price makes a strong bearish move. It finds its support and heads towards the North for an upward correction. Look at the last candle on the chart. This comes out as a bearish engulfing candle, which the sellers wait for in such price action. If the price heads towards the downside and makes a breakout followed by a breakout confirmation, the sellers are going to trigger a short entry. Let us proceed to the next chart.

The sellers do not expect this. The price does not head towards the downside. It rather goes towards the North and roams around the level of resistance. It is painful for the sellers. However, observe on the chart that the level of resistance is still intact. The price may head towards the North but the sellers still have a chance. Let us see what happens next.

The sellers are on their toes again. The chart produces an inverted hammer followed by another long bearish candle. If the price makes a breakout and confirms that, the sellers are going to trigger a short entry.

Here comes the breakout candle. A good-looking bearish candle breaches the level of support closing well below it. This is an explicit breakout. The sellers are to wait for the next candle to close below the lowest low of the breakout candle to trigger the entry.

The next candle comes out as a bearish candle closing well below the breakout candle. The sellers must not waste a second here but trigger the entry right after the last candle closes. A dead-looking chart for the sellers ends up producing entry. Let us proceed to the next chart to find out how the trade goes.

The price heads towards the South in a hurry. It is quite a big bearish move, which offers more than 1R. A trade setup works wonderfully well for the sellers.

Let us recap the entry again. It looks good at the beginning. The price then goes towards the upside and it seems that it may not offer a short entry. The price finds its resistance at the same level; makes a breakout followed by a breakout confirmation. As far as breakout strategy is concerned, the sellers trigger a short entry and make a profit out of it. This is why traders must not give up but stick with the chart as long as it’s valid to produce a signal.

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Forex Daily Topic Forex Price-Action Strategies

Don’t Lose Patience if a Chart Does not Produce the Signal

Breakout strategy traders wait for a breakout followed by a breakout confirmation candle. If the next candle does not close with a new higher high/lower low from the breakout candle, traders must not trigger entry. The price may go towards the trend sometimes, but it often goes another way. In today’s lesson, we are going to demonstrate an example of this where everything looks good, but it ends up without producing a signal candle.

The chart shows that the price heads towards the North with good bullish momentum. It finds its resistance and makes a correction. Upon finding its support, the chart produces a bullish engulfing candle. The candle suggests that the price may head towards the North. The buyers are to wait for the breakout followed by a breakout confirmation candle to trigger a long entry.

The price heads towards the North but does not make a breakout candle yet. The last candle closes within the level of resistance. The buyers must wait and keep their eyes on the chart since the breakout may take place anytime soon.

Here it comes. The last candle on the chart breaches through the level of resistance closing well above it. This is one good breakout candle. This must attract the buyers to stick with the chart and hope for the next candle to close above the breakout candle to trigger the entry. It looks extremely good. The entry is knocking at the door. Let us proceed to the next chart.

The breakout strategy buyers must be disappointed. After all the hours of waiting, the chart produces a bearish inside bar. Pullback buyers may wait for a bullish engulfing candle to go long in the pair. However, this chart does not have anything to offer for the breakout strategy traders at the moment. Let us proceed to the next chart to find out what happens.

The chart produces a bullish inside bar. However, the price heads towards the South with good bearish momentum. The last candle seems to hit the level of support as well. This means it does not produce any signal for the pullback buyers as well. It is disappointing when traders do not get the signal they wait for a long time. However, it does not hurt as much as a losing trade does. After a long wait, if a chart does not produce the signal, it often leads us towards taking bad entry in other pairs. Let us make sure we never do that. Patience is a great virtue as far as Forex trading is concerned. Traders must make sure that they have this virtue.

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Forex Price-Action Strategies

The Benefit of Checking Minor Chart before Taking Entry

In one of our lessons, we have learned that when a breakout confirmation candle comes out with a long upper or lower shadow needs to be checked on the 15-min chart. The last 15 M candle plays a significant role to drive the price towards the breakout direction. A breakout confirmation candle with a long upper or lower shadow does not mean that the last 15M candle comes out as a reversal candle. We are going to demonstrate an example of this in today’s lesson.

The price after being bearish finds its support. The chart produces two bullish candles consecutively. A level of resistance produces a bearish reversal candle. The correction length looks good. Let us proceed to the next chart.

The next candle comes out as a bearish candle as well. However, it closes within the consolidation support. The sellers are to wait for a candle to breach the level closing well below it. It is waiting time for the sellers.

The last candle breaches through the consolidation support. The breakout does not look an explicit breakout. However, it closes below the level. If the next candle closes below the breakout level, that would confirm the breakout. The breakout confirmation candle holds the key for the sellers.

The last candle closes below the breakout candle. This confirms the breakout. However, look at the long lower spike. This looks ominous for the sellers. In naked eyes, it does not look to be a good confirmation candle for the sellers to trigger a short entry. Let us now flip over to the 15 M chart and find out how the last candle comes out.

This is the 15 M chart. The last candle is a strong bearish candle despite having a long lower spike. We do not need to flip over to any minor chart here. This means the pair is having a strong bearish momentum in the 15 M chart, which is a signal for the sellers to trigger a short entry.

As expected, the next candle comes out as a bearish candle. It seems that the price is going to hit 1R in a hurry. Let us proceed to the next chart to find out how the trade goes.

The price heads towards the South with one more candle. It hits the take profit level (1R) with ease. The price may make a more bearish move as well. The trade setup with a less promising breakout confirmation candle works wonderfully well for the traders. Do not forget to check the 15 M chart if the confirmation candle has a long upper/lower shadow. It may help you decide which entry to take and which one not to.

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Forex Price-Action Strategies

Shallow Consolidation to Skip, Deep Consolidation to Go For

In price action trading, consolidation length is a vital factor. The deeper the consolidation, the further the price goes towards the trend. Sometimes, shallow consolidation takes the price towards the trend direction as well. However, we may skip taking entry when the price makes a shallow consolidation. In today’s lesson, we are going to demonstrate an example of these in the same chart.

This is a daily chart. The price after being bearish produced a bullish engulfing candle. The breakout trading strategy traders are to wait for the price to consolidate and produce another bullish engulfing candle to offer them entry.

The price consolidates with a doji candle followed by a bullish engulfing candle. It makes a shallow consolidation. Moreover, the bullish engulfing candle has a long upper shadow. The buyers may skip taking the entry. Let us proceed to the next chart.

The chart shows that the last candle comes out as a bearish candle. If the price consolidates from here, it is going to be a deep consolidation. Let us wait for a bullish engulfing candle closing well above consolidation resistance to trigger a long entry.

Here it comes. The chart produces a bullish engulfing candle closing well above consolidation resistance. The buyers may trigger a long entry right after the candle closes. The last swing high is quite far, offering more than 1R.

The next candle comes out as a bullish candle as well. The candle has a long upper and a lower shadow. Nevertheless, it is a bullish candle. It looks good for the buyers. The price keeps going towards the North with good momentum. It looks the price hits the last swing high easily.

It does not take more than two candles to hit the last swing high. The last candle suggests that the price may go further up. However, the buyers may consider closing their entry or at least take partial profit. The plan has worked wonderfully well for the buyers.

In this chart, we have seen a shallow and a deep consolidation together. Both have offered entries. However, to be safe, we need to stick with the breakout trading strategy’s rule. We may skip taking entry when the price makes shallow consolidation. In most cases, shallow consolidation brings less liquidity. It means it often goes wrong. On the other hand, if the price makes a deep consolidation followed by an engulfing reversal candle, we may trigger an entry.

Categories
Forex Daily Topic Forex Price-Action Strategies

Long Shadow in Breakout Confirmation Candle

In price action trading, breakout, as well as confirmation candle’s attributes, plays a significant role. In today’s lesson, we are going to demonstrate an example of how the upper/lower shadow of a breakout confirmation candle plays a role in offering us an entry. Let us get started.

This is an H1 chart. The chart shows that the price makes a strong bearish move. It finds its support. Having a bounce, it goes towards the North. The last candle suggests that the price may have found its resistance too. If it makes a breakout at the level of support, upon getting breakout confirmation, the sellers may go short in the pair.

