Top daily strategies by price action. Price Action Strategy: Definition of Patterns and Recommendations for Their Application

It is considered almost the most popular trading system. What is the secret of the popularity of this strategy? Firstly, Price Action trading is usually carried out on the daily timeframe, which virtually eliminates the occurrence of false signals and also reduces the time for conducting technical analysis. Secondly, this strategy is based on price behavior and does not require the use of additional indicators that either redraw or lag. Finally, Price Action is a trading system that actually works and can help you start making good money. In previous articles, we have already discussed what Price Action is, and also looked at setups such as pin bar, etc. In today's article you will learn what other Price Action patterns exist, as well as what can be useful for Forex beginners for successful trading using this strategy. See also on our portal.

Pattern "Rails"

This pattern refers to reversal patterns and shows a change in market sentiment. It is a combination of two large sized candles in different directions. Moreover, the candles should clearly stand out on the chart, but they should not have large tails. This setup is formed at the moment when large players exit the market, as a result of which the ratio of bulls and bears changes, which leads to a change in trend.

The “Rails” pattern is secondary, so it should be used only if there are confirming factors that strengthen this setup:

Formation of a setup after the end of consolidation in the direction of the previous trend;

Size of candles (the larger the body of the candles, the better).

We will enter trades using the “Rails” pattern using . If we have a bullish setup, that is, after a bearish candle a bullish bar appears, and both of these candles are full-bodied and large in size, then entering the market is carried out using a Buy Stop order placed just above the High point of the second candle. In this case, we place a protective stop order just below the Low point of the first candle. If we have a bearish setup, that is, after a bullish candle a bearish one appears, then we place a Sell Stop order just below the Low point of the second candle, and set the stop at the level of the High point of the first candle.

As for exiting a position, we do not recommend taking large goals, because very often situations arise when, after the formation of the “Rails” pattern, the price begins to move sideways. Since the Rails pattern represents an already formed impulse, it is quite possible that when you enter the market, there will be little left of this impulse. Therefore, even if there are all confirming factors that strengthen this pattern, it is recommended to use the nearest horizontal level or equal to the stop loss increased by 1.5 times as targets.

“Jarroo Method” – a simplified Price Action strategy

The Jarroo Method may be of interest not only to novice traders. Even if you have been trading using the Price Action method for a long time, you can add this pattern to your portfolio.

Price Action Indicators

The Price Action strategy refers to. However, not all traders can find Price Action patterns and determine key levels equally well in the first stages of getting acquainted with this technique. Then Price Action indicators will help you. Here you can download the Price Action indicator for free, which will not only signal the appearance of a particular pattern, but also tell you on what time frame the signal was formed. So, we bring to your attention the following indicators:

MTF_IB_SCAN – this indicator finds the “Inside Bar” pattern on the chart;

MTF_OB_SCAN – this indicator defines the Absorption Model pattern;

MTF_PB_SCAN – the indicator helps to find the Pin Bar pattern.

After attaching indicators to the chart, you will see approximately the following picture:

Since there are several indicators, in the archive you will find a template with which you can monitor the operation of all indicators in one currency pair window. In the left corner of the screen you will see an information window that displays indicator readings. The window is divided into squares - each from five minutes to a week.

As soon as the square turns green, it means that a Price Action pattern has formed on this timeframe. Just go to the specified timeframe and open a deal. All patterns are painted in colors that can be specified in the settings and are highlighted with arrows. Now you don’t need to clutter up a large number of open charts with different timeframes. Open just one chart of a currency pair, place a template with indicators on it, and you will instantly receive information that the Price Action pattern has triggered on one of the time frames.

All three indicators described above have almost the same settings, so we will not consider each indicator separately, but will only touch on the most important parameters:

barsback – shows the number of last candles that should be taken into account when searching for Price Action setups;

arrows – is responsible for turning on/off arrows when patterns appear;

arrowsize – sets the size of the arrows;

beararrow and bullarrow – here you can specify the color of the bearish and bullish arrows;

paintbar – is responsible for turning on/off the coloring of candlestick models;

barthickness – sets the degree of transparency when coloring candles;

bearishcol and bullishcol – here you can specify the color of the candles for bearish and bullish setups;

alarm – is responsible for turning on/off the sound signal when Price Action patterns appear;

sound – here you can specify the name of the audio file that will be played when the alarm parameter mode is enabled. The audio file must be located in the Sounds folder in MT4. It is necessary to enter the file name and its extension, for example, Track.wav;

alert – this parameter is responsible for turning on/off the alert, that is, the information window that appears when a signal occurs;

m5, m15, m30, etc. – provides the ability to disable the search for patterns for specified timeframes;

dist – shows the distance between the squares in the information window;

oX, oY – here you can set indents for the information window panel.

It should be remembered that all the indicators listed above should be used only as an auxiliary tool. All decisions about whether to enter into a trade or not must be made by the trader, based on the rules of the trading system.

To successfully trade using Price Action, you need to constantly improve your knowledge in this area. Reading written by professional traders who use the Price Action method in their trading will help you with this. However, despite the popularity of this trading system, it is almost impossible to buy Price Action books in Russian; they are all published in English. The traders themselves come to the rescue, translating Price Action books into Russian and posting them online. Here you can download a selection of books on Price Action completely free of charge:

A. Kokorev “Training course in the Price Action methodology.” This book will help you recognize Price Action setups on a chart, as well as combine them with other technical analysis tools: Murray, Fibonacci, PPZ and EMA levels. The book pays more attention to practice using clear examples of real trading.

Neil Fuller "The most important thing about Forex." In this book, the founder of the Price Action methodology shares his thoughts on the ambiguity of the Forex market. Neil Fuller believes that there are no grails or automated trading systems that only bring profit. Making money on Forex is a trader’s constant work on himself and his trading system. The author of the book urges traders to abandon and focus only on price behavior. The book will be equally useful to both novice traders and professional players.

L. Begs “Course on Price Action.” A practicing trader shares his impressions of trading using Price Action. After reading the book, you will learn about Lance Begs' trading principles and various strategies for exiting the market. The book uses examples from real trading and illustrations to them.

