Trade Trends With Price Action Analysis

Today  we’re going to keep things a little simple. We’re going to trade trends with price action analysis. Now I know I’ve twisted your brain cells lately  with the pin bar,  inside bar, e.t.c This  time we’re going to play with  the trends. We’re going to learn how to ascertain when a market is trending and how to trade these trends .

But first:

What In The World Is A Trend?

Some of you may be wondering. “What  in the world is a trend?” Well, in the forex  world, a trend is a hot point of confluence(That word again) which increases the probability of a trade. It provides general information about the direct of the market. Now there are three types of trends. They are:

  • The uptrend
  • The down trend
  • Horizontal or Sideways Trend

The uptrend is a series of peaks and valleys reflecting the rise in a currency pair. And  it is categorized by a higher high(HH) and higher low(HL). The NZD/USD daily chart below  illustrates this point

forex-uptrend

The downtrend is the complete opposite of the uptrend. Here the price of the currency pair takes a dip. reflecting a decrease in value of the currency. The downtrend’s slide is reflected in lower highs(LH) and lower lows(LL ),a s is illustrated by the diagram below.

downtrend

Horizontal or sideways trend is slightly trickier. In this scenario, there very little up and down movement in the market. The trend’s direction may not be clear-cut, but in an anticipated event, it helps explain whether the chart will rise , go lower, or remain stable.

Now that we’ve gotten the basic introduction out of the way, here is something you need to keep in mind when trading trends.

Identify Trends With Only Price Action

You can only identify trends with only price action. Those fancy indicators which clutter your screen will only add to your confusion and frustration. You’d be better off observing the market swinging from left to right rather than zillions of lines which will make you pull your hair out. In fact watching the market swing from left to right is the most effective way of identifying a trend and spotting high probability trades.

The most fundamental method of identifying a trend  is to  determine  whether a market is maintaining a consistent pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. There is no need for any fancy trading systems or silver bullets here. Let’s take a look at a diagram below which illustrates what we’re talking about.

uptrend-downtrend

 

This diagram gives us the basic idea of looking for highs (HH) and higher lows(HL)  for up trends and lower highs(LH) and lower lows(LL)  for downtrends. If you notice each intersection between a higher high and higher low on the uptrend, and each lower high and lower low on the downtrend is considered  what is called a swing point or turning point. These swing points are the first sign of whether a market is trending .

If you do not see HH HL or LH LL, then most likely, the market is moving sideways. And when such movement persists,  you’re looking at a range-bound market or a market chopping back and forth.

If you’re not sure about your price action trading,  get back to What is Price Action Trading?

Character Traits of Trending Markets

Just like we humans, trending markets also have character traits. Trending Markets tend to follow the direction market followed by periods of recess or consolidation. After recess, they resume following the direction of the trend. Basically traders make a profit while the trends are hot. They then take a breather and consolidate. It’s during this period that  a lot of traders lose most of the profits they’ve made when the trend was strong.

The moral of the story is you need to  identify parts of the trend that will help you  save your money  as opposed to  blowing it away during the consolidation periods. Let’s take a look at an example of this scenario.

retracement

 

 

As you can tell from the diagram, the market  is moving sporadically in the direction of the trend . It then pauses for breath  before resuming its journey. Take note that not all trends are the same, but this is a typical description of a strong move by the market followed by a period of consolidation or retracement as it’s commonly known.Now in an uptrend, these swing points are known as support and in a downtrend, they  are also  known as resistance. The very first diagram pretty much captures what we’re talking about. Now let’s look at another diagram, but this time with support levels.

 

swing-points

Here we see a huge trail pattern by these swing points As the market retraces to these support levels, watch out for possible price signals near these levels.

If you’re not sure about identifying support and resistance levels, read up on Identify Support and Resistance Levels with Price Action Analysis

 

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  And it’s an absolute must that you Know Ten of These Candlestick Patterns.  If you can’t  inteprete what the candlesticks are telling you, you cannot trade on the forex market.

Well, that’s a wrap on “Trade Trends With  Price Action Analysis.” As you can see trend trading is a very easy way to make money in the forex markets. However, markets dont always trend the same way. And it is during this period of flux that you risk losing all your money. I leave you  with a very simple formula that famous trader/blogger Nial Fuller came up with.

The Best Trades=Trend +Confluent level+ Price action Signal.

Till next time take care.

Looking to  open a forex trading account?

Sign Up withEasyMarkets and Get a Free eBook- The Beginners Guide to Forex Trading

 

 

 

 

 

 

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You Need To Know Ten Of These Candlestick Patterns

 

If you want  to be successful at price chart analysis, then you need to learn how to read candlestick charts. Sure, you may still be stuck with  the old line chart. But the candlesticks are more easy on the eyes. They make it easier  to make trading decisions and the information is a lot more clear cut. Sure,, so you there is no way you can memorize all 103 candlesticks patterns  News flash! You don’t need to learn all of them! That’d be totally insane. But you do need to know ten of these candlestick patterns.