The price heads towards the South but not with good momentum. It takes only one candle to make a breakout. The sellers must wait. Let us find out what happens next.

Here it comes. The last candle breaches through the level of support. It has a lower shadow, but it closes well below the level. The sellers are to wait for the second important factor, which is breakout confirmation.

The next candle comes out as a bearish candle closing well below the breakout candle’s lowest low. In naked eyes, the sellers may trigger a short entry right after the last candle closes. However, the confirmation candle has a long lower shadow. To be sure about it, we may flip over to the 15 M chart. Let us have a look at the 15 M chart.

Look at the last 15M candle. This is a bullish pin bar, which is a strong bullish reversal candle. The 15 M traders may push the price towards the North. It means the H1 sellers may have to wait to reach the target. That may even end up being a losing trade. Let us flip over to the H1 again.

The last candle comes out as a bullish corrective candle. Usually, the price goes down after a breakout confirmation in such a setup. It this case, it does not. It may keep pushing towards the North even further. Let us find out what happens next.

The last candle comes out as a bullish corrective candle. Usually, the price goes down after a breakout confirmation in such a setup. It this case, it does not. It may keep pushing towards the North even further. Let us find out what happens next.

Yes, the price heads towards the North further. The last candle breaches through the breakout level as well. This does not look good for the H1 sellers. It all starts with a long lower shadow (in a selling market).

Whenever we see a long lower/upper shadow in an H1 chart, we may check it with the 15 M chart. If the last 15 M candle is a strong reversal candle (for opposite trend), we may skip taking the entry.

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Forex Price-Action Strategies

Forex Price Action: Trendline Breakout Strategy

In today’s lesson, we are going to demonstrate an example of trendline breakout trading. Price action trading is mainly based on support/resistance and breakout. It does not mean that support/resistance is only horizontal. A trendline works as support/resistance as well. Let us now proceed and find out how a trendline breakout offers entry.

The price has been bearish by obeying a down-trending trendline. The price has rejection at the trendline four times. Now, it is the sellers’ territory. However, one bullish candle may change the game.

Here it is. One big bullish candle breaches through the trendline’s resistance closing well above it. Usually, trendline breakout traders wait for the price to come back at the trendline again and get a reversal candle to take entry. This is the safest thing to do in trendline breakout trading.

The chart shows that the price heads towards the North for two more candles and comes down for a correction. Trendline’s resistance becomes support now, which is what happens with horizontal support/resistance. The buyers are to wait for a bullish reversal candle to go long in this chart. Typically, a bullish engulfing candle is the best reversal candle to go long as far as the trendline breakout trading strategy.

The chart produces two doji candles. These are reversal candles. However, look at the last candle. This is a bullish engulfing candle; thus, the buyers may go long right after the candle closes. Stop loss is to be set below the new support.

The next candle comes out as a bullish candle too. This looks good for the buyers. Since the price makes a breakout, confirms the breakout, and produces a bullish engulfing candle, it may make a new higher high. However, the safest option to set take profit is at the last swing high.

The price heads towards the North with good bullish momentum. The price hits the last swing high in a hurry. It gets us 2R here. As long as it offers us 1R, we shall go with it. If it offers less than 1R, we may skip taking the entry. The last candle comes out as a bullish candle. It suggests that the price may make a bullish breakout. That is another game. If we want to take a long entry upon the next bullish breakout, it would be based on a horizontal breakout trading strategy.

Trendline breakout trading is quite simple and rewarding. Stay tuned to get to more about trendline breakout trading strategy in our fore coming lessons.

 

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Forex Price-Action Strategies

Skip Some Entries to Maintain Winning Consistency

Forex price action breakout trading strategies mainly rely on the breakout. Breakout candle’s attributes mean a lot, whether we shall take entry or not. If a breakout takes place with a strong bullish/bearish candle followed by another strong bullish/bearish candle, it is considered a good entry. On the other hand, if a breakout takes place right from the support/resistance level, it is not considered a good entry. In today’s lesson, we are going to demonstrate an example of a breakout from the breakout level. Let us find out what happens in the end.

The price after being bearish finds its support. It has been making a bullish correction. The sellers should wait for the price to produce a bearish reversal candle and a breakout with a good-looking bearish candle.

The price heads towards the level of resistance. If the last candle makes a breakout closing well below the level of resistance, it would be a perfect breakout by a good-looking bearish candle. It rather closes adjacent to the level, which may not produce a strong bearish candle to make the breakout.

It produces more candles but does not make the breakout. The price is roaming around the breakout level, which is not a good thing for the sellers. Usually, if a candle closes below the breakout level right from the level, it consolidates. Traders are to wait more and get less reward.

The next candle closes below the breakout level. It is a breakout but not the breakout that the breakout traders would love to get. Let us proceed to the next chart to find out what happens next.

The next candle closes well below the breakout candle. It confirms the breakout. A question may be raised here whether the sellers take the entry or not. Since the breakout is rather a fragile breakout, it is best to skip such entry. The price often comes back to the breakout level and takes time to finds its next direction. Yes, sometimes it continues to go towards the breakout direction too. Let us proceed to the next chart and find out what happens here.

The price here heads towards the South with extreme bearish pressure. The last candle suggests that the trend is strong, and it may continue. According to our today’s lesson, we shall skip taking such entry. It means we have wasted an opportunity. Do you really believe so?

Do not think it is an opportunity missed. A losing trade hurts a lot. We do not only lose money, but we also lose our faith. Forex trading is a psychological game. To be consistent, we must have strong faith in our trading strategy. To have that,  we must maintain winning consistency.

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Forex Price-Action Strategies

If Price finds New Level of Support/Resistance

To measure risk-reward, price action traders must identify the level of support/resistance accordingly. It gets tricky sometimes. In today’s lesson, we are going to demonstrate an example of that.

This is an H1 chart. The chart shows that the price has a bounce at a level. Upon producing a bullish engulfing candle, it heads towards the North. It finds its resistance and produces a bearish engulfing candle followed by another bearish one. If it makes a breakout and confirms the breakout, the sellers may trigger short entry by setting stop-loss above the level of resistance and take profit with 1R.

The price does not make a breakout, but it heads towards the North. The sellers must wait to find out what happens next. It may go back to the level of resistance, have a rejection at double top, and make a breakout.

It may even make a breakout from here. Let us find out from the next chart what happens.

The price finds its resistance at a new level. It produces a bearish engulfing candle again. If it makes a breakout at the level of support and confirms it, it would be a short signal.

The chart produces a bearish candle, which breaches the level of support. If the next candle closes below the last candle, the sellers may trigger a short entry.

The next candle confirms the breakout. The sellers may trigger a short entry right after the candle closes. Question is where do they set their stop loss and take profit? Do they use the new level of resistance to set stop loss and take profit or use the old one? We find out the answer in a minute.

The price heads towards the South with good bearish momentum. Trade setup works as well as it usually does in breakout trading strategy. The price keeps making lower lows, and it seems it may go further down. However, since the price makes an upward correction before making the breakout, we may consider the second level to set our stop loss. We may set our take profit with 1R by measuring the same number of pips from the entry point to stop loss as well. This provides fewer pips as a reward, but to be safe with an entry like this, we may do this. The price often makes a consolidation, or it makes a correction (once it hits 1 R from the new resistance/support) after such breakout. A correction/consolidation sometimes leads towards a trend reversal as well. Thus, there is no point in taking a loss for hunting some extra pips. Always remember ‘safety first.’

Categories
Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: The Daily Chart’s Consistency

The Price Action Breakout Strategy works in almost all the charts. However, it works best on the daily chart. In today’s lesson, we are going to demonstrate an example of a breakout-trading example of that. The chart has a bullish gap, but consolidation followed by a bearish engulfing candle offers an excellent entry for the sellers.

The chart shows that it makes a strong bullish move. Upon finding a level of resistance, it produces a bearish engulfing candle. The sellers may want to keep an eye in this pair to go short.