M. Pring “On price models.” Despite the fact that Martin Pring began his career as a trader long before the advent of Price Action, he was able to describe in this book the basic concepts of this technique. He believes that the Forex market relies on knowledge of which allows one to successfully trade in the foreign exchange markets.

Trading system “Trading without headaches”. This system is based on the basic principles of Price Action trading using horizontal levels.

We also invite you to download issues of the magazine of the same name “Price Action”.

Want to improve your Forex trading results? This article from Neil Fuller outlines powerful price action trading tools - solid, effective strategies that you can use immediately to improve your trading results.

These are some of the strategies he uses in his trading on a weekly basis to find high probability market entries (all price action trading strategies). Market analysis should be done at the end of the day. It is not necessary to apply the approaches described below in every trade, but you can look for them and opportunities to apply them on the chart.

1. A second chance to enter the market if you miss an entry on an important price action signal or a breakout of a key level

Often there is a good signal, but for some reason we miss entering the market. In this case, there is no need to panic or “chase” the market. Very often there is another opportunity to open a trade based on this signal. You just need to be patient.

The idea is that the market will often retest the area from which it exited or the area where a strong price action signal was formed. After an initial strong move, the market may return to this area (unless the market is in a strong trend) at least once.

The strategy is to simply wait for the price to move back to the place on the chart where:

• a strong price action signal has formed
• there is an event area

As soon as the price returns to this place, we enter the market by opening an order in the direction of the initial movement.

Example

On the S&P500 chart we see an important support zone (event zone) around 2590-2530, where the price clearly showed a rejection of the level. The pin bar signal that arose from this zone is an obvious second chance to enter the market!

In the following chart of AUDUSD we see a clear pin bar reversal signal formed at a very strong resistance level. Entering it would be quite risky, because it would be a trade against the current trend. But the price went down and then came back, where a pin bar from this zone was formed. If you did not have time to take this signal into trading, then after a while the market gave another chance to enter into sales - another pin bar.

In the example above, you could place a stop loss on the tail of the first reversal pin bar if you entered at the 50% retracement to the tail of that pin bar. This would allow for a good risk/reward ratio and significantly increase the potential profit from the trade, as the stop loss is quite tight and there is enough room for a strong move. You can see what happened next.

Note: You don’t always need to set and try to get a tight, small stop loss. In the example above, even if you were to place a stop loss above the tail of the second pin bar, the risk/reward ratio would also be acceptable and would allow for significant profits. Additionally, a wider stop loss will often allow you to stay in the trade longer and reduce the likelihood of being knocked out of the market too early before the price starts moving in the desired direction.

1.2. Trading on a 50% retracement

I personally like to enter the market at points of 50% price retracement to the formed price action patterns (usually pin bars) and 50% retracement to important swings.

When trading a 50% retracement of a pin bar pattern, you need to place a limit order approximately at the level of the middle of the signal candle. Often price will test this level, especially if it is a long tail pin bar. In this case, the stop loss will be small (hard), which significantly reduces the risk and increases the potential reward in trading.

The figure below is an example of entering the market with a limit order set at 50% of a pin bar formed at a key support level. Note that almost two weeks later the price reached this level, but it doesn't matter. What is important is patience and understanding of these login settings and waiting for them...

The possible risk to reward ratio in this case was 1 to 4. You can take the tool with which the levels for taking profits are marked.

There are entire books written about corrections, which often account for 50% of the entire trend movement. History shows that during a market trend, market movements often occur against the main direction, called corrections or pullbacks. After such movements, which are usually about 50% of the previous one, the original trend resumes. This is obviously a huge clue that we can use and look for

In the example below, you will see two 50% price retracements (up) against the main move down on the AUDUSD chart. In both cases, confluence factors were present, which gave additional confidence that movement in the main direction (downtrend) would resume.

2. Pyramiding

Note: This technique is only for advanced and experienced traders, as it requires experience, knowledge and understanding of price action and how the market works.

Pyramiding is the gradual opening of additional trading positions to obtain additional profit.

In this case, we mean the use of pyramiding only on fast, strong trending markets. This allows you to significantly increase your trading profit potential and is truly the only true way to make a lot of money quickly in the market.

The idea is that when you are confident that the market is moving aggressively in one direction, ideally after an important, quality signal or significant breakout, you can try pyramiding by adding positions at strategic points.

In a pyramiding strategy, the risk size should be 1R - previous positions should be transferred to breakeven or take profits as trading progresses in your favor. One can aim for 2R profits, but in fast markets that same 1R can turn into 5R or even 10R possible profits. Please note that there is a risk of gaps appearing after the weekend and the market could go against us - which is why this strategy is only for advanced traders.

3. Merger

Confluence trading is a truly powerful trading strategy that can greatly improve your trading results. This means that to enter a trade we need to obtain several auxiliary factors or evidence confirming this trade. For example, a price action signal (signal), a trend and an important key level.

You may have to wait days, weeks and months for the signal, trend and level to confluence to open a trade, but when this happens, trading success is almost guaranteed.

Now let's look at some examples of different combinations of trend, level and signal. It is not always necessary to combine all three factors; you can only take trades with a trend and a signal.

Just know that the more merging factors, the better.

Signal price action + trend

This example shows a good pin bar signal that is formed in combination with a strong trend. Note that this was a sell signal in the context of a downtrend after the price had pulled back slightly upward.

Price action signal + level

The following example shows that a trade can be opened if there is a price action signal located at a key level. This is a Dow Jones chart where we see a pin bar formed in a clear key support (event) area. However, the trend is not obvious - it is rather sideways, but nevertheless, two factors of the merger were enough for a profitable transaction.

Trend, level and signal

If I were sent to a desert island (with good wifi, lol) and told to choose only one trading strategy, it would be the fusion of trend, level and signal. In this case, there may be other merger conditions, for example EMA or 50% retracement. The bigger, the better. But when we see a merger of a trend, level and signal on the chart - It's time to stop thinking and start acting.