Doji

dojicandlestickpattern-354x396

As you can see the Doji shaped like a cross with similar opening and closing prices.

What’s Going on Here?

Price remains the same. It also represents market indecision on the part of the buyers and sellers.

How Do I Trade Doji?

Two ways.  First  you can trade the doji like a reverse signal. Second, you can trade it as an uptrend signal. But make sure the trends are evident before you trade  the doji.. Let’s  watch below how  the doji trade plays out.

DojiTradingExample-706x396.png

Marabozu

marubozu-pattern

The Marabozu pattern  is the complete opposite of a doji. It’s a visual block whose opening and closing prices are at opposite ends of the candlestick.

 

What’s Happening  Here?

 

A  higher closing price(green candlestick) suggests strong bullish strength, while a lower closing price(red candlestick) suggests a bearish pattern.

How Do I Trade Marabuzu?

Look out for the following:

1.Continuation a in a break out

  1. Partial candlestick pattern.

See how the Marabuzu trade plays out below

marubozutradingexample-705x396

 

Harami

bullishharamiexample-354x396-1

The harami is  a mother and child situation. The first candlestick is the mother and the second candlestick is the child. The body of the baby bar is usually within the body of the bar.

If it’s not obvious to you by now, bullish candlesticks like the harami are colored green or white. The  bearish harami the first bar, closes lower than it opens, while the bullish harami(second)closes  higher..

What’s Going on Here?

The market  has created a weak reversal. The bigger candle stands for the actual price while the small candle reflects reduced volatility. It also explains why harami patterns are also termed inside bars.

How Do I Trade Harami?

In a bullish trend, the harami signifies the end of the bearish retracement. Then the bulls take over…When this scenario takes shape, you enter your buy trade. While in a bearish trend,  the harami signifies end of bullish retracement with the bears taken over.  In such a scenario, you enter your buy trade.

The chart below explains this point nicely.

haramitradingexample-704x396

Engulfing Candle

EEngulfingCandlestickPatternExample-354x396.png

 

The engulfing candle is the horizontal opposite of a harami.   An engulfing candle forms when the body of the second candle overshadows the first candle.

What’s Going on Here?

a reversal is taking place. When you see the second body engulfing the first body, that suggests a strong reversal signal.

How Do I Trade Engulfing Candle?

Place a trade to buy when you see a straight bullish continuation. On the opposite side, place a trade to sell when you see a straight bearish continuation.

Here is an illustration below of  the Engulfing candle trade

engulfing-pattern-trading-example-705x396

 

Piercing Line and Dark Cloud

piercing-line-dark-cloud

The piercing line and dark cloud represent the bullish and bearish and bearish variants of the two bar pattern. The first candlestick of the Piercing is bearish(Red on most charts) .  The white candlestick(green most charts) on the other hand, opens below the low of the first candle. It then closes above the mid-point of the first candlestick.

What’s Going on Here??

The second bar of the piercing line pattern  created the impression that a bearish pattern. is about to happen.Unfortunately the bearish pattern fails  to  come off, causing all the  gains  from the bearish pattern  were wiped away. Eventually  the bulls(green bar) take over. This creates the opportunity to enter a buy trade.

The same situation  replicates in the Dark Cloud Pattern. The first gap triggered hopes of a bullish offensive. Unfortunately  the lower close doused such hopes So the bears(red candlestick).

How Do I Trade Piercing Line / Dark Cloud?

With the Piercing Line, look for bullish reversals only after  the break of a bearish trend line. IF you want to trade  the Dark Cloud Cover, only trade spot bearish reversals after a bullish trend line has been broken.

Let’s  see an example of Piercing Line/ Dark Cloud Cover in action below.

piercing-line-dark-cloud-example

Hammer/Hanging Man Pattern

hammerandhangingman

People have been wondering whether the Hammer/Hanging man are two different entities..Well, as you can clearly see from this graphic, they’re one and the same-regardless of color.They both have a body  near the top of the candlestick, and a long lower shadow. The difference is that the Hammer acts as a bullish signal after the market declines. While the Hanging man  bearish signal found at the end of a bullish pattern.

What’s Going On Here?

The Hammer pattern  tends to  set up sellers who buy  in the lower region of the bullish candle., forcing them to run for cover. This creates buying opportunities for traders. If you’re to look  for a bar equivalent look no further than the pin bar pattern.

The Hanging man is a bullish  candlestick topping an upward trend.Just like the bearish Hanging man, it upward posture draws traders to buy with gusto. But when the market falls, it knocks traders out of their long positions. That is why it pays to wait for bearish confirmation before going short on the Hang  Man pattern.