The price keeps going towards the South. The sellers must wait for the price to consolidate and produce a bearish reversal candle. The swing low is far enough, which offers the price to travel towards the South further.

Here it comes. The chart produces a bullish candle. The sellers are to be attentive here. The chart may produce a bearish reversal candle and offer a short entry to them. Do not miss the point that the price has a little bullish gap. The gap is not visible explicitly, but if you count the last candle’s opening and the closing one before it suggests that the price starts with a gap.

The chart produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the candle closes by setting stop-loss above the signal candle’s highest high. The space between the last swing low and the signal candle’s closing price suggests that the entry offers 1R. This should be enough to bring enough liquidity and drive the price towards the South.

As anticipated, the price heads towards the swing low and hits the target. The sellers achieve 1R here with ease. The last candle comes out as a bullish reversal candle since it closes within the previous candle’s lowest low. The sellers may want to close their whole trade and wait for the next one.

Price action breakout strategy works in 5M to the weekly chart. However, the daily, the H4, and the H1 are the three best charts that work best with the strategy. Usually, the gap creates confusion among traders. It creates more confusion among price action traders. In this example, we have demonstrated that the gap does not create confusion, but the Price Action Breakout Strategy works well as it usually does. The little gap may be one of the reasons. However, if the daily chart produces a trade setup like this, it does not usually go in vain.

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Forex Daily Topic Forex Price-Action Strategies

Keeping an Eye on Some Levels Comes Handy

Forex price action trading requires a clearer chart. Traders are to keep an eye on candlesticks’ attributes, consolidation, reversal candle, and support/resistance levels. The last swing high and the last swing low are two levels that traders must count. However, the price often reacts to certain levels, where it reacts heavily earlier. We may keep an eye on those closely since they often offer entries. In today’s lesson, we are going to demonstrate an example of that.

The chart produces a bullish engulfing candle after being bearish for a long time. The buyers still hold the key. However, the sellers may keep start eyeing on the pair as well. The chart shows a pullback level in its bearish wave. The highest high is further up, though. Thus, if the price makes a bullish move from here, it would be a big one.

The price heads towards the North with good bullish momentum. The buyers are to wait for the price to consolidate and produce a bullish signal candle to go long on the pair. A level of resistance (drawn level) is nearby. The price may consolidate around the level. Thus, this is time for the buyers to keep an eye in the pair closely.

The price does not consolidate around the level of resistance, but it makes a breakout.  Some traders may think that they have wasted time here by keeping an eye on the pair, which is never right. In Forex trading, we need to invest money and time. After such a breakout, the price usually keeps going towards the trend’s direction for one or two more candles before having consolidation. Do not forget, it often consolidates around the breakout level and offers entry.

The chart produces one more bullish candle followed by a bearish candle. The last candle closes within the breakout level. This means the price is having consolidation around the breakout level. If the chart produces a bullish engulfing candle closing consolidation resistance, the buyers are going to push the price towards the North.

The buyers crave for getting such a good–looking bullish candle to go long from here. The equation is simple here. The buyers may trigger a long entry right after the candle closes. Let us find out how the entry goes.

The price heads towards the North with good bullish momentum. The buyers achieve their 1R easily here. The highest high is further up. Thus, it may remain bullish for some more candles.

The price may consolidate and offer entry at any level when it is trending. However, it tends to consolidate around some particular levels often. By spotting them out, we may make our trading life a bit easier.

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Forex Price-Action Strategies

Price Action Trading: Weekend and Partial Profit Taking

Partial profit taking is an option to be safe with our investment. It provides less reward to some extent. However, for the Forex traders, it is a great way to make sure that they cash in some profit or lose less money in a particular trade. In today’s lesson, we are going to demonstrate an example of a trade setup offering an entry four hours before the market closes. Traders have only one H4 candle to hit their target, or they would have to carry the trade during the weekend. Let us find out what we should do in such a situation

This is an H4 chart. The price heads towards the South at a moderate pace. The last candle comes out as a bullish engulfing candle. This may work as a bullish reversal for the minor charts’ traders. However, the H4 breakout sellers are to wait for the chart to produce a bearish engulfing candle closing below consolidation support to offer them a short entry.

The price makes a bearish breakout. However, the H4 breakout sellers do not wait for such a breakout. The last candle comes out as a bearish engulfing candle, but the consolidation is shallow. Thus, the sellers may skip taking this entry as well.

Again, the price consolidates and makes another bearish move. This time it does not make any bearish breakout. The chart may end up producing a double bottom here. It is a long way to go. Meanwhile, the sellers must wait.

The chart produces a bullish engulfing candle followed by a bearish inside bar. Now, it looks that the buyers may take control. Let us proceed to the next chart and find out what happens next.

What a Surprise for the H4 breakout sellers! The last candle comes out as a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes with 1 R by setting stop-loss above consolidation resistance. Do not forget this is Friday. The market is closing within 4 hours.

This is how the last candle looks. It suggests that the price may keep heading towards the South. However, carry trade during the weekend on the H4 chart is risky a little. The market often starts Monday with big gaps that affect the H4 charts. Thus, the sellers may consider taking a partial profit just before the market closes on Friday. It would not get them to achieve 1R in the end, but it would make sure that they earn some profit out of it. Even if the rest of the trade hits the stop loss, he will not lose as much as he would with his whole trade.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: An Important Thing to be Remembered

To draw Support/Resistance, price action traders are to be sensible. They often need to be adjusted. In today’s lesson, we are going to demonstrate an example of this. To spot out support/resistance, traders are to aim the zones. Then, in the end, they are to draw levels to have the confirmation of a breakout. Let us learn more about this from the examples below.

This is an H1 chart. The chart shows that the price has been choppy for quite a while. It has been roaming within a descending triangle. The price may make a breakout to either side. Let us work with horizontal support and spot out point/points where the price bounces twice.

We may spot out two points here. These two levels are nearby to each other. Without any doubt, this is a strong support zone. If we consider levels, we may get confused since we get two levels. In such a situation, we may closely observe what the price does around the last swing low. Let us proceed to the next chart.

The chart shows that the last candle breaches the level of support (the last swing low). This is not an explicit breakout. We must wait for the next candle to have the breakout confirmation.

The next candle comes out as a bearish candle as well as closing well below the breakout candle. If we consider the price action for the last two candles, it is clear that the sellers have taken the control. The level of support at the last swing low holds the key as far as the last two candles’ price action is concerned. The H1 breakout strategy sellers may trigger a short entry right after the candle closes. Let us proceed to the next chart what the price does after triggering the entry.

The price heads towards the South with good bearish momentum. The sellers achieve their 1R with ease. The last candle’s attributes suggest that the price may go towards the South further. In a word, this has been a prolific trade setup for the sellers.

If we consider the first swing low on this chart, we may get confused about the breakout. Considering the price action and the last swing low, it is a basic thing to understand that the price makes a breakout at the last swing low. The last swing low matters most as far as the breakout strategy is concerned. If the price consolidates after a breakout, then other levels (previous levels of support/resistance) may work as flipped support or resistance. This is one important thing to be remembered by the price action traders.

Categories
Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: Entries to Take and Entries to Skip

In today’s price action trading lesson, we are going to demonstrate an example of a chart that offers multiple entries. We try to spot out entry/entries that we may skip and the entry/entries we may take. We try to find out the reasons behind that as well. Let us get started.

The price after being bullish for a long time produces a bearish reversal candle and heads towards the South. Look at the last candle. It comes out as a bullish inside bar. Price action traders start eyeing on such a chart to go short. However, the sellers would love to see the price have deeper consolidation.

The chart does not make a deep consolidation. It produces a bearish engulfing candle closing well below consolidation support. The trend and the reversal candle get 10 on 10, but the consolidation is not deep enough. It is not an A+ entry. It is best if we restrain ourselves from taking such entry. Let us proceed to the next chart.

Many of us may think an opportunity missed. Here is one added lesson on ‘ do not cry over spilled milk.’ Forex traders must obey this. Let us concentrate on the chart again. The last candle comes out as a very strong bearish candle. The pair may offer more short entries.