The trading strategies described above will help you increase your trading profits by giving you an edge in your trades, as well as increasing your reward ratio.

Friday, June 8, 2018

After our Forex lessons, you already know what candlestick analysis is and, perhaps, someone has already worked on it. Steve Neeson was the first to describe this type of analysis. But everything is developing and improving. And after a certain period of time, it became possible to “read” charts thanks to another method - Price Action patterns. Let us remind you that this is a strategy without indicators.

Price Action patterns are without a doubt worthy of attention. Therefore, we post a special course on Price Action patterns on our website, after which you can independently master them in practice and look for such patterns on your charts. With Price Action you can make a profit on every trade. However, this can only be achieved through independent practical activity.

DBLHC (Bullish setup)– two or several bars whose lows are identical. However, the closing price of the outermost bar is higher than the high price of the bar preceding it. The signal created by them becomes more powerful due to the number of bars that form the setup. The difference in the minimums of adjacent bars is no more than three points.

DBHLC (Bearish setup)– two or several bars whose highs are identical. Here, the closing price of the extreme bar is lower than the minimum price of the bar preceding it. The signal created by them becomes stronger, depending on the number of bars that form the setup. The difference in the maximums of joint bars cannot be more than three points.

DBHLC pattern on the price chart

TBH– these are several bars whose highs are identical. In this case, the pattern setup will be two-sided. A signal for trend continuation will be a breakdown of the high of the signal bar. A trend reversal signal will be a breakdown of the low of the signal bar. The difference in the highs of adjacent bars should be no more than three points.

TBL– these are several bars whose lows are identical. The setup will also be two-sided, and the signal for trend continuation will be a breakdown of the low of the signal bar. The difference in the minimums of adjacent bars is no more than three points.

TBH pattern on the price chart

Rails is a Price Action pattern that includes two bars that have different directions. Let's assume the setup is bearish. This means that the initial bar of the Price Action pattern is bullish, and its next bar is bearish. For a bullish Price Action pattern, everything is mirrored.

You can see below what rules govern trading using these Price Action patterns. When making trades for a bearish Price Action pattern, the entry order must be less than its minimum. The initial stop must be above the high of the Price Action pattern. For a bullish setup everything is mirrored.

It is worth recalling that after the pattern has formed, the price rolls back to the original stop. The pullback can be more than 50 percent of the height of the Price Action pattern. Then the order should be removed, despite the small loss. You can try logging in later. However, as long as the rollback is below 50%, it will work.

"Rails" pattern on the price chart

CPR (Closing Price Reversal)

Let's look at an example of a bullish setup of the Price Action pattern. Initially, a gap is required between the closing price of the previous bar and the opening price of the signal bar. At the same time, it is necessary to locate the opening price of the signal bar near the low bar going in front of it. And only after this the signal bar will close above the low of the bar in front of it. For a bearish setup everything is mirrored.

CPR pattern on the price chart

Hook reversal (HR)

The signal bar of the Price Action pattern, which appears during a powerful trend, will not be able to go beyond the boundaries of the previous bar.

Rules that are important to follow when down trend:

• The opening price of the signal bar is near the low of the previous bar
• The closing price of the signal bar is near the high of the previous bar
• The low of the signal bar is higher than the low of the previous bar, and the high of the signal bar is lower than the high of the previous bar of the Price Action pattern

Rules that must be followed when up-trend:

• Opening price near the bar high
• Closing price near the bar low
• The low of the signal bar of the Price Action pattern is higher than the low of the previous bar, and the high of the signal bar is lower than the high of the previous bar

Do not forget that a strong trend causes the same signals. If the trend is weak, the signals will also be weak.

HR pattern on the price chart

HR pattern on the price chart

Inner bar is a bar with a high below the high of the previous bar and a low above the low of the previous bar. This is true for both bullish and bearish price action setups.

Very often, to designate a bar, traders use the following abbreviation IB, which means Inside Bar. If you see the following inscription I2B, then the number in it indicates how many bars correspond to the definition of an inside bar. The bar located in front of the inside bar is the “determining” / “measuring” bar. It is analyzed inseparably from the inside bar as a joint two-sided Price Action pattern. It can be reversible.

"Inside Bar" pattern on the price chart

External Price Action Bars: Bearish and Bullish

BUOVB– a bullish bar that is capable of completely covering the bar preceding it. The closing price will be higher than the high of the previous bar. If the high of the signal bar is broken, a buy signal appears.

BEOVB– a bearish bar that is capable of completely blocking its previous bar. In this case, the closing price will be lower than the low of the previous bar. If the low of the signal bar is broken, a sell signal appears.

"Outside Bar" pattern on the price chart

PPR

At bearish pattern Price Action a new bar forms a new high above the previous one. The subsequent bar closes below the low of the previous bar and cannot exceed the high of the bar that precedes it.

At bullish pattern Price Action a new bar forms a new low below the previous one. The subsequent bar closes above the high of the previous bar and cannot make a low below the low of the bar preceding it.

PPR pattern on the price chart

Gravestone– a Price Action pattern that lets you know when the previous trend will end and reverse, or when it will go flat. This pattern mainly occurs at the top of an uptrend. This pattern should have no lower shadow or body, but should have a long upper shadow.

However, there is a possibility that the body and shadow may be very small. The pattern will be more significant if the upper shadow is longer. The lower shadow and body, on the contrary, make the pattern less important.

Gravestone pattern on the price chart

You can get acquainted with each pattern in detail in this Price Action section, as well as study other, no less important patterns: Price Action pin bars, CPPR pattern, mirror bar, force bar, arrow pattern.

We recommend moving on to the next useful material "Pinocchion bar"

Price action is one of the most popular techniques that is used in the market with great success. Price action is an indicator-less trading system and involves trading by interpreting price movements in certain setups. Naturally, the use of technical analysis indicators is permissible, but they will act as confirmation of the current transaction, but not the main signal to enter the market.

