Price Action Signals: Confirmation Only!

Filed under: Learn Forex Trading |

I must reiterate in today’s forex-related article, that price action signals are confirmation signals only. You should not use price action signals (such as pin bars, inside bars, or engulfing patterns) as the sole factor in your trading decision, but rather, they should be the final confirmation signal in a confluence of different signals.

 

In fact, you should not be using one sole piece of data to make any trading decision, but rather, you should be looking at a number of different factors so that you can have the highest probability of success. Personally, I like to start with significant levels of support and resistance in the market, namely on the daily timeframes. I mark levels of support and resistance in on the daily charts because these are the charts that most people look at, and thus, this is the timeframe that is of most significance. Once I have got my horizontal levels marked in (I only use horizontal levels, as these are the most reliable), I then look at the trend, and if possible, I try to trade with the trend rather than against it. Another factor I sometimes use is the Fibonacci retracement tool. For this, I mainly look at the 50% retracement area.

 

Once I have looked at all of these factors, and only then, do I start to look for price action confirmation signals. So, if I then get a pin bar right at my area of support/resistance, and this is going with the trend, and it also happens to be a 50% Fibonacci retracement area, then this is a trade that I like to take! But just to reiterate, I do not take pin bar signals anywhere, and it very much depends on the context of the chart. That is why price action signals are confirmation signals only, and should not be used on their own.

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