 

How Do I Trade Hammer/Hanging Man?

When faced with a downtrend, buy above the Hammer pattern in case in case of a reversal. Keep in mind  that you can also trade the hammer pattern like a bullish pin bar. But when faced  with an uptrend, sell below the hanging man after the bears confirm.

Watch the  Hanging Man in action below.

hangingmantradingexample-705x396

 

Inverted Hammer/Shooting Star

invertedhammershootingstarpattern\

Just like the Hammer /Hanging Man Pattern,  the Inverted Hammer/Shooting System are one of the same. The difference being that  an Inverted Hammer is found a the end of a downtrend, while the Shooting Star is found at the end of an uptrend.

What’s Happening Here?

The Inverted Hammer is a bullish pattern. And  in a downtrend, the bears try to bully the sellers to sell. Unfortunately, when the sellers fail push the market  down, the bulls react with a bang.

The bearish Shooting Star sets up traps for buyers.  The Shooting Star tricks traders who  buy in its higher range.Hence, they’re forced to sell off their long positions.

How Do I Trade Inverted Hammer/Shooting Star?

If you spot a downtrend, buy above the Inverted Hammer pattern after bullish confirmation.Similarly, if you spot an uptrend, sell above the Shooting Star for a possible reversal.

Below is the Inverted Hammer trade in action.

Inverted-Hammer-Trading-Example-705x396.png

 

 

 

Morning Star/Evening Star

morningstareveningstarpattern

The Morning Star/Evening Star are described as three bar patterns. They both have small bodied stars that do not interfere with the preceding candlesticks. This non-interference stance by both pattern’s small bodies create a gap  between the candlesticks. No wonder the Morning Star and  Evening Star Patterns are rarely  seen in daily charts.

Let’s take the a look at the makeup of both Morning Star and Evening Star. Starting with:

Morning Star

  • A long bearish(red) candlestick
  • A star below the candlestick(bullish or bearish)
  • A bullish(green) candlestick closing within the body of the bearish candlestick.

Now we move on to:

Evening Star

  • A long bullish(green) candlestick.
  • A star above the bullish candlestick
  • A bearish candlestick closing within the body of the bullish candlestick.

The closest pattern to the Evening Star is the three bar reversal.

What’s Going on Here?

The first candlesticks of both patterns establish some kind of dominance only to wilt in the latter stages. First the bears come out strong in the Morning Star pattern. Then the little star drops a hint of a takeover by the Bulls. Eventually, the brute force of the bulls is a bit too much for the bears.

A similar scenario is evident in the Evening Star pattern. The bulls establish a foothold through he green candlestick. The little star drops little hints of a bearish takeover, until the bears eventually take over the show.

How Do I trade Morning Star/Evening Star?

Use both patterns to spot reversals and continuations

  • If you want to buy, enter your buy order above the last bar of the Morning Star formation
  • If you plan on cashing in, enter your sell order above the last bar of the Evening Star formation.

Let’s see the two formations at work below:

morningstareveningstartrade

 

 

Three White Soldiers/Three Black Crows

three-white-solders-three-white-crows

No, Three White Soldiers/Three Black Crows  are not rock bands. As you can see above, they’re candlestick patterns just like the other candlestick patterns we discussed earlier.  With The Three White soldiers, each of the candles opens  tucked within the previous candle.They all eventually close on a high.

The same logic is evident with the Three Black Crows pattern.  Each candlestick is tucked within the previous candlestick. Except that  instead of finishing on a high, they rather finish on a low.

What’s Going On Here?

In the White Horses pattern, there seems to be a  cat and mouse game going on here. All three candlesticks open with the impression of an imminent bear takeover. But they close on a strong high. Eventually the brute force of the bulls is too much for the bears.

A similar cat and mouse game is going on in the The Black Crows pattern.The Black Crows putting on a bullish façade. However,  the the bullishness turns bearish as each bar closes on a low.

How Do I Trade Three White Soldiers/Black Crows

You trade these two patterns as reversals

  • Place your buy order above the three White Horses when the market declines
  • Place your sell order below the Black Crows when the market rises.

Let’s take a look Black Crow/White Horse trade illustration

threesoldiersthreecrows

hikkakebullish-351x396

The Hikake may be  Japanese, but a classic candlestick pattern it’s not. Why? Because it lays traps for traders.If you’re looking for a Hikake pattern, look out for the inside bar.

A bullish Hikake usually features a lower low and a lower higher. This tells us of an imminent bearish breakout of the inside bar. However, when the bearish breakout fails, a long Hikake unfolds.

What’s Going On Here?

When the break out breaks down, the price soars in the opposite direction

How Do I trade Hikake?