The chart produces a bullish inside bar again. The equation is simple for the sellers based on price action. The chart is to produce a bearish engulfing candle closing well below consolidation support. Let us proceed to the next chart.

Here it comes. This is one good-looking bearish engulfing candle closing well below consolidation support. The trend, consolidation length, and the bearish reversal candle all get 10 on 10. As far as price action breakout trading strategy is concerned, this is an A+ entry. Let us now find out how the entry goes.

It does not go according to our expectations. It rather produces a bullish inside bar again. It is an inside bar. Thus the sellers still hold the key here. The fact remains at the first consolidation, despite having shallow consolidation, the price heads towards the South with extreme bearish momentum. On the contrary, despite being an A+ entry, the price does not move according to the sellers’ expectations. It may even go towards the North and hits the stop loss. Then again, we must stick with our trading rules and be extremely disciplined. Let us proceed to the next chart to find out what happens next.

Ah! What a move this is! The sellers make some green pips here. The chart makes them wait, but it pays them back. As mentioned, it could go another way. That does not mean we start thinking to change our strategies or start taking random entries. We must make sure we only take entries that get A+ after considering all the segments.

Categories
Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: Let it go

The Engulfing Candle is considered one of the most influential candles to indicate a trend reversal. Price action trading is closely related to identifying trend reversal for which price action traders give value to engulfing candles a lot. In today’s lesson, we are going to demonstrate an example of an engulfing candle, which does not work in favor of the traders. We try to find out the reason behind that.

The chart shows that the price heads towards the South with good bearish momentum. On its way, it makes a breakout and trades below the level for one more candle. The sellers are to keep an eye on this pair for the price to consolidate and produce a bearish engulfing candle closing below consolidation support. Do not miss the point ‘closing below consolidation support’.

The price does not consolidate. It instead produces another bearish candle. It may consolidate now. A candle like this attracts more sellers to go short on the pair. Let us proceed to the next chart.

The chart produces a bullish inside bar. This means the chart is still bearish biased. The signal candle may come out at any time. The waiting game gets intense. The sellers are to keep checking the chart since the next candle may be the signal candle.

The chart makes them wait further. It produces a bearish inside bar followed by a bullish engulfing candle. The chart is still bearish biased, but the chart may get choppy as well if the next candle comes out as a bullish candle. Let us wait and find out how the next candle comes out.

The next candle comes out as a bearish engulfing candle. Is this what the sellers want? Here is a question for you. Would you trigger a short entry?

If the answer is no, you are right. The reason behind that is this is an engulfing candle, but it does not close below consolidation support. Look at the line below. This is where both candles get rejection. Thus, we may consider this one as consolidation support. Even if we consider only their bodies (not the best way), the candle closes within that level as well. The equation is an engulfing candle does not make a breakout. Thus, traders may skip taking this entry. We need to make sure these four things are there before taking entry based on this setup.

  1. Clear trend
  2. Consolidation
  3. Engulfing candle
  4. Breakout

If a trade setup misses any one of these, be patient. Let it go.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: Support/Resistance and Breakout

Support and Resistance are the two most important things as far as price action trading is concerned. We often see that too many support levels/resistance levels are nearby being too close to each other. It may confuse us to be sure whether a breakout takes place or not. In today’s lesson, we try to find an answer to that. Let us get started.

This is a daily chart. The chart shows that the price heads towards the South after producing a bearish engulfing candle. Look at the last candle, which comes out as a bullish corrective candle. If the next candle comes out as a bearish engulfing candle closing below consolidation support, the sellers may trigger a short entry.

The last candle comes out as a bearish engulfing candle closing below consolidation support. The question is whether the sellers may trigger the entry or not. Look at those two drawn levels. The price reacts to those levels. Usually, price action traders count such levels to determine risk-reward or to set take profit level. Let us assume a trader takes the entry.

Typically, he should trigger the entry right after the last candle closes with 1R. Do not forget this is a daily chart. The daily chart usually offers more than 1R. Let us proceed to the next chart.

The price heads towards the South with extreme bearish pressure. As mentioned, it gets him more than 1R. It seems it may continue its bearish journey. At least the seller may hold his position until it produces a bullish reversal candle.

Here it comes. It produces a bullish inside bar. This is not a strong bullish reversal candle. However, some traders may consider come out with their profit or at least some part of it. Some sellers may still hold it until it produces a strong bullish reversal candle.

The last candle comes out as a bullish engulfing candle. This time the sellers are to think twice whether they should hold the entry. Many price action traders close their entry here. The trade setup works excellently well here. However, do you remember those two more support levels? The price does not seem to react to those levels at all. You may notice this next time. When support/resistance levels stand too close to each other, the last level and the last breakout gets the priority (in 80% cases). However, if they have enough space in between, then they must be counted by the traders to calculate risk-reward or to set take profit.

Categories
Forex Price-Action Strategies

Price Action Trading: Be Psychologically Strong

Today, we are going to demonstrate an example, which has several lessons. Forex price action traders need to concentrate hard on the trading charts. They must have ‘never give up’ attitude, must not make decisions emotionally. In a word, they need to be psychologically strong. Let us now proceed to our lessons with examples.

This is a daily chart. After being bearish, the chart produces a bullish reversal candle. The combination of the last two candles is called Track Rail. It is a strong bullish reversal pattern. The daily- H4 combination traders may flip over to the H4 chart to go long on the pair.

 

The H4 chart does not look that promising. The price heads towards the North, but the momentum has not been strong. However, the buyers have their first signal to keep an eye on this chart. They are to wait for the price to consolidate and produce a bullish engulfing candle to offer them a long entry.

The price makes a deep consolidation and produces a bullish engulfing candle. However, it closes within a level where the price gets rejection twice. The engulfing candle does not close above the level of resistance, but the next one does. This is not an A+ entry. The buyers may skip taking the entry.

The price continues to go towards the North. Some traders may think an opportunity is missed. Do not forget that we shall only go with A+ trade setups. Here is a question. Look at the last consolidation and the bullish reversal candle. The candle closes well above the level of resistance. However, it is not a deep consolidation. Would you trigger a long entry here? Do not miss the point that it is not a deep consolidation. Thus, this is not an A+ entry either. Let us skip it and concentrate on the next chart.

 

Again, the price heads towards the North. This is where we must not panic and think we keep losing opportunities. It is always better to be safe than sorry. What do you think about the last bearish candle? This seems to be a deep consolidation. If the chart produces a bullish engulfing candle, the buyers may trigger a long entry.

 

The last candle comes out as a bullish engulfing candle closing well above the level of resistance. The price makes a deep consolidation. This is an A + trade setup. We may trigger a long entry right after the last candle closes. Let us proceed to the next chart to find out how the entry goes.

 

The price heads towards the North with good bullish momentum. It gets us more than 1R. At last, our patience has paid off. Do you notice how strong we need to be psychologically? This may seem easy, but it never is when we trade and make a decision in the live market. It is tough to restrain ourselves from taking bad entries. Sometimes they may make a profit and make us upset if we do not take the entry. To be consistent, we must not be upset but wait for the best setup (A+ trade setup) to offer us entry.

Categories
Forex Daily Topic Forex Price-Action Strategies

Forex Traders: Get Patience, Optimism, and Never Give Up Attitude

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trading, which makes traders wait for a long time. Usually, if the daily chart produces a daily reversal, it creates an H4 entry within a day or two. In today’s lesson, the H4 chart takes four days after creating a daily reversal to produce the signal candle. Let us find out how it offers us entry.

This is a daily chart. The chart shows that it produces a bearish inside bar at a strong resistance zone. An inside bar is not a strong reversal candle, but a strong resistance zone may attract the sellers to look for short opportunities. The daily-H4 combination traders are to flip over to the H4 chart for the price to consolidate and produce a bearish reversal candle to offer a short entry. We flip over to the H4 chart later. Let us now have a look at the daily chart with four more daily candles.

The chart produces four more candles that are bearish. However, the daily-H4 combination traders do not get any A+ entry to go short. Should they skip eyeing on this pair? Never, they need to perform the same duty. As long as the last daily candle is bearish, they are to flip over to the H4 chart. The last candle on this chart is bearish. Let us flip over to the H4 chart this time.

