ElectroFX Pure Price Action Trading

[tkpower8]

Hello EarnForex Members,

I would like to start this thread to discuss trading Forex using nothing but Price Action, some people like to call it Naked Trading but I am dressed so I will stick with Price Action Trading

THIS IS A SET AND FORGET APPROACH TO TRADING THE MARKET ACCURATELY WITH LESS TIME STARING AT CHARTS AND THEREFORE LESS EMOTION

My first message will be to Newbies:
You are actually very lucky in some respects. You have a fresh perspective, do NOT cloud your new fresh Forex eyes with silly Indicators and squiggly lines. Everything you need to know lies within the price charts themselves. It keeps it very simple, gives you accurate information to base your decisions on without needing all the planets to align.

If you are not a Newbie:
Even if you have been working with fancy Indicators I implore you to focus more on Price Action. Unless of course you have something that works for you continuously throughout all the different market conditions. If you do then perhaps having extensive knowledge of Price Action concepts will help you to become even more accurate. Either way this thread will contain no Indicators.

Moving on....
I will introduce you to what I mean briefly then wait to see who is interested in hearing my opinions on trading, please post your interest and I will gladly continue the thread .

What exactly do I mean by Price Action and how do I trade?
Price Action is a massive topic that will take many posts and many questions but in summary price action can be broken down like this.

Support/Resistance (SR):
Also know as Supply and Demand, SR are simply areas on your chart where price is likely to change direction. SR could be traded all by itself if you were smart about your Money Management and Risk Reward but in my world it is just 1 of the core price action concepts that I combine.

Highs and Lows (PA):
You're probably thinking why have I abbreviated this "PA". The quick answer is that everything else to do with Price Action has it's own name like SR, TL's etc.. so instead of having to say "The highs and lows being made in price swings" or "The swing highs and lows" I just call this price action (PA)

Candlesticks:
I don't need to abbreviate this piece of price action because it is just one word . Candlesticks are basically little pictures that tell you a small story about a specific period of time. If you use 4 hour charts for example then each candle can, at a glance, tell you a small story about that 4 hours. They will show you when there is Indecision or not. At the correct location (determined by SR, TL's and PA) you can use these little pictures to act as entry triggers.

Psychological Levels (PL's):
A final part of the trade decision process is to check for nearby levels of interest like 1.61000 as a major example. I break this down in to Major, Secondary, and Minor Psychological Levels. This is the final part of the entry point decision and only leaves for you to check the Risk Reward on the trade you are about to enter, make sure it is worth your time.

Money Management (MM):
I like to keep this one simple and generally round it off to safe trading being 0.1lot per $2000 in your account. I occasionally get aggressive and consider 0.1lot per $1000 in your account to be a maximum level of aggression.

Risk/Reward (RR)
This can make or break a trader right here. RR should not be ignored. I mean, what is the point of risking more than are aiming to get? It makes no sense but lots of amateur traders do it anyway. When you trade purely from price action then you have an exact price that you are waiting to enter the market at, you already know what your stop loss (SL) will be and you are able to see what a conservative take profit (TP) is also. This means that before you enter the trade you can judge your RR. If you always maintain that 1:1 minimum then winning 60-70% of your trades will make you a successful trader. However, when trading all these price action concepts I outline you are able to trade with the trend resulting in many trades that are 1:2 or 1:3. If your 1:1 is a minimum but you are trading with the trend and many times you get 1:2 or 1:3 then winning even 50% of your trades makes you a successful trader.

All that said, a 70-80% win rate is obtainable if you maintain a level of patience and discipline.


Well, that is my opening blabber and as I said I would be happy to continue if there is interest.
I have been teaching people all about price action trading for a few years now and I love watching people succeed, I will warn you though that my experience in teaching has shown me that it does take a while for anyone to get all of the price action concepts and get used to using them harmonically together.

 

[Binary Trader]

please continue!

 

[tkpower8]

Hey Binary Trader..

well let's start with a little chatter about the price action concept I like to describe as "Evidence Based Trading". NO guessing, just reacting to the the evidence available to you. By this I mean proof of an area of Support/Resistance existing and then proof that the area is once again holding with good market structure behind it. This evidence based approach is then also used to judge the risk/reward potential before you enter the trade, which therefore also then gives you your Stop Loss and Take Profit if all systems are go. This does not mean you will win all your trades but it does mean you will win more than you will lose and it also means that you will usually have larger profits than the losses. Tipping the scales well in your favor.

So, thus far you can use the non-repainting naked price action evidence that you can see on your chart for the following:

• To understand the current swing flow/market structure
• To decide on the next potential areas of SR that the current swing flow could turn
• To get a trigger at one of those SR areas so that you can confirm the area is holding
• To then get your entry point and judge your risk:reward to make sure it is even worth it
• To naturally then have a pre-planned unquestionable stop loss, take profit and break even point.

Certainly it is never easy to explain things in words but I will continue on next with some more pictures that explain each of these points clearly.

