This price action strategy will focus entirely on a price pattern called pin bars. This candle is simply the price hitting a certain level and being “rejected” from it. This bar has a long tail on it with a small body.
There are different types of characteristics for a particular . For instance, the long end of the candle is the wick, while the small end (the opposite side of the body) is called the nose. Most agree the long tail, or “wick,” will be at least two-thirds the total length of the itself. The other part of the will naturally be, at the most, one-third of the candle. The open price of the candle and the close should be relatively the same price. This forms the ‘Body.’
To confirm a , you must wait for the candle to close. Just because the current candle “looks” like a , does not necessarily mean it is. in the example above, the price movement could have continued upward and closed at the top of the candle. In turn, it would not be considered a .
Timeframe - ANY
Market - ANY
Indicators - NONE
OTHER - , horizontal lines, support resistance lines (anything to help you find these areas).
Step 1: Find a On Your Chart.
*Note This is a stock price action strategy, and a forex price action strategy. I will use a currency pair as an example. Price action charts are with any market and timeframe.
First, identify a that has formed.
Step 2: Look for Past Price Action to Determine Why The Formed.
Why did the reversal suddenly hit a price, and then continue back to the upside?
Let’s zoom out a bit on a . We'll figure out if we can see anything that explains what happened.
Note** you can either look at the current time frame you are on, in this case, a 1-hour time period. Or you can bump up one or two periods to gather information.
Resistance in the past can mean support in the future. What happened is the price hit this level but failed to break through it.
Since the long wick formed, we decide it is time to enter this trade based on what we learned from the prior days.
This is what Price Action is all about. No two trades are the same. However, we can take what we've learned from the past. Then make the best judgment as to where the price is going in the future.
You are essentially like a detective when you trade price action. The point is to gather many pieces of evidence to back up your conclusion. You are trading with confluence. Sometimes simple is best. Study the charts and form an educated conclusion as to where the price will go.
Step 3: Trade entry
You just enter the trade 2-3 pips from the break of the nose of the .
Step 4: Stop loss
Place the stop loss 3-5 pips away from the wick. The end of the wick will be a . So if this is broken the trend may continue downward. Which is why you place your stop 3-5 pips away from this.
Step 5: Exit Strategy
Your exit strategy is when you hit the first level of support or resistance on your chart. As you can see, the price hit a point then stalled out. Once we see the price action stalling out, we exit the trade immediately.
Conclusion - Price Action Strategy
Price action is another fundamental element to learn when trading the market. There are thousands of strategies you can use with price action. It is important to find something that works for you.
These pin bars are hard to miss. They are relatively accurate when you learn why a formed. candles are shown in any time frame. The rule of thumb is, the higher the time frame, the stronger the signals. But that does not mean that this will not work on a five-minute time frame.
Do not trade every you see that forms. Gather up key information from the charts. Then form the best conclusion to determine if you should enter the trade based on the rules.