You may notice that the H4 chart does not make deep consolidation followed by a bearish engulfing candle to offer them a short entry so far. Traders are to flip over to the H4 chart every day with no luck. Let us proceed to the next H4 chart.

The chart shows that it is having a deep consolidation. The last candle comes out as a bullish engulfing candle. However, the chart is still bearish biased unless it produces a bullish daily reversal candle. The sellers are to wait for an H4 bearish engulfing candle closing below consolidation support to offer them a short entry.

Here it is. The last candle comes out as a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes with 1R.

The price heads towards the South with extreme bearish pressure. The price hits 1R with ease. Some traders may even make much more than 1R by taking a partial profit. In the end, it ends up being a prolific entry.

It does not come easily, though. The daily-H4 combination traders are to keep eying on the charts for four consecutive days. The H4 chart produces the signal on the fifth day after producing the daily bearish reversal candle. This is why Forex traders need to have patience, optimism, and never give up attitude.

Categories
Forex Price-Action Strategies

A Pair Offering Multiple Entries on Different Charts

In today’s lesson, we are going to demonstrate an example of a chart, which ends up offering two breakout entries for the price action traders. There is a saying, “do not put all your eggs in the same basket.” Forex traders are to maintain this as well. However, sometimes we may have to do things a bit differently. Let us find out why and how.

This is a daily chart. The chart shows that a bearish engulfing candle followed by a bullish inside bar sets a strong bearish tone in the chart. If a bearish candle closes below consolidation support, the sellers may go short on the pair.

Here it comes. The last candle on this chart closes below consolidation support. This is an explicit breakout. The daily breakout traders may trigger a short entry right after the candle closes by setting their stop loss above the signal candle’s highest high and by setting their take profit with 1 R.

Here is something interesting you may have noticed. Since the daily chart is bearish biased, the H4 chart shall be bearish as well. Let us flip over to the H4 chart.

This is how the H4 chart looks. The price consolidates and produces a bearish reversal candle already, although it is not a deep consolidation. Let us not talk about it. Let us proceed to the next chart.

The last candle comes out as a bullish inside bar. This time there is a deep consolidation as well. If the chart produces a bearish engulfing candle, the sellers may trigger a short entry. Let us not forget that the daily breakout traders have already taken an entry.

The H4 chart produces a beautiful bearish engulfing candle closing below consolidation support. The H4 breakout traders may trigger a short entry right after the last candle closes by setting stop-loss above the signal candle’s highest high and by setting take profit with 1R.  Let us find out how the trade goes.

The price heads towards the South with extreme bearish pressure. Some H4 breakout traders may get 3R from this chart. Now the question may arise here is whether we should take an entry on the H4 chart as well? If we go by saying, “do not put all your eggs in the same basket’, we may not.

We actually should take the entry on the H4 chart as well after taking the first entry on the daily chart. First, we are not taking the second entry based on the daily chart. It is a different setup, although the strategy is the same. If we are confident and experienced in trading different charts, we are all right to take entry in the same pair. This usually brings us a bagful of pips.

Categories
Forex Price-Action Strategies

A Thing You May Notice in the H1 Breakout Strategy

We are going to demonstrate an example of the H1 breakout strategy in today’s lesson. Usually, the H1 breakout strategy does not make traders wait too long to hit the target. However, if the breakout level is a double top or a double bottom level on the H4 chart, the price gets even more momentum to hit the target. Today’s breakout level is a double bottom level on the H4 chart. Let us now find out what happens after the breakout.

After making a bearish move, the price makes a correction. The last candle on the chart comes out as a bearish engulfing candle. This means the price finds its resistance. If it heads towards the swing low and makes a breakout, price action sellers may jump into this chart to make some green pips by going short in the pair.

The last candle makes a breakout at the level of support. This is an explicit breakout. Please note that the price bounces at the same level earlier. This means this is a double bottom support level on the bigger chart. This is an H1 chart. Thus, this must be a double bottom support level of the H4 chart.

The next candle closes below the breakout candle. It confirms the breakout. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above the level where the trend starts and setting the take profit with 1R.

The price heads towards the South with extreme pressure. The price is about to hit the target on the next candle after triggering the entry. It does not, but the sellers get their message. A strong bearish candle like this suggests that the pair would remain bearish at least for two more candles. That would be enough to hit the target.

The chart produces a bullish inside bar before hitting the target. If we count, it takes only three candles to hit take profit level. As mentioned, the H1 breakout strategy hits take profit level in a hurry. So does this one. If we calculate the next candle after the signal candle, we see that the candle comes out as a very strong bearish candle and generates strong bearish momentum. This is often seen when the H1 chart makes a breakout at a level, which is a double top or double bottom level on the H4 chart too. We do not need to concentrate on this if we aim to trade on the H1 breakout strategy. However, noticing such things help us be better traders to some extent.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

Manage Your Trade Differently on Different Charts

In today’s lesson, we are going to demonstrate an example of an H1 breakout strategy. Before hitting the target, at some point, the price gets sluggish. Nevertheless, it hits the target in the end. Let us now proceed to find out the lesson it has to offer us.

This is an H1 chart. The price gets choppy within these two horizontal lines. It has a rejection and makes a bearish move upon producing a bearish inside bar. The chart is yet to make a breakout. Until it makes a breakout, it does not have anything to offer to the buyers or the sellers. However, as it stands, the buyers may have an upper hand here. Let us proceed to the next chart.

Here it comes. After a long while, a candle breaches through the level of support closing well below it. The candle has a long lower shadow, but the breakout is explicit. The sellers are to wait for the next candle to close its lowest low to trigger a short entry.

The next candle comes out as a strong bearish candle. This is one perfect looking bearish candle to attract the sellers to trigger an entry. The sellers may trigger a short entry right after the candle closes, setting stop-loss above the level where the trend starts with 1R.

As expected, the price heads towards the South with good bearish momentum. However, look at the last candle. It comes out as a spinning top. In a strong bearish trend, it is not considered as a strong bullish reversal candle. Moreover, it is an H1 chart, and the entry is triggered based on the H1 breakout strategy. Thus, the sellers must hold their position and wait. To be precise, they should not even look at this chart anymore by following the rule of ‘Set and Forget.’

The price hits the target. The next candle, after the spinning top comes out as a bearish candle. However, it closes within consolidation support. If it were an H4 or the daily chart, the sellers would have to close the trade manually. This is the difference between trading on the minor chart and major chart.

If we have a plan to take trading as our fulltime business, we may have to trade on different charts from the 15M to Weekly. Trade management varies from chart to chart. This is what we must remember. In the beginning, we shall master on a particular chart that we are comfortable with. Then, we may start trading on the other charts, preferably on the demo first. Once we are confident, we may trade on that chart in our live account. We must not apply a strategy or manage the trade the same way on the weekly chart that we are successful on the H1 or the 15 Chart.

Categories
Forex Price-Action Strategies

Do Not Ignore Significant Levels of Support/Resistance

Price action trading is considered one of the most effective and easiest ways of trading. Traders are to follow a few rules and be disciplined to be a successful price action trader. One of the most important factors is marking the support/resistance zone/level. If a trader draws support/resistance zone/level; accordingly, trade management gets easy for him. In today’s lesson, we are going to demonstrate an example of how important it is to mark support/resistance levels on our trading chart and manage trade accordingly.

This is a daily chart. The chart shows that the price after being very bullish produces two bullish candles consecutively. The first candle comes out as a bearish engulfing candle as well.  Thus, major intraday charts’ traders may flip over to their charts and look for short opportunities. However, before we proceed, we must mark significant levels that may work as a level of support. Think about the levels that you may mark as the level of potential support. If you are done, proceed to the next chart.

These two levels may work as a level of support. The line below is the most significant level on this chart because this is the lowest low, and this is where the trend starts. The line above is quite significant since it produces a double bottom earlier. There are levels where the price reacted earlier. Thus, they may work as flipped support. However, two marked levels are crucial as far as this chart is concerned.

