Simple price action trading strategy

Price action trading strategy is one of the most reliable trading systems in the world. Many traders tend to use the indicator-based trading system, but when it comes to real life trading, people are losing money. Many people often think that the more indicators they use, the better chances they have to win the market. But in reality, things are not at all simple. You need to keep your trading chart clean so that you can understand and make the correct market analysis. At your initial stage, you might be fascinated with other people’s trading systems. But to make profit consistently, you need to understand the market’s nature and learn how to trade the market with price-action-confirmation signals.

So what is price action trading?

Price action trading is nothing but the study of the raw price data. At your initial stage, you won’t be able to trade in the naked chart, but this is the way professional traders are making tons of money. Every candlestick has a different story to tell. As a currency trader, you need to understand the market language and trade the key support and resistance level with price action confirmation signal. Today, we will give you a clear insight how price action trading strategy really works and how it allows you to execute high quality trades. Let’s get into more details.

Support and resistance level

The first thing that you need to learn to become a professional price action trader is the support and resistance level. Many novice traders in the financial market fail to make money since they don’t know the perfect way to draw the key support and resistance level. When you draw your support and resistance level, you’ll want to make sure that you are using the higher time frame. It’s true that you can also draw the support and resistance level in the lower time frame but those will be your minor support and resistance level. Let’s see a perfectly drawn support and resistance level.Figure: Support and resistance level trading

On the above figure you can clearly see that a support is a zone where the price finds fresh buying pressure and in resistance level, the sellers drive the price of certain asset much lower. But when you draw the support and resistance level, you should make sure that you have at least three connecting points of key swings. Some traders often get confused with support and resistance levels as a fixed number. But in order to make a profit by trading the key support and resistance levels, you need to consider it as a zone instead of a level. When you draw your support and resistance levels, make sure that it has at least three connecting points. However, some traders often use two connecting points to find a valid support and resistance level.

So how do we trade the key support and resistance level with price action signal?

Once you know the perfect way to draw the key support and resistance level, you are 50 percent done with your trade analysis. All you need is to wait for the best price action confirmation signal at the key support and resistance level on the higher time frame. Once you find the perfect trade setup, you can easily execute your trade in favor of the trend and make a decent amount of money.
Figure: Trading the Fibonacci support level with bullish pin bar confirmation

In the above figure, you can see that the professional traders have drawn the bullish retracement level and traded the 32.8% Fibonacci retracement level with a great level of accuracy. Unlike the professional traders, the novice traders would have set pending buy orders in the 38.2% retracement level but the expert knows very well that without the price action confirmation signal, chances of winning are extremely low.

Stop loss and take profit level

Setting the stop loss is relatively easy for the professional price action traders. Since the traders use the reliable candlestick pattern to trade the key support and resistance level, some often ignore the importance of proper money management by seeing the signal reliability. But as a professional trader, you must remember the fact that nobody in the world can predict the future price movement of certain assets 100 percent accurately. So use the candlestick pattern to set precised stop loss in the market. For instance, if you trade the bullish pin bar just like in the above trade example, you need to place your stop loss just below the tail of the candlestick. However, if you are using Fibonacci retracement levels instead of simple support and resistance level, you’ll want to make sure that you only trade the 32.8%, 50% and 61.8% Fibonacci retracement levels.
When it comes to setting up the ‘take profit’, it requires some advance knowledge of the market. At your initial stage, you should put your take profit level at the nearest key support or resistance level but over the period of time you will gain experience and learn to maximize your profit potential. Instead of setting up a fixed take profit zone, you need to use the trailing stop loss features of the market. Once the market moves a decent portion in favor of your trade, you need to set your stop loss to the breakeven point. It’s true that sometimes the trade will hit your breakeven point and start moving in favor of your direction but there nothing wrong with it. Never trade the market only to win rather focus on quality trade execution.

Summary

Price action trading is one of the best trading systems in the world. If you are new to this industry, you should learn the market basic with an extreme level of precision. Without a solid foundation you will never be able to trade the reliable candlestick pattern with an extreme level of accuracy. Always try to trade the higher time frame in favor of the long-term prevailing trend. Sometimes you will often find the golden trade setup, but always remember that proper money management is the only way to survive in this industry.