A Simple Price Action Trading Strategy

Filed under: Learn Forex Trading |

Today, I would like to talk you through a very simple price action trading strategy that you can add to your trading arsenal.

 

Figure 1.

To begin with, take a look at Figure 1. This is the 4-hour chart for the XAU/USD pair (the pair for gold and the United States dollar), and it is an order that I currently have in play.

 

What you can see here is that price is moving downwards, with the 8-period EMA crossed below the 21-period EMA. The chart is also visibly moving down from left to right. This is the first criterion of this strategy – to identify a strong trend.

 

The next part is to mark in a level of support/resistance. I have done this on this chart (marked with a horizontal green band). So, when price moved back up to this level, I was on the lookout for any bearish price action signals in the direction of this strong trend. As you can see, a bearish pin bar formed right at our level of support/resistance, and when it did, I put an order in to go short at a 50% retracement of the pin bar, with a stop loss just a few pips above the high of the pin bar, and a good risk-reward target set of 3.5 times the risk. This target is nicely just above the next level of support/resistance, so there is plenty of space for price to move into.

 

So, just to recap with this strategy:

 

1)    Find a strong trend with a visual analysis and confirm it with moving averages.

2)    Mark in any levels of support/resistance that price might respond to.

3)    Locate any price action signals at the area of support/resistance that suggest that the trend may be resuming.

 

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