The chart produces a bullish reversal candle right at the marked level. It has been extremely bearish. The second last candle comes out as a strong bearish candle as well. Price action traders usually keep their eyes on a chart like this to go short upon breakout. That does not happen here. It produces a bullish inside bar. The chart is still the sellers’ paradise. Nevertheless, it is a bullish reversal candle, and it may change the whole equation on this chart. To have a better idea, let us zoom out the same chart.

The chart now tells the whole story. Do you recognize these two marked levels now? The sellers shall plan about trade management before the price hits such levels. It is often seen the price makes a big anti-trend move after reaching such levels. The reason is many traders/ big traders set their take profit at such level. Once they get out of the market with their profit, the price goes another way around, causing an abrupt opposite move. This may make traders lose money and lose profit. Let us make sure we learn how and where to mark the support/resistance zone/level and manage our trade accordingly.

Categories
Forex Daily Topic Forex Price-Action Strategies

ABC Pattern Trading: A Little Adjustment Needed According to the Charts

The ABC pattern is one of the traders’ favorite trading patterns for its lucrative risk-reward. It usually offers at least 1:2 risk-reward. In many cases, it offers even more. However, the price may sometimes find it hard to make a breakout at point B. That is where the ABC pattern traders must be patient and hold their nerves while trading on the minor charts. However, with major charts, it is a bit different. In today’s lesson, we are going to demonstrate an example of the ABC pattern trading on a minor chart.

This is an H1 chart. The price heads towards the North with good bullish momentum after having consolidation for a long time. The ABC pattern traders are to wait for the price to make a downside correction and produce a bullish reversal candle at C point.

The price has been on a downside correction. It produces three consecutive bearish candles. The ABC pattern buyers shall keep their close eyes on the chart to get a bullish reversal candle.

The chart produces a bullish engulfing candle. This is an A+ bullish reversal candle. The ABC pattern traders have some drawing work to do before the price produces a reversal candle. We find this out in a minute. Can you guess where the chart produces the bullish reversal candle? Have a look at the chart below.

Do you notice that the price had a massive rejection at the same level earlier? The chart produces the bullish reversal candle at the flipped support. This is an ideal C point. The buyers may trigger a long entry right after the candle closes by setting stop loss below the signal candle. As mentioned, take profit may be set at least with 1:2 risk-reward.

After triggering the entry, the price heads towards the North with good bullish momentum for three more candles. It then starts having consolidation around the last swing high (at point B). It often happens. The buyers must wait and hold their positions since the trade setup in on the H1 chart. The intraday ABC pattern traders must follow the rule “Set and Forget”. With the H4, the Daily, it is different though. Let us proceed to the next chart.

The chart produces another bullish candle and hits the target. The buyers’ have achieved their 2 R target. We must remember that when we trade on the ABC pattern, we adjust our target according to the chart. Intraday charts (5M, 15M, H1) usually makes a breakout at Point B. Thus, we let the trade run and decide its route. On the other hand, if an entry is taken on the charts such as the H4 and the daily based on the ABC pattern, we may consider taking at least 50% profit at Point B. This is where a little adjustment is needed if we trade based on the ABC pattern.

Categories
Forex Daily Topic Forex Price-Action Strategies

Never Forget to Calculate Risk-Reward

Risk-Reward is an extremely important factor in Forex trading. The price often makes a reversal at a significant level of swing high/swing low. Thus, price action traders must emphasize those levels before taking any entry. By calculating risk-reward, they should only take entry once a trade setup is found lucrative as far as the risk-reward ratio is concerned. In today’s article, we are going to demonstrate an example of a trade setup, which looks good with candlestick patterns and price action. However, things do not go as it usually goes. We try to find out the reason behind it.

After being bearish for quite a while, the chart heads towards the North by producing a bullish inside bar. The chart presents a strong bullish candle followed by a corrective candle. This is what price action traders wait for. Ideally, they are to wait for a bullish engulfing candle closing above the consolidation resistance to go long on the pair. Do not miss the drawn level, which is the last significant swing high.

Here it comes. The chart produces a bullish engulfing candle closing well above the consolidation resistance. Some traders may think that they shall trigger a long entry right after the last candle closes. We must not forget that it is not only about candlestick and breakout. There is another factor, which is risk-reward. The reward does not look good comparing to the risk.

The next candle does not disappoint the buyers (if there are some). However, it gives a strong message that the level of resistance has gone stronger. The price may make a reversal. Let us find out what the price does next.

The next candle comes out as a bearish engulfing candle. This is one of the strongest bearish reversal candles. Since a significant level of resistance produces the candle, the sellers are getting ready to go short on the pair upon a bearish breakout. Those who took a long entry earlier, their trade is in great danger.

The next candle comes out as a bearish candle having a strong bounce at the level of last support. It must have swept away buyers’ stop loss. The last candle does not make a bearish breakout and has a long lower shadow, which is not a good sign for the sellers as well.  However, the buyers have not been able to take advantage of such nice bullish price action. The Forex market could take any direction since there are technical as well as fundamental aspects. Nevertheless, if we are to find one valid reason for the bearish reversal, it most probably is risk-reward.

Categories
Forex Daily Topic Forex Price-Action Strategies

When You Confront a Loss

In today’s article, we are going to demonstrate an example of a failed entry on the daily chart. In a bullish market, the chart produces a bearish inside bar followed by a perfect looking bullish engulfing candle closing well above the level of resistance. However, the price heads towards the South and hits the stop loss. We try to find out what goes wrong here.

The chart shows that the price heads towards the South with strong bearish momentum. The sellers are having a feast here. Any intraday breakout at the lowest low of the last daily candle may get the traders to go short on the respective chart. Let us proceed with what happens next.

The last daily candle comes out as a bullish inside bar. Intraday buyers may search for a long entry on any breakout at the highest high of the last daily candle. On the other hand, the daily chart traders are to wait for the next day’s candle to close as a bearish engulfing candle.

The price heads towards the North with good bullish momentum. The chart produces two more bullish candles after that inside bar bullish candle. The chart looks good for the buyers on the daily chart as well. If the chart produces a bearish reversal candle followed by a bullish engulfing candle closing above the level of resistance, the buyers may go long on the daily chart.

The chart produces an inside bar. This must excite the buyers. If the next candle comes out as a bullish engulfing candle closing above the resistance of this bullish wave, the buyers may trigger a long entry.

Here it comes. This is what the buyers wait for. They may trigger a long entry right after the candle closes by setting stop loss below the candle’s lowest low. The significant level of resistance is far enough, which offers them a tremendous risk-reward. Moreover, this is the daily chart, which is one of the most consistent charts in the Forex market. In a word, this is a good trade setup for the buyers.

The price hits the stop loss the next day. The daily candle one after it comes out as a bearish candle too. The chart looked extremely good for the buyers two days ago. Now things are very different. If we dig into it, we do not find anything particular that the chart misses to produce such bearish candles all of a sudden. Technically, there is nothing wrong with the entry. We must remember this is how the market goes. It happens a lot. We must learn how to absorb such an unpleasant incident.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

Daily-H4 Combination: A Daily Reversal on the Daily, Flip Over to the H4

In today’s article, we are going to demonstrate an example of a daily–H4 combination trade setup. On a strong bullish market, the daily chart produces a bearish reversal candle and offers a beautiful short entry for the sellers, the price gets exceptionally bearish, and it may remain bearish for a long time. Let us get started.

Look at the last candle, which closes as a bearish marubozu candle. Before that candle, the pair heads towards the North with strong bullish momentum. At some point, a bullish engulfing candle engulfs an inside bar bearish candle. This is an extremely good signal for the daily chart’s buyers to go long on the pair. Many daily buyers might have lost money here. However, the next candle (the last candle on this chart) changes the equation for daily-H4 combination traders. It is now time for them to flip over to the H4 chart.

This is how the H4 chart looks after flipping over. The price starts having consolidation, as well. A bearish engulfing candle closing below the lowest low is the signal for the sellers to trigger a short entry.

