Back to Basics: Trading the Markets Using “Price Action” Signals (part 1)

Filed under: Learn Forex Trading |

 

There are many approaches that traders take to trade the currency, futures, options, and stock markets. One of these methodologies is something called “price action trading”. Many traders who are trading for a living use price action signals, and I would like to take you through a few of these price action patterns right now.

 

Whether you are trading the currency, futures, options, or stock market, you will be able to employ price action strategies because all of the market principals are the same – supply and demand and mass psychology. Price action patterns are an effect of supply and demand and market psychology. Unlike technical indicators, such as MACD or moving averages for example, which are lagging indicators, price action patterns tell us what is happen right now.

 

The best way to view price action patterns when trading the markets, I believe (although there is still no consensus on this), is by looking at a candlestick chart. A candlestick chart gives us information about when price opened, when price was at its lowest, when price was at its highest, and when price closed on any given time period. I will now take you through a few of the most popular price action patterns on the candlestick charts.

 

Pin bars

A pin bar is a one bar pattern (so it involves only one candlestick). It is characterized by the market moving one way, and then moving all the way back in the same session. This shows that a level in the market has been rejected, and we can see this in a very visual way. The pin bars stick out like a sore thumb on the charts, and they are very easy to see. You can enter the market either at the break of the pin bar, or at a 50% retracement of it. Either way, they are great places to enter the market.

 

Pin Bars

(To be continued…)

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