  • Place a buy order if the downtrend break out of an inside bar fails within three bars
  • Place a sell order if the uptrend breakout of an inside bar breaks down within three bars

Here is the Hikake in action?

hikkaketradingexample

 

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  and then build up from there by reading the other price action posts on the blog.

 

Well, that’s a wrap for “Know Ten Of These Candlestick Patterns”  Candlestick patterns are an absolute  must know in order to be successful with price action analysis. You don’t need to know all 100 plus candlesticks. But you need to know these 10 candlestick patterns like the back of your hand.

Till next time take care.

Looking to open a forex account?

Sign up with EasyMarkets and Get a free eBook – Beginners Guide to Forex Trading

 

 

Identify Support and Resistance Levels with  Price Action Analysis

Knowing how to identify support and resistance levels is absolutely key in price action analysis.  It’s absolutely crucial if you want to succeed as a forex trader.If you are able to recognize these key levels, you will definitely seize the as a forex trader. If you find this aspect of price action analysis, too overwhelming, not to worry! One way or the other, you will learn  how to identify support and resistance levels and profit from these key areas. But first:

What is Support and Resistance?

Well support and resistance are clearly labeled zones on the forex chart, where the price of a currency pair is likely to come under pressure. Now why is that? This because support and resistance levels are psychological levels reflecting the intentions of  the market players. Such that when price runs into such opposition, it either causes a  ricochet(or bounce) in the opposite direction of the trend or initiates a consolidation(or downward slide of the price). Or, the level could also be breached,  resulting in the price initiating a speedy surge.

You can also describe support and resistance levels as zones where the interests of market players collide.Think of this scenario as a tug of war where the bulls( being the buyers) and the bears(being the sellers) are jockeying for dominance in the market. The bulls are confident the price will go up, while the bears believe the price will go down. And so we have a major clash of the titans going on here. Those who come out victorious will have the advantage of pushing the forex pair in their direction. Now you see why I say identifying support and resistance is absolutely crucial in price action analysis?

Which brings us to the next question:

What is the Difference Between Support and Resistance?

Support is the level below the current price, while resistance above the current price. However, when price penetrates  the support barrier, the support converts into resistance and vice versa. So when  the level of a bearish direction is broken, the price relocates under this level, and the old support level now becomes a new area of resistance.

How about we take a look at the chart of the EUR/USD?

support-resistance

Now As you can see, the green circles shows the areas of support along the purple line. While the red circle shows the price initiating a break in a  bearish direction. However, the blue circle tests the price’s new resistance level. This graphic also  illustrates support level’’s ability to transition into a resistance and its influence as an opposing force.

So now that we’ve  established the difference between  support and resistance, I guess the next question is:

How Do We Find Support and Resistance Levels?

There is something you need to understand about finding support and resistance levels in price action analysis.Every bottom on the chart is potential support and every top is potential resistance. potential turns into reality when a price climbs up and down more than once. That is, if the price drops to a level and rises back, it’s considered an eventuality. So that  when the market tries to breach that level it may run into a brick wall. But if the price bounces again from this level it’s  confirmed a support. In that case the price is likely o repeat the bounce of the support in case the price drops again. This goes for resistance levels also.

But not all support and resistance zones have similar equilibrium. As a matter of fact, there are weak supports and weak resistances. In that case you’ll be better if you look for more reliable levels for smooth entry and exit points. Also make sure the support and resistance levels are older and have been able to hold up numerous times.

trade-support-resistance

This picture here illustrates a stronger resistance versus a weaker support featuring the EUR/USD pair.The purple line represents the price’s resistance coming under severe pressure, while the dark line illustrates the line’s support. The  circles show the exact areas where the level of resistance took a hit.

The purple line looks stronger since it’s a lot older and has absorbed countless hits.While the orange rectangle suggests consolidation of both levels with price bouncing back and forth as it struggles to break out of the range. But whenever you have  consolidation of two  levels with price bouncing back and forth , the price  it struggles to break out of the range. Giving the price’s aggressive stance, it’s only a matter of time before one of the levels gives in. Since the purple line  has a stronger resistance  it follows the market’s bearish direction because the dark line  support is bound to snap under  the incessant pressure of the purple resistance. The price breaks through the  dark support, and now turns into resistance as prices fall below the previous support level.

Now that we’ve learnt how to find support and resistance levels, it ‘ time to find out

How to Set Entry/Exit Points at Support and Resistance Levels

Setting entry and exit points are fundamentals every forex trader should know like the back of his hand. Why? Because all forex pairs have different support and resistance lines. So you need to keep a sharp eye on the price action happenings around these areas. If you can master support/resistance entry and exit points, you will have covered the fundamentals of your forex trading knowledge.