The next candle comes out as a bearish engulfing candle closing well below the lowest low of the bearish wave. The sellers may trigger a short entry right after the candle closes by setting stop-loss above the level of resistance (with some safety pips) and by setting take profit with 1:1 risk-reward.

As expected, the price heads towards the North with good bearish momentum. It seems that the price is in a hurry to hit the target. It may hit the target within the next candle. Let us find out what it does.

The price hits the target. The last candle comes out as a very strong bearish candle, which suggests that the price may head towards the North further. However, 1:1 risk-reward is achieved. This is what the first target as far as daily-H4 combination trading is concerned.  Considering the last candle’s attributes, the price may produce at least one more bearish wave in this chart. Anyway, we have a lesson to learn from here. We are to wait for the daily chart to produce a strong reversal candle. It does not matter how strong the trend has been. As long as we get a strong bearish reversal daily candle, our job first job is to flip over to the H4 chart. We must wait for the H4 consolidation and the signal candle closing below the highest high/lowest low of the last wave to trigger entry.

 

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Forex Daily Topic Forex Price-Action Strategies

Mind the Gap Price Action Traders

In the Forex market, most pairs start trading with a gap after weekends. Most of them are not visible on charts such as the H1, H4, or the daily. Some pairs begin with a big gap, which is visible even on the major charts. It gets difficult for price action traders to trade and make a profit when a pair starts with an evident gap. In today’s article, we are going to demonstrate an example of this.

The trend starts with a bearish engulfing candle, which is a strong indication that the trend may sustain for a long time. The sellers are to wait for the price to consolidate and strong bearish reversal candle to go short on this chart. However, do not miss that the chart has a gap followed by trend continuation. It finds its support since it produces a doji candle followed by a bullish engulfing one.

The price finds its resistance as well. Look at the last candle on the chart. It is a bearish engulfing candle closing well below the level of support. Usually, the sellers may trigger a short entry right after the last candle closes in such price action. It is not a usual chart since it has a gap. Let us assume we have triggered a short entry here.

The next candle comes out as an inside bar bullish candle. The last candle comes out as a doji candle closing right at the breakout level. The bear still has control.

The last candle on this chart breaches through the level of stop loss. The trade does not go according to the sellers’ plan. The trend initiating and the breakout candle gets a 10 on 10. However, it gets us a loss. Do not forget this could happen any time with any trade setup. With this chart, something works against price action traders in both buying and selling. Can you guess what that is? Yes, it is the ‘Gap.’ Let us proceed to the next chart. It may create more drama.

It produces a spinning top. The buyers may think that they have a chance to take control next if it produces the next candle as a bullish engulfing candle.

It does not. It continues heading towards the South again at a slower pace. A chart with a big gap may act weird like this. Thus, it is best to avoid taking entry on a chart with a big gap.

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Forex Price-Action Strategies

To Maintain Better Winning Ratio, Go with A+ Entry

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. In this example, the breakout candle, as well as the confirmation candle, is not the best one the price action traders like to have. Nevertheless, the price heads towards the trend’s direction nicely. In most cases, it does not happen though.

The price after being bullish gets choppy. It then makes a bearish move but upon finding its support, it produces a bullish engulfing candle. This is the strongest bullish reversal candle, which shall attract the buyers to keep an eye on this chart. Let us proceed to the next chart.

The price does not get bullish as expected. However, an inside bar means that the buyers still hold the key. The chart may produce bullish candle and end up making a breakout at the swing high. The H1-breakout traders must be waiting for a breakout here.

The next candle comes out as a bullish engulfing candle closing above the level of resistance. It is a breakout but the breakout is not explicit. If the candle closes well above the level of resistance, it would attract more buyers. Let us now wait for the confirmation candle. If the next candle comes out as a bullish candle closing well above the breakout candle, it may attract more buyers in the end.

The confirmation candle does not look very promising either. As far as H1 breakout price action trading is concerned, the buyers may trigger a long entry. Considering candles’ attributes, it is not an A+ entry though. Let us proceed to the next chart and find out what the price does.

The price heads towards the North with good bullish momentum. It takes only two candles to hit the target. As mentioned, it is not an A+ entry but the trade gets the buyers some profit. In some cases, we see that even an A+ entry gets us a loss instead.

This is how the market works. We must not lose our patience but stick with our plan. If we take such entry, we may have to encounter less momentum after triggering entry, and more losing trades. We have to have the mental strength to face such losses then. Otherwise, we may skip taking such entry. Such an entry does not always get us profit. We have demonstrated this in today’s lesson.

Another equation we should remember, if we want to take A+ entry, we get less number of entries but more consistency. On the other hand, if we take a signal as long as it meets our trading strategy requirement, we get more entries but less consistency.

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Forex Daily Topic Forex Price-Action Strategies

A Weak Breakout Candle Makes Things Different

In H1 breakout trading, the signal candle’s attributes are as important as the breakout candle. We know that a breakout candle means a lot. So is the breakout confirmation or signal candle. In today’s article, we are going to demonstrate an example of this. Let us get started.

The price after being bearish gets caught within a horizontal channel. However, the last candle comes out as a bearish engulfing candle. It seems that the sellers may take control soon. It all depends on the breakout at the level of support followed by breakout confirmation.

The next candle comes out as a bearish candle as well closing within the level of support. The sellers are to wait longer. On the other hand, the buyers would love to get a bullish reversal right here. The battle is on.

The bear wins. The last candle comes out as a bearish engulfing candle closing well below the level of support. This is what H1 breakout traders want. If the next candle closes well below the breakout candle, the sellers may trigger a short entry.

The next candle comes out as a bearish doji candle. It closes below the breakout candle. The sellers may trigger a short entry. However, this is not an ideal candle showing strong bearish momentum. If a candle like this confirms a breakout, the price may not go towards the take profit level that we would love to see.

After triggering the entry, the chart produces two bullish candles. It looks extremely ominous. Most probably, the entry is going to get us a loss. Taking a loss is a usual thing in the Forex trading. However, the last two candles may be produced because of the fragile confirmation candle. This is where H1 breakout traders shall be a bit careful. If the confirmation candle does not come out as a strong candle, the price may go another way round. Let us find out from the next chart what the price does here.

Oh! It is about to hit the stop loss. It produces a bearish engulfing candle again. The price may head towards the downside and hit take profit level. It is still 50-50 since the price is trading within the level of last swing low. Let us find out how it ends.

Yes, it hits the target at last. However, this is what the price does not usually do when the H1 chart makes a breakout and confirms it. As mentioned, it often happens when the breakout and confirmation candle come out as weak candles. Thus, we may consider this when trading H1 breakout strategy next time.

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Forex Daily Topic Forex Price-Action Strategies

‘Set and Forget’ Tailor Made for H1 Breakout Trading

In today’s article, we are going to demonstrate an example of H1 breakout strategy. It is a typical example of the rule ‘Set and Forget’. To trade on the H1 chart, we must be patient and let the price do its job once we have taken entry. Let us proceed.

The chart shows that the last candle breaches closing below the level of support. As far as the H1 breakout strategy is concerned, traders must wait for the next candle to be bearish closing well below the breakout candle.

The last candle comes out as a bearish candle closing well below the breakout candle. The sellers wait for such candle to confirm a breakout. The sellers may trigger a short entry right after the last candle closes. Stop loss is to be set above where the trend starts and Take Profit is to be set with a 1:1 risk-reward.

The next candle comes out as a bearish candle as well. The sellers must let the price to hit the target. To be precise, they shall not even look at the chart. Stop Loss and Take Profit are set. All they can do is let the price do its job.

Where does that one come from? The chart produces a bullish engulfing candle. It is a strong bullish reversal candle, which may change the trend. To be honest, a candle like this may intimidate any price action trader. Do not forget this is an H1 chart and the entry is taken on H1 breakout strategy. Set and Forget rule comes very handy in this trade setup. Let us assume, we do not even know that the chart produces such a candle. We let the market do its own job.

The next candle comes out as a bearish inside bar. It looks more ominous. If the next candle comes as a bullish engulfing candle, the sellers will be in serious trouble. Let us proceed to the next chart.