It is worth noting the fact that Price action in its philosophy is very similar to classic candlestick analysis! In fact, these two methodologies differ little from each other. In fact, Price Action is a simpler and more logical analysis of the market, which contains simple formulations that even novice investors can easily master. So, in this article we will take a closer look at the Price action method, analyze the most popular trading setups and look at how to successfully apply them in practice. For reference (price action is the same technique, but the names are in Russian and English).

History of creation

The described methodology appeared on the market relatively recently. For the first time, this trading system was described on the pages of an American forum, approximately 5-6 years ago. The basic concepts of this analysis were described in one of the forum threads. Many believe that the trader who created a topic on the forum with this analysis is the founder of Price action. In any case, there is no direct evidence of this fact!

On the forum, a whole thread is devoted to this analysis, which over the several years of its existence has attracted the attention of a large number of investors and now contains several thousand pages. It is worth noting that investors willingly share their observations and regularly post examples of their transactions. Along with other investors, Niall Fuller also made a major contribution to the development of Price Action. This is a well-known American trader who trades exclusively using this system. He has his own blog called, where he posts his transactions on the system and trains other investors. Price action trading is a unique opportunity to look at the market from a slightly different perspective.

Note that this technique is very promising, and on its basis you can build your own trading system. Most likely, Price Action will continue to develop and attract the attention of more and more investors!

Patterns

Price action setups are the main structural unit of this methodology. So what is a pattern? In the context of the described methodology, a pattern can be either one independent bar or a group of them. The setup is formed by the price and fully reflects the true mood of the market. It is important to understand the psychology of price movement, because the market is traded by ordinary people who have their own hopes, fears, and expectations. In price action, all patterns can be divided into three large groups:

• Single candlesticks. This is the most common and frequently encountered group of setups in market conditions. They are the most easily identified even by novice traders. In fact, they have a very good completion rate! The most popular representatives of this group are DoJi, Pin Bar, Hammer, etc. Beginners are recommended to focus their attention on this particular group of patterns from the very beginning of mastering the described technique.
• Two-candlesticks. These price action setups are formed by two bars. This group of patterns, like the previous one, is often found in market conditions and has a high percentage of positive development. The most popular examples include Inside Bar, Outside Bar, DBLHC, etc.
• Complex. These price action patterns are formed in market conditions for quite a long time, especially if we are talking about long time intervals. Beginner investors should avoid trading these setups as they are difficult to correctly identify. The most prominent representatives are 123 Pattern, CPR, Hook Reversal and others.

We will return to considering setups in practice a little later.

Support and resistance levels

Price action trading is closely related to support and resistance levels. It is worth clearly understanding that for any setup, the place of its formation is more important. So, price action patterns formed near important extremes have higher priority than those setups that are completely devoid of support. In any case, a large number of combinations formed by bars can appear on the market every day. However, you need to understand that not all of them will be suitable formations for trading.

In this case, it is the support and resistance levels that are the most optimal filter that allows you to select strong price action setups for trading. What is a level? In essence, a level is a large accumulation of orders (limit, stop, stop-loss). As we know, the price always moves from one extreme to another, simultaneously breaking through outdated and weak levels. In this case, you need to clearly understand that only strong levels should be taken for trading. How to determine strength?

In this case, there is no definite answer, because building a level is, let’s say, a subjective action. Simply put, if you take ten traders and ask them to draw levels on an identical price chart, you can be sure that each investor's readings will be significantly different. Let's look at an example.

This is a regular chart of the Euro/Dollar currency pair. As you can see, the price is constantly updating new lows and highs! Let's build the most obvious resistance support levels.

As you can see, we noted obvious levels from which the price either reversed or gave a strong pullback. It is near these areas that you should look for price action patterns. A good setup coupled with a strong level can provide an excellent reward to risk ratio. Note that in Forex price action is the most effective technique. Often, experienced traders can take potential trades with a ratio of more than 1 to 5 for trading. Agree, this is simply phenomenal! The price action system allows you to choose for trading only the most obvious formations that are most likely to provide you with profit.
When constructing levels, you should definitely take into account the fact that not all peaks and troughs can form a level that will be suitable for trading. Let's start with the fact that only the area from which the price formed a new high or low can be considered a level. In addition, you need to take into account the number of rebounds from the level and the force with which the price moved away from it.

Pay attention to the picture above and the areas that are marked with ovals. Look at the leftmost oval, the price approached the level and sharply left it. Subsequently, the price repeatedly approached this area, but was never able to overcome it. The areas depicted in the middle and on the right let us know that there was a lot of competition between buyers and sellers in the level. Ultimately, supply turned out to be stronger than demand, and the price safely went downward. Price action patterns formed in these areas are excellent opportunities to enter the market.

In any case, you should definitely take into account the number of price touches. With each new touch, the level weakens and is eventually broken through by the price. The ability to build levels is a basic skill that every investor who comes to the market must master. Without a clear understanding of these points, it will not be possible to make a profit on an ongoing basis. Many investors are interested in:

Are levels built based on the bodies of trading bars or their shadows?

In fact, both options will be correct! There is some kind of explicit algorithm in building levels! Moreover, it is worth understanding that supply and demand are formed in the market within a certain range. If you take a certain level, for example 1.120, the price has moved significantly from it in a downward direction. Accordingly, supply turned out to be stronger than demand. But here it is worth taking into account the fact that the supply was formed in a certain price range, including 1.125, 1.124, 1.123, 1.122 and so on. For a better understanding, take a look at the picture below.

In the figure we can see areas from which the price made reversals and strong pullbacks. Often these areas are called supply and demand zones. Price action trading is closely related to these concepts! Pay attention to the uppermost zone, you can see how aggressively the price moved out of this area. It would be logical that the supply that caused the price to fall accumulated in a certain price range, in our case this is the area of ​​1.25800-1.25600.
It was there that a large number of sell orders were placed, plus the stop losses of investors who were buying the asset at that moment were triggered. In any case, you must realize that building levels (areas) of support and resistance is a subtle science and understanding this only comes with experience!

“Specifically for us, only those setups are important that were formed in areas where a strong imbalance between supply and demand was visually noticeable.”