 

[tkpower8]

Let's understand my previous post with 2 images now..
the first is a look at the overall market 'swing flow' of this H4 chart scale (Green-Swing1), the second is a zoom further in to look at the faster scale of swing activity and structure (Turquoise - Swing2).

So, thus far you can use the non-repainting naked price action evidence that you can see on your chart for the following:

• To understand the current swing flow/market structure
• To decide on the next potential areas of SR that the current swing flow could turn
• To get a trigger at one of those SR areas so that you can confirm the area is holding
• To then get your entry point and judge your risk:reward to make sure it is even worth it
• To naturally then have a pre-planned unquestionable stop loss, take profit and break even point.

There are many more trades on this chart than I have pointed out in the picture but let's start with these really obvious ones to cover a variety of them... all based on evidence.



In this first trade you see an area created by swing 2's high returned to after a swing 2 lower low.
The swing structure shows you a down trend on that Swing 2 scale and a lower low was just made.
The area was reacted to very precisely and a nice pinbar formed.
So now before you enter the trade you know several things.
It is not following the trend of swing 1 but it is following the trend of swing 2 so all of the management decisions will be made with swing 2.
The previous swing 2 high gives you the area you are trading and therefore your stop loss.
The break of the pinbar gives you your entry point.
You now know your risk and the most conservative reward you can assume will be a higher low on swing 2

So as you can see without guessing you are just reacting to what is happening and the evidence laid out before you... the area of resistance was created, returned to, and reacted again via that pinbar to prove that you are not alone in thinking that is a good area. You now have the probability of the trade working out well in your favor.

The trade is also worth it on the risk:reward side of things because you really can expect a lower low on swing 2. If you do then 1:3 risk:reward is available but for the conservative trader this fact means that targeting a higher low is very safe indeed. The conservative higher low will still yield you 1:2 risk:reward.

As the Trade progresses more evidence shows you an area that it stalled at being broken and a safe time to lock in a 1:1 level of profit in case your target is not met.

I will go over Trade 2 tomorrow

 

[tkpower8]

Let's move along to the 2nd Trade in this picture and zoom in to understand its dynamics.



This 2nd trade differs from the first because now we are not only following the trend of Swing 2 but we are also using it to trade the breakout of Swing 1.



The 2 Green boxes I have drawn are on the previous Swing 1 Low and the previous Swing 2 Low. After the previous Green scale Low was broken it is safe to play the breakout of that scale of activity using a swing 2 scale movement. The 2 areas of interest are each of those 2 boxes that were broken. However if you apply the concept of wave relativity then a pullback to the thin long box I have drawn is not really suiting Swing 2 as a relative pullback, therefore the other box makes alot more sense if we are to respect the current market flow. When price returns there a nice tweezer top inside bar combo formation appears and you now have an entry trigger point as it breaks it short.

So now before you enter the trade you know several things.

• It is a breakout of swing 1 and it is following the trend of swing 2 but it is the 5th push down at that scale which is as far as I am ever willing to go... so all of the management decisions will once again be made with swing 2.
• The previous swing 2 low gives you the area you are trading and therefore the tweezer top inside bar combo gives you your stop loss.
• The break of the tweezer top inside bar combo gives you your entry point.
• You now know your risk and the most conservative reward you can assume will be a higher low on swing 2

So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you... the area of support was broken, returned to, and reacted again but now as resistance via that tweezer top inside bar combo to prove that you are not alone. The pullback was relative to swing 2's recent history of this swing 1's move down and so you now have the probability of the trade working out well in your favor.

The trade is also worth it on the risk:reward side of things because you really can expect a lower low on swing 2. If you do then 1:2 risk:reward is available but for the conservative trader this fact means that targeting a higher low is very safe indeed and the fact that it is the 5th push down on swing 2 also weighs in. The conservative higher low will still yield you 1:1 risk:reward which is the minimum requirement there.

This trade goes straight to profit and needs no break even point or stop loss trail.

Trade 3 tomorrow

 

[tkpower8]

Let's move along to the 3rd Trade in this picture and zoom in to understand its dynamics.



This 3rd trade differs from the first 2 because now we are looking at trading Counter Trend swing 2 wave but at a great location for it to be a reaction for swing 1. As always we wait for proof though.



The Green box I have drawn is at the top of swing 1's previous high which was an area reacted from for quite the drop, this is the first time back there since that happened and although it is counter trend on the swing 2 level it has location behind it. As price reacts from the area you can make out tweezer tops once again and the passing of the pinbar backs up enough proof to enter and know you are not alone.

So now before you enter the trade you know several things.

• It is a prime location for swing 1 to have a reaction but it is counter trend on swing 2 so all management decisions must take keep this in mind
• The previous swing 1 high gives you the area you are trading and therefore your Stop Loss.
• The break of the tweezer top pinbar combo gives you your entry point .
• You now know your risk and the most conservative reward you can assume will be a higher low on swing 2 and the most conservative place for that to happen would be a mirror flip on swing 2's previous high.