Now that we’ve gotten that out of the way, let’ get down to:

Setting Entry Points on Support/Resistance Levels

Let’s say a forex pair’s price approaches a tried and tested support zone. Since this support zone seems unbreachable, you will set an entry point once the price hits the support level. But first wait for the price to touch base with the support level. Once that happens, take a long position only if the price takes a bullish direction at  this level. If you go long, the best place to place your stop loss is below the support area. Placing your stop loss below the support area will help you cut your losses n case the bounce turns out to be false and the support gets broken.

Let’s take a look at the AUD/USD graphic

set-entry-exit.png

The purple line looks established – a  solid prerequisite for  setting entry points.. The blue arrows illustrate the upward move after the price hits the support level. However, in scenario No. 3, the price takes a hit after a brief rise. You see why it’s important to put a stop loss when you trade? Also setting entry levels at support levels is no different from setting entry points at resistant levels. The principle is still the same.

Finally we come to

Setting Exit points at Support/Exit Points

Alright  say you’ve bought a currency pair, thinking it might go bullish. Then suddenly a resistance area sets up shop along the uptrend,  and you’ll like”  Hmmmm…looks like the price might go bearish on me, and cost me a chunk of my money. Time to put some security in place.” This is where you put an exit point in place.

The USD/JPY  graphic below should clarify things for you.

support-resistance

The thicker labels indicate the price hitting the support area. Along position is then established after the bullish pattern, indicated  by the red line. Then the price gets acquainted with an established resistance, which as absorbed a few hits and stabilized the value of the Yen. This will be a good time to set an exit to avoid losing your hard-earned profits. Anytime the price  hits the resistance, just slowly place a stop loss below the candle which tapped the resistance level.

Around the small faded line,if the price breaks into bullish mode, then you can choose to reopen your trading position. But if the price takes a huge hit, you’re covered with the stop loss that you placed earlier.

Which finally brings us to what you’ve been waiting for:

How Do We Trade Support and Resistance Levels?

Well there are two ways of trading  support and resistance levels. The first one is:

The Bounce

In this scenario, you wait for confirmation that the support/resistance will hold before you enter your trade. Instead of just buying or selling straight away, wait for the price to bounce first before entering. You want to avoid a situation where price suddenly moves fast and breaks through the support and resistance levels. The last thing you want is to catch a falling knife Let’s take a look at both scenarios.

These two graphics show the bounce  in action.  in the support we have confirmation that the support level has been able to hold. So we can now place our entry order along the price level and  our stop loss below the support level. The same situation goes for the resistance line also. Since  we have confirmation that the resistance level has been able to hold, we can now place our entry order along the price line and then place our stop loss just above the price line.

Which brings us to our second  support/resistance trading strategy:

The Break

Now ideally we’d love our support and resistance levels to hold till infinity. But it doesn’t always work out that way. At some point both levels ae bound to cave in.This is where the break comes to the rescue. There are two ways of trading breaks – The aggressive way and the conservative way. Lets first start with

a)The Aggressive way -To play the break, make sure the price  slices through the support/resistance zone with ease. You only want to enter when a price passes through these two zones with such conviction that you’re left in no doubt that you can enter your trade.

sr-aggressive.png

As you can see from this graphic, the price has sliced through the support barrier without much opposition. So it’s safe to place your entry order.

Which  mow brings us to:

b) The Conservative Way – This alternative requires a bit of patience especially after you lose a trade. Sometimes you make an entry expecting price to rise after bouncing off the support level. Suddenly things go horribly wrong and the price just slices through the support level. Now here you are staring at the scary possibility of your forex trading account going up in smoke.

Now the obvious temptation will be to jump back into the market to make up for your losses.- BAD IDEA. Instead, sit back, kick your shoes off, and wait for for the price to make a pullback to broken support or resistance level. And then enter after the price bounces. Let’s look at the illustration below.

sr-conservative

As you can see clearly, we notice a price pull back. So we can now go ahead and make our entries.

But I have to warn you though. Retests of broken supports do not happen all the time.Normally, when support and resistance levels are broken, the price will just keep on going and leave you holding the bag. that’s why it’s always advisable to put a stop order and not hope that the price will have a change of heart and give you a second chance.

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  and then build up from there by reading the other price action posts on the blog.

Well that’s a wrap for “Identify Support and Resistance Levels with  Price Action Analysis” Yea I know this post is very long. But hopefully, you’d have learnt enough to apply when you enter the trades. Til we meet again next time, take care.

Looking to open a Forex trading account?

Sign up with EasyMarkets and Get a Free eBook – Beginners Guide to Forex Trade

 

Trading the Inside Bar

Today  we conclude our series on price action trading strategies  by looking at “Trading the Inside Bar.” To refresh our memories, Monday, we looked at “ How To Trade The Pin bar”, Yesterday, we touched on “How To Trade The Fakey Pattern.” So onward to the Inside Bar

The Inside Bar Forex Trading strategy is a high probability strategy with a good risk reward ratio. Unlike other price action set ups, the inside bar strategy requires fewer stop losses. You’d be better trading inside bars during the daily chart timeframes and preferably in strong trending markets especially when breakouts influence the direction of the trend. I guess the first question we should be asking is:

What is an Inside Bar?