Practice

So, as we said earlier, the price action strategy involves trading through the use of various formations formed by bars. Let's look at the most popular trading patterns in practice. As an example, we will look at screenshots of those moments that would make it possible to enter the market with a low level of risk. Note that price action is used on longer time intervals, so we will take the daily timeframe as a basis.

This is a strong one-bar combination that foretells the investor a potential market reversal. As you can see, these are bars that have a small body and a large long tail. This setup is most powerful if it follows a trend and is supported by a strong price level.

The picture shows a Pin Bar, which is visually fully formed and has support in an important price area. As you can see, after its formation, the price moved steadily upward for four days. This was an excellent opportunity to purchase a binary option. Such a setup is always well worked out in the market; in particular, novice investors should definitely pay attention to this formation.

These patterns have a similar context to the previous one. They also foreshadow to the investor a possible reversal or strong pullback.

This is what these formations look like. It is definitely worth considering that they are rarely found on the market, but they perform very well. The figure shows a gravestone, after which the price went strongly in the opposite direction. It was formed after a strong price drop and is based on a very important price level. This was an excellent opportunity to purchase a binary option. There is another similar combination in price action - doji. We will not consider this setup, because it does not give a signal for a reversal or rollback, but simply signals market uncertainty.

The inside price action bar is a very popular trading formation that is often found in the market. It has the greatest weight if it was formed at an important price level.

The picture above shows a beautiful indoor bar. We see the bearish bar close completely within the bullish bar's range. Moreover, this moment occurs at a new market high, which further strengthens the signal. After this, the price rushes in a downward direction. Thus, if we were to purchase a binary put option in this case, we would definitely make a good profit.

The external price action bar is a very important pattern in this methodology. It is very easy to identify.

Please note that we have an important price level where the bearish bar completely engulfs the previous one. Thus, we conclude that there has been a large surge in supply at the level. If an investor entered into a trade at this moment, he would make a significant profit.

These bar formations are quite common in the market and signal a reversal of the current trend.

You can see two bars that have the same bottom. After the formation of this setup, we see how the price will soon move aggressively in an upward direction. The support of this figure on a strong price level significantly strengthens the signal. Such price action patterns are easily identified by a novice investor.

This pattern can be classified as complex, however, it is quite common in market conditions and is very easy to understand even for novice investors. For greater clarity, let's look at the example below.

So what do we see? This is the current situation on the Euro/Dollar currency pair, hourly timeframe. From point 1 the price makes a slight rollback, after which the upward movement resumes from point 2. However, this movement was unable to create a new market high and the price from point three rushes down. At the same time, it breaks through the conditional resistance near point 2, marked in blue. Thus, we have a full-fledged setup 123. There are two ways to enter through this formation - aggressive and conservative. A conservative entry into a trade is made during the actual breakdown of point 2.

In turn, we make a conservative entry when the price, after breaking through resistance, returns for a retest. The aggressive method in this case is less beneficial than the conservative one. Here everything can be simply explained: directly during the retest of the broken level, we will have the opportunity to purchase a binary put option at a more favorable price for us. In fact, we will sell the asset at a higher price. As you know, the main goal in any transaction for an investor is to buy cheaper and sell an asset at a much higher price. As for the aggressive method, we will sell at a lower price, which is no longer profitable for us, plus, we cannot be one hundred percent sure that the setup will work.

Here it is worth understanding that even obvious formations can sometimes fail. As for this setup, it is perfect even for novice traders! It can be found on various time frames, but one thing worth considering is that a setup formed over a longer time period has greater strength.

Setups, addition

Price action trading involves a large number of different setups. It is worth understanding that the price action strategy is an independent and self-sufficient methodology. In order to fully describe all existing patterns, you will need a whole series of articles. The most popular and reliable formations have been described above. They are perfect for novice traders who are just starting their journey in trading using this method. In any encyclopedia dedicated to this system, you can find a detailed description of each pattern. Fortunately, this approach is described in many text media and over the years many video lessons have been created that fully cover the entire concept of this approach.

From the very beginning, it is worth spending time on simple formations. They will give you a basic understanding of the methodology and provide you with a foundation from which you can master more complex setups in the future. Note that complex formations are suitable only for those investors who already have significant experience in trading using the described approach. To begin with, complex formations are difficult to identify. Naturally, in any textbook you can easily find many examples of complex trading formations. You will get the feeling that there is nothing complicated about them, however, this is far from the case. It is worth clearly understanding that the textbooks give ideal trading situations as examples. In fact, in practice, everything does not look as beautiful as it is described in the training manuals.

The most important thing is to understand the essence and philosophy of this method. Any bar formed in the market is a reflection of the mood of market participants. You must understand how and why this or that pattern formed.

You need to know what processes prevailing in the market led to the formation of the formation. Let's remember that the market moves through the constant interaction between supply and demand. If demand is stronger than supply, then we will observe an upward price movement. When supply is significantly stronger than demand, the market will move in a downward direction. If supply and demand are in dynamic equilibrium, then the horizontal vector of movement will prevail. The stronger the imbalance between supply and demand, the faster and more aggressively the price moves from a certain area. Any pattern has no weight if it is not supported by a strong price level.

In any case, price action setups are only an integral part of the described methodology. To trade profitably, you need to consider many factors. Plus, this methodology can be used in conjunction with other approaches. If you want to get acquainted in detail with trading setups and their characteristics, then you can find complete information on this issue on the price action ru website.

Price action and indicators

Everyone knows very well that price action is trading without indicators. However, this still does not mean that the use of technical analysis indicators is completely prohibited. Price action indicators are important tools that act as a complement and can enhance a potential signal. Again, the key word in the previous sentence is “additions.” Let's just say that technical indicators in this case act as confirmation of certain signals.
We must understand that we enter the market only through the emergence of an important formation, but not based in any way on the readings of the indicators used. Let's try to add an indicator to the price chart.

What do we see? We immediately focus our attention on an important price level, then we see that an external bar has formed, signaling a trend reversal. Even these two components are quite enough to purchase a binary option. But let's look at the stochastic readings. What do we have? It crossed the border of 80, which indicates to us that the market is overbought. Thus, three components at once confirm our entry into the transaction. As you might have guessed, it would be profitable. Let's look at another example!