The next candle comes out as a doji candle followed by another doji candle. However, the price heads towards Take Profit level and hits the target at last. If we keep looking at such chart, would we be able to hold ourselves back from closing the entry manually? It may get very tough for the traders to hold their nerves with such price action when a trade is running. If a trader trades on the daily or the H4 chart, he may consider closing the entry manually. With the H1 chart trading, traders may not do this. In other words, set and forget when you are trading on the H1 chart.

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Forex Price-Action Strategies

A Different Kind of Breakout Does Its Job Well

In today’s lesson, we are going to demonstrate an H1 breakout trade setup. Usually, the breakout candle makes a breakout by breaching through a level of support/resistance. Today, we are going to study about a breakout that takes place right at the level of resistance, which becomes support after the breakout. We need to be familiar with such a breakout since it happens quite a lot.

The price produces a bullish engulfing candle. The buyers wait for such a good-looking bullish reversal candle. They shall wait for the price to go towards the level of resistance and makes a breakout later. Let us proceed to the next chart.

The price heads towards the North but not right after the reversal candle. However, the bullish momentum looks good. Look at the last candle. It closes right at the level of resistance. It seems the price may make a breakout here soon.

The next candle closes well above the level of resistance. However, the candle is formed right at the level of resistance. Typically, a bullish breakout candle’s 25% of its lower body shall remain below the level of resistance. In this case, candle’s 100% (almost, ignore that very tiny lower body) body is above the level of flipped support. Such a breakout takes place in the Forex market very frequently.

The next candle closes well above the breakout candle. This means the breakout is confirmed. The buyers may trigger a long entry right after the last candle closes.

After triggering the entry, the price heads towards the upside with good bullish momentum. The chart produces two consecutive bullish candles after breakout confirmation. The buyers shall wait for the price to hit the target. For that, the price still has some space to travel towards the North.

The price hits the target and comes back down a little. It goes towards the level again. In this trade setup, the breakout candle’s breakout is not a good one that price action traders look for. In many cases, we may see that the chart does not confirm a breakout but goes another way around. It happens because such a breakout consumes some extra space. Thus, the majority of such breakouts are not confirmed and may not end up offering entry. However, once the breakout is confirmed, and there is enough space for the price to travel, most likely trade setup would work in traders’ favor. In the beginning, we may get puzzled with such a breakout. The fact is if the next candle after a breakout closes above (bullish market) the breakout candle, it is a valid breakout and works as well as the typical breakout candle does.

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Forex Price-Action Strategies

Patience Required Even with H1 Breakout Trade Setup

In today’s lesson, we are going to demonstrate an example of an H1 breakout strategy. Usually, the price heads towards the trend’s direction with good momentum on the H1 breakout trade setup. In today’s example, the price does not behave as it usually does. Let us get started.

The price after being bullish, it has been on consolidation. Look at the last two candles. The price heads towards the consolidation resistance. The buyers eagerly wait for a bullish breakout at the level of resistance on such price action. Let us proceed to the next chart.

Here comes the breakout candle. The buyers love to get a breakout with such a candle. Now, they must wait for the next candle to close above the breakout candle. If that happens, traders may trigger a long entry.

The next candle comes out as a bullish candle closing well above the breakout candle. The buyers may trigger a long entry right after the last candle closes. The stop loss is to be set below the trend-initiating candle, and the take profit is to be placed with 1:1 risk-reward. Six out of ten times, the price goes towards the take-profit level with ease in a hurry. Let us proceed to the next chart and see how this one goes.

The price does not head towards the North with good bullish momentum. The way it has been going for the last five candles, it looks ominous. A question may be raised here, “shall we close the entry?” The price still has a lot of space to hit take profit level. The market is not about to close down for the weekend or holiday. Thus, we must be patient and hold the entry. In other words, we shall apply the rule “set and forget.” The set and forget rule is tailor-made for intraday trading, such as the H1 chart to the 5M chart. Let us wait and find out what happens.

After a long while, the price makes a move towards the North again. It seems the trade is going to get the buyers some green pips. They must wait and let the price to hit the target.

It loses its momentum again a bit, but it hits the target. We often head that patience is required more when traders trade on major charts such as the H4, the daily or the weekly. The reality is patience is required for traders of all kinds. Today’s example has proved this again.

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Forex Price-Action Strategies

The ABC Pattern’s C Point May Confuse You Time to Time

In today’s lesson, we are going to demonstrate an example of the ABC pattern trading. In this example, the price does not make a full-wave correction to produce C point. However, the signal candle comes out as a strong reversal candle, which drives the price towards the trend’s direction. Let us get started.

The price makes a long bearish move and produces a bullish reversal candle. The price heads towards the last swing high. The buyers are to wait for a breakout at the level of resistance (swing high) first. A correction followed by a bullish engulfing candle at the breakout level would be the signal to go long here.

The chart makes a breakout keeps producing bullish candles. The buyers are to wait for the chart to produce a bearish reversal candle to make a downside correction. Since the chart produces one more bullish candle, it may make a correction soon.

After producing a bearish reversal candle, the price keeps making a correction. Ideally, the buyers would love to see the price come back to the breakout level. However, it is the Forex market. Things do not always go by the book here.

As mentioned, things do not always go by the book. The price does not make a full-wave correction. Nevertheless, look at the bullish reversal candle. The candle closes way above the last swing high. The buyers may trigger a long entry right after the last candle closes. We must remember that this is not an A+ entry as far as the ABC pattern trading is concerned. Let us proceed to the next chart to find out how the trade goes.

The price heads towards the North with good bullish momentum. Typical 1 R is achieved as well. In a word, the long entry gets the profit for the buyers. As mentioned earlier, this is not an A+ entry. The question is, shall we go for such entry?

In most cases, such price action may get us profit. However, if we do not like to take losses, we may skip taking such entry. Especially, in the beginning, traders find it hard to digest losses. Thus, for beginners, it would be best if they skip taking such entry and only go for A+ entry. Traders learn the art of digesting losses with time. Yes, you have read it right. Digesting losses in Forex trading is an art. If you have already learned the art, then you may as well go with an entry like this. In the end, you will be able to come out with a profit.

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Forex Daily Topic Forex Price-Action Strategies

Look for Such Price Action to Trade on the ABC Pattern

In today’s lesson, we are going to demonstrate an example of the ABC pattern trading. The trend-initiating candle comes out as a bullish engulfing candle followed by a bullish breakout. The price then makes a bearish correction and makes a bullish move upon producing a bullish reversal candle at a flipped support. Let us demonstrate with the charts how it happens.

The price has been bearish, but it has produced a bullish engulfing candle at the support zone. The buyers are to wait for the price to head towards the North and make a bullish breakout at the last swing high. Let us proceed to the next chart.

The price makes a breakout at the nearest swing high. The buyers are to wait for consolidation or correction and a bullish breakout. The last candle comes out as a strong bullish candle as well. It may keep going towards the North. Let us wait and find out what it does next.

It starts having a correction. Then, it produces a bearish inside bar followed by two more bearish candles. The price is at the flipped support. The buyers are to keep their eyes on this chart very closely.

Here it comes. The chart produces a bullish reversal candle. Do not miss the point that the level is the breakout level when the price heads towards the North. Such level is very significant as far as the ABC pattern trading is concerned.

The price makes a bullish breakout again and produces a new higher high. Traders may trigger a long entry right after the last candle closes by setting stop loss below the level of flipped support. It usually provides at least 1:1 risk-reward, which is the safest option. Let us proceed to the next chart to find out how it goes.

The price heads towards the North as expected. It hits the target (1R) with ease. The chart suggests that it may go towards the North further. Anyway, the ABC pattern traders shall enjoy their profit and hunt for the next one somewhere else.

In this example, we have seen that four aspects of the ABC pattern trading such trend initiating candle, breakout, reversal candle at the breakout level, and the signal candle get 10 on 10. Consequently, the price heads towards the desired direction with good momentum. If any of them fails to get 10 on 10, the trade may not go, exactly we would love to see it go. To keep excellent trading consistency, try your best to trade the ABC pattern on such price action that we have demonstrated today.