Well an Inside Bar is a bar that is nicely tucked within the range of the preceding bar, popularly known as the mother bar.  The inside bar typically has a higher low(HL) and a lower high(LH) than the mother bar. On some smaller time frames, the inside bar is shaped like a triangle.

insidebar-motherbar

As the anatomy suggests, the inside bar is nicely sandwiched within the high and the low of the mother bar. It is also possible to have multiple inside bars within the range of a mother bar. Such a scenario suggests a possible breakout.

What Does an Inside Bar Suggest?

An inside bar suggests  a period of consolidation. Inside bars take shape  as a market consolidates after a strong market offensive. They occur at crucial  pressure points  such as major support/decision levels. The inside bar also provides a low risk opportunity to enter a trade or a safer exit point. Like I hinted earlier, the inside bar acts both as a continuation signal and a turning point  signal. For beginning traders out there, inside bars would be a lot easier to deal with. However, reversal signals can be very tricky to deal with. So you’d be better off leaving them alone until you have bagged enough experience  dealing with continuation signals.

How Do I Trade The Inside Bar?

Now how do I trade the inside bar? Well, you can trade inside bar two ways. You can trade the inside bar as a continuation signal or a reversal signal.

insidebar-continuation-reverse

 

As you can see from the graphic, the inside bars act as both  reverse and continuation signals. We see an inside bar forming at a support level, and then the market breaking in the opposite direction. The market then moves higher from the inside bar pattern that formed at the previous level of support

Where Do I Place Stop Losses?

Now some of you are probably wondering “Where do I place stop losses?”   The most common stop placement of choice is just below the mother bar high or low  depending on whether you are going long or short. There is not point trying to figure out the best distance. Either, the trade works or it doesn’t.

Below  is an illustration of the stop placement

insidebar-highlow

 

The next typical stop placement  is on inside bars with large mother bars You may want to place your stop loss at the 50% level-that is halfway between high and low of the mother bar. If you want to achieve a  solid risk reward ratio, the 5o% level is the way to go. The illustration below says it all.

insidebar-motherbar

Trading Inside Bars as Continuation Signals

You can also trade inside bars as continuation signals. The most appropriate time to trade an inside bar is when the market is trending strongly  or the market is moving in the opposite direction or it decides to take a break. Inside bars came in handy on the daily or 4 hr chats. But you’d be better off sticking to the daily charts until  you have perfected the inside bar setup in this time frame.

insidebar-continuationsignal

The above graphic illustrates  inside bar setups on the back of a strong upward trend. This resulted in a clean breakout. When you see such a scenario, it’s time to buy..

Trading Inside Bars as Reverse Signals

It’s also possible to trade reverse signals. But please make sure you’ve perfected the continuation signal pattern before jumping into reverse signals. Reversal signals can play tricks with your trades. Besides  it will not be in your best interest to jump straight into the lion’s den.

inside-reversal

 

 

As  you can see from the graphic here, the inside bar setup on the left  reveals a period of consolidation and indecision on the market’s side. A downward slide ensues as price breaks down past the inside bar’s mother bar. In such a scenario, it’s time to sell.

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  and then build up from there by reading the other price action posts on the blog.

That’s wrap for”Trading The Inside Bar.” Hopefully you’ve learnt  a lot for these three price action strategies. And I’m sure you’ve also learnt that you don’t need a zillion price indicators clustering your screen either. But that’s not the end though..There’s more price action tips where those where those came from. So till next time take care.

 

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How to Trade Fakey Pattern

 

Hello, Last week we kicked off our three part series on pin bar trading strategies with Pin Bar Strategy-How To Trade It. For our second installment on pin bar trading strategies, we’re going to learn how to trade a tricky but rewarding trading strategy, called the the fakey pattern. Some of you’re probably wondering,  Is this something straight out of an American football playbook”? No, the fakey pattern  is a trading strategy popularized by renowned Australian forex trader, Nial Fuller.  Nial Fuller describes it as “a reliable indicator of potential near term(and sometimes) long term market direction. I guess the first question we should be asking ourselves is

What is a Fakey Pattern?

Basically a fakey pattern is the false break of an inside bar structure. Price goes in one direction, but then does a sharp reverse, creating a false break of the inside structure.  The main feature of  the fakey pattern is the running  of stop losses by veteran traders. They create this huge vacuum by trying to lure naive rookie traders, thus creating this huge black hole in the market. Unfortunately the price then does a sharp 360 and reverses in the opposite direction. It’s as if the big time traders are playing a prank on the amateurs.