We can observe divergence between the true price movement and the actual readings of the stochastic.

After which an inside bar is formed. Note that it is not ideal, since the lower shadow has left the range of the previous bar. However, this setup is quite suitable for trading. If we entered a trade with expiration within a few bars, we would make a profit. As you can see, there was no price reversal, but we would have had time to catch the price pullback. Thus, good trading setups confirmed by other technical analysis tools can produce good profits, even if you are trading against the trend. However, one thing worth considering is that trading against the trend is a risky activity that can bring very unpleasant surprises.

Plus, the examples above did not show the most beautiful pattern. Of course, they work well, but it is better for novice investors to refrain from such trading and wait for the formation of only the most obvious and visually formed patterns. This is necessary in order to have a certain confidence in your actions. Any price action indicator will be a good assistant for a novice investor. And with the advent of experience, it will be possible to completely abandon their use.

It is worth noting another trading indicator that is very often used when trading using this methodology - moving averages. No, we will never consider the intersection of averages as a potential signal to enter the market. Let's start with the fact that such signals appear with an enviable delay, which means that you will be forced to enter the market at a price that is not favorable to you. In this case, we will use moving averages as dynamic support and resistance levels.

Let's look at the picture presented above. We see how the price has hit an important resistance level, plus, besides all, a moving average with a period of 200 passes close to this area. In addition, we see the formation of an inside bar, which indicates to us a possible price reversal. Thus, moving averages are important additional tools when looking for potential entry points. There are also specialized indicators, for example, a price action pattern indicator called CPI. However, its appropriate use is constantly debated by many investors. Some people think that it perfectly indicates the formed setups, while others are sure that its use will not give anything good. There is no clear answer to this question; it all depends on the trader himself and his preferences.

But let's judge logically, in this methodology we use indicators only as confirmation of a potential transaction. Accordingly, using the indicator as the main signal will completely contradict the philosophy of the method described in the article. And let's be honest, it is impossible to program bar setups into mathematical code. In any case, each situation that arises in the market is unique and requires a certain interpretation. But why is it impossible to program setups into code? Let's take two different pin bars. One will have a size of 25 points, the other will have a size of 50 points. Yes, they may differ in size, but this does not change the essence of the matter; they still remain formed patterns. Roughly speaking, setups within the same group can differ significantly in various characteristics, such as size and location.

Thus, there can be a huge number of combinations, and writing an indicator will be difficult. In any case, he will indicate certain points correctly, but in the meantime, you will miss a large number of more profitable signals. As professional investors and experts in the field of indicator-free trading say: “Price is the best indicator!”

And indeed, the entire philosophy of the indicator-free method is built precisely on this saying. Anyone who understands the logic of price movement has an advantage over other traders. In fact, entering on a beautiful price pattern will give you the opportunity to provide yourself with an excellent reward-to-risk ratio. Again, we repeat, any price action indicator can be excellently used as a complement and a certain filter for your trading, but its use as the main signal to purchase a binary option will be inappropriate in this case. In any case, there is no clear algorithm of actions in this matter. As an assistant, you should choose the indicator that is most suitable and understandable for you. To do this, it is worth spending some time to develop a specific approach in combination of indicators with price patterns.

Market trend

The concept of a trend is a very important point for trading using this indicator-free method. It's no secret that there are three types of trends:

• Rising. The price forms new highs that are higher than the previous one. Visually, the market is moving in an upward direction.
• Descending. The market moves down and new highs are formed, each lower than the previous one.
• Side. Supply and demand are in dynamic equilibrium, and the market moves in a horizontal vector.

Many investors have heard that it is best to look for market entry points that will confirm the current trend. In principle, the described technique is no exception to this rule. Of course, we can use counter-trend setups, because long-term corrections from the current movement are very common. However, you should only work against the trend when you already have some trading experience.

It is better for novice investors to look for those setups that confirm the current trend. Trading taking into account the priority movement of the market will give you the opportunity to find more profitable entry points into the market, plus, trend trading is easier to conduct psychologically. The specifics of trading are slightly different during the development of consolidation (sideways trend). Everything is very simple here, we draw the support and resistance levels of the price channel, then look for trading setups near them. The formation of trend formations sometimes takes a very long time, but for novice investors this is an excellent opportunity to get used to this method and gain some experience.

Analytics

Price action analytics is now very common on the Internet. Many resources provide trading signals and ready-made market analysis using this methodology. This is due to the fact that this system does not require much time from the investor. For example, if you trade on the daily time frame, then you will need no more than 20 minutes to conduct a comprehensive market analysis. At the same time, if you correctly identify the pattern, there is a high probability that your trade will be profitable.

However, analytics from other traders should be treated with great caution. Let's start with the fact that we cannot know how competent the trader who analyzed the market was. Analytics is best used as a complementary tool. For example, you first do a market analysis yourself, and then compare your readings with the resource where the analytics are published. If your thoughts coincide, then you can open trades with more confidence.

Bar analysis and fundamental analysis

As we already said at the beginning of the article, the described methodology closely cooperates with fundamental and technical analysis of the market. Bar analysis, however, is less related to fundamental analysis.

In this case, the only important moment for us will be the time of release of important economic news. But what effect they will create for the economy as a whole is a secondary point. We are guided by the basic rule that price takes everything into account.

Let's think logically about why the price often moves strongly and impulsively during the release of important economic news. The reason for all this is traders, their fears and expectations. Many people are well aware that Non Farm Payrolls data is released every first Friday of the month.

This is the most important indicator of the economy of the United States of America, which causes unpredictable sharp price increases in the market. Why is this happening? Imagine, all the traders on the planet are waiting for the publication of this data, they have their own point of view regarding the further movement of the market. After publication, the level of liquidity in the market increases as a huge number of investors begin to enter the market. In the context of the methodology described in the article, it is better for us to refrain from any actions in this case. We care exclusively about the result after the fact, which will result in the formation of some kind of trading setup. During the publication of economic data, entering the market is a very risky activity. Many investors have seen economic news releases accompanied by significant price swings up and down. In this case, we cannot objectively assess the market situation, and such entry into the market will be unsystematic.