So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you... the area of resistance was returned to and reacted from via the tweezer top pinbar visual which gave you an entry point and proof that you were not alone. Your most conservative target respecting the current market swing flow was above the minimum 1:1 risk:reward and so this trade made sense.

You can probably start to see a pattern here ... Location, location, location... entry trigger... intelligent management. ALL based on evidence.

This trade goes straight to profit and needs no break even point or stop loss trail.

Trade 4 tomorrow

 

[tkpower8]

Let's move along to the 4th Trade in this picture and zoom in to understand its dynamics.



This 4th trade differs from the first 2 because now we are looking at trading the 5th push up on swing 2 but it has now synchronized with swing 1. On swing 1 it will only be the 2nd push up on that scale since the move started at the bottom of the chart. For the swing 1 scale pullback there are only a couple of locations that it could happen, these locations are very visible by observing swing 2's peaks



The Green box I have drawn is at the first potential lactation for a swing 1 scale turn and the most desirable too because it also means that swing 2 has not made any lower high's or lower lows yet either. As price enters the area it has that first reaction you can see on the big red candle with significant spike. Price then returns in to the area signifying a double tap on a lower timeframe and then displays indecision candles. You now have plenty of evidence supporting this location and the break of the candles north is your final confirmation that you are just joining in with those who do move the market. You have about 8 hours to plot your pending order (buy stop)

So now before you enter the trade you know several things.

• It is a prime location for swing 1 to have a reaction and it is also a prime location for swing 2 to have a reaction, plus it is still following the trend of swing 2
• The previous swing 2 low gives you the area you are trading and therefore your Stop Loss.
• The break of the indecision candles gives you your entry point .
• You now know your risk and the most conservative reward you can assume will be a lower high on swing 1 or swing 2 since they are now in sync.

So as you can see once again without guessing you are just reacting to what is happening and the evidence laid out before you... the area of support signified by that previous swing 2 low was returned to and the size of the wave down was that of a swing 1 scale also. This support was spiked from and then reacted a 2nd time giving plenty of time to enter once the indecision was broken in the direction of the trade you are expecting.

Location, location, location... entry trigger... intelligent management. ALL based on evidence. This trade had amazing risk:reward also and was an easy 1:3. On the way up you can see the little indecision area that was then broken north again as it went to target. That was a great location to move your Stop Loss up and lock in some profit. Based on evidence once again

In all of these examples I have pointed out the most conservative take profits. I prefer not to be greedy but you certainly could be a little riskier with your take profits if you wanted to and shoot for the expected higher highs or lower lows of the swing you are trading.

 

[tkpower8]

Let's now touch on another type of trading this same approach. Breakout Trading



Here we have the same chart and there are several breakout trades on there but let's just move on from Trade 4 that we just reviewed and look at the one that cam right after.

A major area of Resistance was broken and the swing trade was now over with great risk:reward... the direction and flow is clear and providing this same area of what was once resistance now acts as support you have your location proof. The indecision candle cluster shows the area is holding up and your entry trigger is a break of that high created on the first push out. Stop Loss goes below the cluster and shooting for a 1:1 risk:reward is the conservative non-greedy play.

These breakouts maintain the same concept as the swing trades... Location Location Location, Entry Trigger, Good management / risk:reward

 

[yak2444]

what timeframes do you suggest for trading swings and breakouts?

 

[tkpower8]

what timeframes do you suggest for trading swings and breakouts?

I would strongly suggest the D1 or H4 for someone starting out but this style is possible down to the M30 or even the M15 if you are fluent with the technique. The lower the timeframe the more important location and structure become because the less powerful the individual candles are. Also if you go with a lower timeframe you need to keep in mind the structure of the larger timeframes so it does make it more complicated because you are following more "scales" of activity.

If you consider that the longer term waves I mapped out here on the H4 are essentially smallish visible swings on the D1. Then the shorter term swings I mapped out here on the H4 are the same smallish visible swing size but indicative of a different scale by default because it is on a faster timeframe. You would need to do the same for the next scale down using the H1 or M30 depending on the pair and how it is moving. So you are adding a 3rd scale and therefore adding complexity.

I have recently created a free video course for YouTube to explain everything I have covered so far in this thread and will be adding to it weekly to include how you can extrapolate from this base point and use multiple timeframes if you so chose to do so. What we are looking at so far using the H4 are basically intra-week trades, if you add the next scale down you start looking at intra-day. I am not sure if I am allowed to post videos or links here so just PM me or check my profile to find the videos.

 

[yak2444]

thank you power8.I ve posted a 4H EURUSD chart.Can i look for PA at 1.3050-60 level to go short? It would also be 50% retracement of weekly candle.

 

[xProphet]

Wow, Man thanks for the great info. I had lost faith in my SnR analysis, but this help me put it into a completely new perspective that looks great on my charts. I was tough some this information, a few years ago, under a different name; "Western Technical Analysis".

 

[Olu]

Hi

Well done on the thread. I will be following the discussions.

Olu

 

[sympathy]

nice setup bro. thanks