These same veteran traders also cause the fake pattern when they react to a major market event . which has caused price to sharply turn the opposite direction from an initial breakout. So if an inside bar creates a false break at the resistance level, the price moves downward opposite the the direction of the initial breakout.

A Few Examples of Fakey Set ups

bullish-bearishAbove are classic illustrations of bearish and bullish fakey signals. The inside bar  creates the  illusion or false breakout of the inside bar pattern, resulting in the formation of the fakey pattern.

Note of Caution

Not every fakey signal comes out with an inside bar pattern.In some cases, the fakey signal may have a pin bar pattern where you have only one bar as opposed to the two bar false break. You may also run into three bar false breaks although those scenarios are quite rare.

fakey-reversal

Here we see a bullish pattern with a pin bar reversal acting as the false break of the inside pattern.

Which finally brings us to

How To Trade A Fakey Signal

You can trade a  fakey signal in  ny market condition except a choppy market. Why? Because conditions are not too favorable for trading fakey signals. But you can trade fakeys in a trending market, or range-bound market, or even against the trend,- if it’s at support or resistance level. The fakey should provide  you with an high probability entry point as well as a stop loss placement.

If the fakey forms at the level of support  you place your stop losss just below the lowest point of the two bar false break. However, if you want to make a trade make sure the fakey  is at a level of confluence i.e. the support level and the uptrend.If  fakey signal forms at key resistance levels, that’s a great opportunity to enter a sell trade.

 

bullish-bearishfake.png

So as you can see below you have fakeys developing at bot levels of support and resistance levels. These two scenarios create great opportunities to make trades.

If you’re still pulling your hair out over support/resistance levels,consult  my Identify Support and Resistance Levels With Price  Action Analysis post.

If you’re stumbled in here looking to join the forex trade bandwagon look up Why Forex Trade Is So popular.  Next,if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots,  get started with What is Price Action Trading?  and then build up from there by reading the other price action posts on the blog.

That’s a wrap for “ How To Trade Fakey Pattern.” As you can see fakey patterns can be useful if you ‘re alert enough to spot the opportunities.  If you’re a  rookie trader look out for those black holes created by veteran traders or else you could get sucked in easily.

Next time we’ll finish our final installment – the Inside Bar pattern. If you missed the first lesson on the pin bar set up, or you want to review, click here.

If you’ve stumbled in here wondering what price action trading is all about refer to What Is Price Action Trading?  And if you’re curious about forex trading, find out Why Forex Trade Is So Popular?

Till next time, take care.

Looking to  open a forex account.

Sign up with EasyMarkets and Get a Free eBook – The Beginners Guide to Forex Trading

 

 

Pin Bar Strategy – How To Trade It

 

Today we kick off our three-part series on price action analysis by taking a close look at the pin bar strategy and how to trade it. We’ll first  define the pin bar take a look at its anatomy and  then show illustrations of how to trade pin bar setups But first:

A Little Introduction To The Pin Bar Strategy

The pin bar pattern represents a  strong rejection and reversal of price.  The rejection usually occurs at a very crucial stage in market activity. The good news is once you familiarize yourself with this pattern you stand the chance of laughing all the way to the bank. The first question we need to ask ourselves is:

What Is a Pin bar?pinbars

Well, the pin bar is a thin bar with  the following attributes:  a long upper or lower tail, wick or shadow, and a smaller body or real body. The pin bar also belongs to the candlestick family(We’ll touch on candlesticks real soon)- very popular with forex traders because they’re easy on the eyes as far as price action goes.

 

Anatomy of the Pin Bar pinbar-anatomy

  • The  pin bar has a long tail or wick as it’s popularly known.. As indicated in the above graphic,  the tail is the pointed part of the bar that resembles a tail and which indicates rejection or false break of a level.
  • The body represents the area between the open and close of the pin bar. And it’s usually colored white or another color, when the closing price is higher than the open price. However, if the body color changes to a darker color, or some other color, then the closing price  becomes lower than the opening price.
  • The open and close of the pin bar should be close to or equal to the same price.
  • The tail, popularly known as the shadow protrudes fr
  • The tip of the tail is referred to as the nose.
    • The  pin bar has a long tail or wick as it’s popularly known.. As indicated in the above graphic,  the tail is the pointed part of the bar that resembles a tail and which indicates rejection or false break of a level.
    • The body represents the area between the open and close of the pin bar. And it’s usually colored white or another color, when the closing price is higher than the open price. However, if the body color changes to a darker color, or some other color, then the closing price  becomes lower than the opening price.
    • The open and close of the pin bar should be close to or equal to the same price.
    • The tail, popularly known as the shadow protrudes from the  other bars. For your sakes, you’ll be better off with a longer bar a

Now we’re gonna see illustrations of how to trade pin bar setups with respect to bullish and reversal  formations.