As you know, violating the rules of your trading strategy will in any case lead to losses. Thus, we evaluate fundamental factors indirectly; yes, the results of the publication of data and the time of their release are important to us, but more global issues do not have a priority for us in this case. Again, the market moves under the influence of fundamental factors only because traders react and pay attention to them. If news is published and trading positions are not opened, then the market will not move anywhere. Any price movement is a direct reflection of the interaction between supply and demand. And any resulting setup is the result of a struggle between buyers and sellers. Of course, it is very difficult to fully understand such a moment from the very beginning, but it is this factor that underlies pricing and market movement.

Advantages and disadvantages

Like any other system, the described method has its design advantages and disadvantages. Let's start with the advantages of this system. Let's start with the fact that this method is based precisely on the analysis of price movement. Roughly speaking, we assess the nature and dynamics of market movement. In this case, we have the opportunity to enter the market at the most current prices. Accordingly, we have a chance to open transactions with low risk, but potentially large profits. Another advantage of such a system is its diversity. To trade profitably, you don’t have to use all existing setups.

You need to look only for formations that make sense to you and you are comfortable trading with them. Now let's note certain shortcomings. The main disadvantage is the subjectivity of this method. Everything is simply explained here, given the fact that this system is based on vision, each investor can interpret the market situation differently.

Simply put, in the same situation, two investors may look for market entry points in different ways. Another point is that the use of this method assumes that the investor already has some trading experience. To begin with, a trader must flawlessly look for support and resistance levels - this is the absolute minimum that every trader who wants to trade using this system must have.

conclusions

So, we have looked at the most popular indicator-free method for trading on the market. With the proper approach to training, you will be able to earn big profits, and you will do this with enviable consistency. Be sure to consider psychological aspects in your trading. This means that any formation can take quite a long time to form. Novice investors always have an irresistible desire to purchase a binary option even before the setup is fully formed. Let's think logically, even the most beautiful pattern will not give us a 100% guarantee that we will make a profit on a trade.

Well, if you enter into a trade before the final formation of the figure, then this is extremely risky. Therefore, we must be patient and look for as much evidence as possible that entering the market will be logical. Don’t forget about the rules of money management! According to the classics, the maximum percentage of risk per transaction should not exceed 5%. Some, more conservative traders, prefer not to exceed the risk per trade of 2-3%. Remember, this methodology works on all time frames, but it shows the greatest profitability on the D1 time frame. Naturally, you can use this approach at lower intervals, but there is one thing to consider here. Using low time frames is fraught with the emergence of market noise that will prevent you from objectively assessing the market context.

To trade on low time frames, you need experience, which will only come with time. In any case, it is worth taking a closer look at the range of time frames from H1 to D1. Over time, you will be able to move to lower time periods, but it is better not to go below H1. On low timeframes it is difficult to navigate and objectively assess the current situation. In any case, the method described in the article can become an excellent basis for you to further develop the market!

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Today we will talk about the recently very popular Price Action method for binary options. It has been used to analyze market assets with great success for a long time.

The phrase itself Price Action is translated as “price movement”. This is a kind of indicator-free trading in combination with candlestick analysis and its various patterns.

Any novice trader goes through a stage when he understands that indicators are not needed at all for successful trading. At first, we all put as many indicators as possible on the chart, because the more, the better, we think. However, losses continue to haunt us. As a result, we decide to completely change our trading tactics.

Of course, Price Action for binary options can be supplemented with indicators, but they will only act as additional confirmation of the main one, which we received based on setups and candlestick analysis.

Price Action is a kind of modern branch of technical analysis. Only if classic technical analysis uses indicators and graphical figures along with support/resistance levels. But the Price Action strategy for binary options involves only candlestick patterns.

So, Price Action is trading by patterns. Essentially, this is the same as candlestick analysis, only it is formulated in much simpler terms. This technique is very easy to learn even for beginners. If you already have even a little trading experience, then most likely many Price Action patterns for binary options will already be familiar to you. Both individual candles (Pin bar) and their combinations (bearish/bullish engulfing, morning star, etc.) are used here.

History of the creation of the technique

This technique actually appeared quite recently, about 6-7 years ago on the pages of an American forum. On one of the threads, the trader simply described his thoughts and assumptions. Therefore, many believe that it is this trader who is considered the founder of the Price Action method, but there is no direct evidence of this.

After some time, this thread grew into thousands of discussions, gained many supporters, and became very popular. Little by little, the Price Action strategy for binary options spread throughout the world, and now you and I are successfully using it in trading.

Stock speculators and investors willingly tested the methodology, sharing their experience. A very big contribution to its development was made by Niall Fuller, an American trader who worked exclusively using the Price Action method. He created his own blog, where he described all transactions concluded using this system.

Well, if you look deeper, the history of the creation of Price Action for binary options goes much deeper - into Dow theory. Further in the 90s of the last century Steve Neeson published his famous book on candlestick analysis, opening the world to the possibility of simple indicator-free trading. However, his books were difficult for beginners to understand, and he was more focused on the stock market.

A more advanced study of this theory began Elliot waves, which include support and resistance along with Pivot Points and market waves. All this can also be attributed to the Price Action method for binary options.

It is believed that the biggest contribution to the development of modern Price Action was made by the trader James16. After him, many professional speculators also began to master indicator-free trading, thereby developing and improving the methodology - Alex Nekritin, Al Brooks, Lance Beggs, Dan Chesler and others.

Price Action is a very promising area. Based on it, you can build your own methodology. Therefore, we can safely assume that it will continue to develop, attracting even more traders.

Use in practice

Traders apply the methodology in practice in different ways. But it is recommended to first plot support and resistance levels, as well as channels, on the chart. Well, after that you can start searching for the necessary patterns.