Bullish Reversal Pin Barbullish-pinbar

In a bullish reversal set up, when the pin bar’s tail points down, it suggests rejection of prices or a level of support(either support or resistance).  This triggers an upward trend or rise in price, and when that happens, it’s time to make a buying trade.

Bearish Reversal Pin Bar

The pattern on the right of the bullish reversal pin bar is the bearish reversal pin bar. This the complete opposite of the bullish reversal pin bar. Here prices are rejected at the level of support, resulting in a  drop in price. This triggers a downward pattern, and when that happens, it’s time to sell.

 

How To Trade Pin Bar Strategy

If you want to make serious money with the  pin bar strategy, make sure it’s well defined. Refer to the characteristics  of the pin bar we discusssed earlier if you find yourself in sixes and sevens.Why do I say so, because not all pin bar patterns look the same. So it pays to trade the pin bar patterns that satisfy the above characteristics. But just to clear any clouds swirling in your head, let me show you what a defined pin bar looks like.

def-pinbar

This is a pin bar formation in a downtrend. As the two arrows sugest, the pin bar has a long narrow wick and a small body. So keep that in mind when looking out for  the pin bar pattern.

Also,make sure that you trade pin bars that display confluence with another factor.  Sure, some of you are scratching your heads like “What does he mean by confluence.Well, confluence is where tow or more levels come together on the chart.  On    The alignment of these levels creates opportunities for trade signals. A classic example of pinbars displaying confluence is at the support level where you have multiple trade signals long the line of support. Let me show show you a classic  example of confluence of factors along the line of support

03-Using-Pin-Bar-Price-Action-Trade-Forex-Confluence-1024x480 (1).png

This,ladies and gentlemen, is a classic example pin bars displaying confluence with another factor along the lines ofsupport and resistance. The three arrows represent trading signals along these two lines. When such a convergence, occurs,  prepare to ring the cash register.If you want to  sink your teeth further in multiple confluence of factors  stop by  my Something Called Multiple Confluence of Factors Post.

 

That’s a wrap on “Pin Bar Strategy – How To Trade It.” Tomorrow we’ll touch on the second of our trade setups- Fakey Set Up. I’m sure you’re looking forward to that. Till next time take care.

Interested in getting into price action trading and a career in forex trading?

Read the following posts: Why Forex Trade Is So Popular and What Is Price Action?

 

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Three Price Action Trading Strategies To Help You In Your Price Action Analysis

 

 

Today we’re going to learn three popular price price action trading strategies you can use to help you in your price action analysis.  These trading setups are simple, yet effective. With a little patience and self control,  you can develop a deadly forex trading edge  with these trading setups. So what’re we waiting for? Let’s get started.

Pin Bar

. Pin Bars can also be set up in the opposite direction also as long as they’re clearly defined and well projected from the surrounding candlesticks. Of course this projection suggests a strong rejection and usually occurs on the daily chart time frame.

pin-bar

This is an illustration of a pin bar in action.. The pin bar is triggered by  the upward bullish pattern on the graphic which in turn  becomes a continuation signal.

Fakey Set Up

The fakey set up  has the unenviable reputation of fooling  traders into believing it’s going in one  and then doing a 360 as other traders push for glory in the opposite direction. This is popularly known as a false break. This phenomena really does trigger some huge moves in the forex market So if you’re just starting out as a trader keep your eyes open for this scenario.

bullish-fakey

As you can see in this graphic, the market looks like it’s in a downward pattern. Then it suddenly breaks upward past the pin bar after forming at the support level. This what you call a false break.The potential for substantial profits in this scenario are huge. The reverse also happens in a bearish pattern where the market goes bullish then swings downward at the resistance level. So you need to keep your eyes wide open for both scenarios.

Inside Bar Setup

The inside bar setup is very useful as a continuation signal. Located in front of the pin bar, the inside bar  breaks out from the support level with the price climbing upwards.   After a brief consolidation,  an upward trend pattern  breaks out, creating a strong momentum,. Inside bars are better played on daily and weekly charts..Yes, they allow for few risks, but the rewards are substantial.

inside-bar

As you can see, the  inside bar is placed infront of the previous bar. This triggers an upward pattern, giving rise to potential profits.

Well that’s a wrap for” Three Price Action Trading  Strategies To Help You In Your Price Action Analysis. These three trade setups seem very straightforward.  You don’t need to clutter your chats with indicators either. Master these setups and you’re on your way being a confident and successful trader. But you will need dedication and discipline to reach that promised land.

We’ll start a 3 part series on how to trade these setups starting with the pin bar.

If you strayed in on this post and you want to know what price action trading is all about, visit my What Is Price Action Trading? post.  For those curious about the forex trade or contenplating a career in the forex trade , find out Why Forex Trade Is So Popular

Till  next time take care

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