Highlight three types of Price Action application for binary options:

• no indicators, only candlestick analysis, trend levels and graphic models.
• if you trade stocks, then in addition to the first point, volume indicators must also be added.
• use in conjunction with indicators. Each trader has his own favorite tool, which shows the most profitable trades. Therefore, it is not at all prohibited to use it in combination with Price Action for binary options.

Support and Resistance Levels

This tactic of market analysis is closely related with key levels. It is extremely important not only to find a certain pattern on the chart, but also to understand the importance of exactly where it formed. If they appear near important levels, they have a much greater chance of being worked out than if they appeared in an empty place where there is no support.

There are a huge variety of setups and patterns being formed, but not all of them will be suitable for us. It is the trend levels that will serve as a filter for us.

We have already described in detail what support and resistance are, so there is no point in talking about it again.

Essentially, these are zones that the price will not be able to break through, which will serve as a trend reversal or at least a rebound. The construction of such lines is a purely subjective opinion of each trader. Everyone makes up an individual methodology based on the main theory.

Here is a striking example. One currency pair can have many levels, and these are just the main ones. These are the zones from which the price had previously bounced and could not break through. These are the lines we need for the Price Action strategy for binary options to work successfully.

Combining the pattern with such a key level is guaranteed to provide you with big profits!

Not every bounce is worth drawing a line on. It is important to consider the number of bounces - the more there are, the stronger the level. For example, in the screenshot above, the price failed to break through resistance three times. That is, there is a high probability that for the fourth time it will not be able to go above this level.

Well, Price Action setups for binary options formed near this level will serve as excellent signals for entering the market for a fall.

It is also worth considering the fact that none of the levels can hold the price forever. Therefore, with each new touch it gradually weakens, so the probability of its breakdown next time also increases.

To trade with Price Action for binary options, it is not necessary to build levels using candle bodies. Some traders outline entire zones (by shadows). After all, too strong shadows also speak volumes.

There is no right solution in their construction; traders choose individual methods for themselves.

Patterns

Well, now let’s move on to the Price Action methodology for binary options and a description of the main patterns on which it is based. They can consist of either a single candle or a group. Basically, all such combinations can be divided into the following:

1. One candle. These are the most common and easily recognized patterns. Beginners begin to master the technique using them. This group includes the famous Pin Bar, Doji.
2. Two-candlesticks. This group includes bearish and bullish engulfing, internal and external bars.
3. Complex patterns. These are much more complex setups that can be formed over a long time. For beginners, it is better to refrain from trading them at first, and focus on practicing the previous ones.

Well, now let's look at the most basic patterns on which the Price Action methodology for binary options is based.

Pin Bar

This candle occurs in a good half of all setups, we can say that Pin Bar is the basis of Price Action for binary options. It got its name from the abbreviation pinocchio bar. The famous strategy of Pinocchio is built on it.

The classic Pin Bar has a small body and a very long candle. At the same time, the position of the body is also very important - it should be strictly at one of the edges, in no case in the middle. Therefore, not every candle with a long body will be a Pin Bar.

There are bearish and bullish Pin Bars, they are shown in the figure above.

This setup will be especially strong if it is formed near a key support or resistance level.

Inner bar

This is also a common and popular setup that is often used in the Price Action method for binary options. It consists of two candles, where one of them is located within the other. It symbolizes the indecision of the market, that is, sellers simply did not have enough strength to push the price higher, or vice versa.

The screenshot above shows a vivid example of a successful execution of the Inside Bar setup. An inside bar has formed near the level, which does not go beyond the previous bullish bar. As a result, the price turns around and goes down.

External bar

The chart is bearish the candle has completely engulfed the bullish, which means that sellers in the market have much more power at the moment than buyers. This is a strong signal for further decline.

Reversal of 3 candles

This pattern consists of three candles; as a rule, first we observe two bearish/bullish candles, and the third is already formed as a bullish one and completely overlaps the second.

Hammer and Hanged Man

Reversal models, they are no longer found on the chart as often as the previous setups, but according to statistics they work out well.

Price tops

One of the popular trading tactics among traders who trade using the Price Action method for binary options.

The essence of the False Top/Bottom pattern is that the price makes the first top, then falls down, forming a minimum value, after which it also goes up, but does not have enough strength to update the previous first high.

Based on this, you can catch the perfect moment for a trend reversal and make money in binary trading.

In a different way setup is also called 1-2-3. It is quite complex, and sometimes it can take a lot of time to fully master it.

False breakout

We need to draw a trend line by connecting at least two or three candles. In this case, you need to connect not by shadows, but by opening/closing prices (the body of the candle). We wait for the candle body to break through the trend line. In this case, we will open a deal on the next one after the signal candle, at the level of the maximum value of the previous one.

Additions to the Price Action method for binary options

As we said earlier, Price Action is an individual trading technique that can be improved and supplemented by all traders. It is impossible to list all currently existing setups in one article, since there are a huge number of them.

Some tips for choosing timeframes. It is best to use this technique at intervals of an hour or more. On 5-minute periods they can give a lot of false signals due to market noise. And like any strategy, Price Action has high risks, so don’t forget the golden rule of Money Management - invest no more than 2-5% of your deposit into a transaction.

For beginners, we advise you to learn the most common patterns described above and train on them at first. This is an important foundation, once mastered, you can move on. If you start memorizing all the existing setups now, you will end up with a mess of knowledge in your head, and in the end it will not end well.

The importance of the Price Action technique lies in the fact that any formed candle on the chart is reflection of the mood of buyers and sellers, the struggle between supply and demand.

Price Action for binary options is like a breath of fresh air in the general indicator confusion that sooner or later begins for beginners. At first, all of them madly rush around the Internet in search of that very ideal indicator, without having time to figure it out and test it, they install and download other tools, greedily absorbing everything that is written about them on the Internet.

Any system is not ideal, so the trader himself creates his own, which can consist of several setups from Price Action, which are formed at key levels. Well, to filter out unnecessary signals, you can use an oscillator in addition.

You are the creators of your own happiness, so you have the right to draw any models on the chart. The main thing is to find for yourself the ideal tactics that will allow you to better analyze and understand the market. Well, the Price Action strategy for binary options is a great opportunity for this!