We all want to be free, out there doing the things on our bucket list, not slaving away at a meaningless existence – but we have to put up with having a job in order to earn an income to survive.
Maybe you recently came across an advertisement promising unlimited wealth from Forex Trading, and it said that anyone can do it. You don’t need a degree or years of training, and you work for yourself! It probably threw in some buzz words like ‘easy money’, ‘fast profits’ and ‘instant wealth’ for good measure, and that really got your attention. So, you decided to investigate…
This is the likely premise which most of us found ourselves in when starting our Forex journey; although, for some traders it’s not about the money – it’s more about the challenge and dream of becoming a professional trader. The million dollar question is, how do you pull it off? To become a successful Forex trader, you must know when it’s the correct time to buy, when it’s the correct time to sell, and how to manage your trades once they are open.
Everyone in the Forex world knows that there are a lot of really bad, low quality, poorly performing trading systems out there that have been over-hyped as the next ‘holy grail’. These gimmicks only help fill the pockets of internet marketers, take your money, and give the true Forex educators who are teaching valuable methods a bad name, all while giving you a bad taste for the markets.
If you’re going to succeed it’s important for you to have a solid, robust and proven trading strategy – this will be the ‘backbone’ of your trading journey and play a big role in whether you’re successful or not.
The following lesson is going to be an informative introduction on how you can ‘cut through the fat’, and use price action based trading methodologies to trade the Forex markets.
Despite What you Might Think – Forex Works Better When it’s Kept simple
I am not sure why, but most newbie traders love to make things really hard for themselves. It’s an innocent mistake I guess, as they don’t know better and believe that the more things they learn about and incorporate into their trading – the better they will do. Wrong.
Complicated strategies are how Forex traders get so disheartened with the market. Frustratingly ‘pogo-sticking’ from system to system, stacking more disappointment each time.
This is how they do it…
Go out and collect a bunch of customized indicators, chart tools and expert advisers and stack them up on the charts. For example, I didn’t have to look too hard to find this chart posted on Forex Factory…
My face when this template is called the ‘holy grail’.
I don’t want to rip into the creator of this system, I am sure he has his mind wrapped around the whole thing, but this looks like a really stressful system – not only to learn, but to work with on a candle to candle basis.
There are so many moving parts here, I am not even going to try to reverse engineer this and explain how it might work. Good luck to the followers of this strategy 🙂
The frustration, failure and disappointment piles up higher and higher each time a strategy lets a trader down. After a while, you start hearing those people calling the markets a giant scam, or saying that they’re ‘rigged’ and that the banks manipulate the markets to trigger their stop loss…
I have a massive issue with most indicators, because they are known for their lagging nature. In my Indicator Autopsy reports, you will also discover that most indicators are built off the back of moving average math.
You could even go as far and say ‘most indicators are glorified moving averages’ with a few exceptions. So this is why I just stick with using a set of exponential moving averages – which you may have noticed on my charts. FYI they are the 10 and 20 EMAs.
Trust me when I say, you can get a better read on the market when you clear all this garbage off your screens, and work with clean price templates.
Here is a screen shot of one of my charts right now – a very stripped down, simple, minimalistic view of the markets…
There was actually a price action buy signal recently on this chart which was featured in our ‘chart of the day commentary’, inside the war room.
It is an Inside Day breakout, and you can identify these sort of trading opportunities without the aid of over bearish chart setups like the one above I just showed you.
It’s those who learn how to trade Forex with the simple approach who generally taste lasting Forex trading success. They use little to no indicators or other exotic chart aids that make chart look like a nuclear control panel.
There will be a time where you just hit your threshold with indicators, and want to learn to make trading decisions without them.
By using our price action chart template, we can ‘read the market’ more effectively and quickly. We can make confident trading decisions and keep away the unnecessary chart baggage like lagging indicators and over hyped trading robots.
The clarity of a simple price chart should be enough drive to make you want to learn how to trade Forex using price action strategies.
Pay Attention To price action Signals from Critical support and resistance Levels
The basis for a profitable trading strategy can be as simple as trading price action signals from significant support and resistance levels.
Combining price action trading with support and resistance is such a simple concept and should be one of the first trading techniques that you learn in order to understand price movement.
Buy or sell patterns that form at major support and resistance can produce highly rewarding / low risk trades. The best part is, they keep occurring over and over again, producing the nearly the same result every time – it is the basic core principle of how we trade in the markets every day.
If you’re still learning how to mark levels on your chart – be sure to check out this lesson on common Support and Resistance Mistakes.
The basic idea is to go long on price action buy signals that spring up on strong support levels, and go short on the sell signals that form as a result of the market respecting resistance levels.
The chart below demonstrates the power of a price action signal that formed at a key resistance level on the chart.
It’s an Indecision “Doji” Signal – which is a sign of neutrality or consolidation. Once price breaks away from the Indecision range – a strong breakout can occur. Lining this trade up with a strong resistance level, and you’ve got yourself the catalyst for a nice bearish breakout…
Once the Indecision Candle lows were broken, this market went for a skydive.
Patterns like these, combined with clear cut support and resistance levels produce very profitable results for traders who use price action. We really don’t need to look into the market any deeper than this.
If a trading method seems too complicated or it’s too hard to understand what’s going on – then it’s not worth it. There is nothing worse for you than trying to trade a system that you don’t really understand.
Don’t get caught up in a strategy that gives you pains throughout your body. It will only be a matter of time before you get frustrated and abandon it down the line anyway.
Most traders don’t start to see any trading success until they learn the art of price action trading.
You wouldn’t believe how many traders I’ve spoken with who have been in the market for 7-10+ years, and are only now are they starting to make progress using these simple natured price action methodologies.
Riding Market Trends
“The trend is your friend”.. until it isn’t.
Trending markets are like fruit that’s ‘ripe for the picking’. But, just as the farmer knows the optimal time to harvest his crop – the trader must know the optimal time to enter a trend.
Yes, trending markets are the best time to make money – because the market knows where it wants to go, and you know what direction you should be trading in.
So if it’s that straight forward, why are all these trader’s losing money when we have these beautiful trends happening?
Some of the reasons are just silly, like inexperienced traders trying to pick tops or bottoms. But a lot of traders who are actually trading with the trend momentum are getting chomped up by natural corrections that occur during a large move.
Being an Australian, I am going to use an analogy from the beach here.
Surfers know how to ride the waves; they know where and how to position themselves to catch the optimal move. Surfers also know the best time to go against the dominant flow – by using naturally occurring rip tides to ‘ride’ exiting water from the beach, shooting them back out behind the waves.
If the surfer is very bad with their timing, they will catch a wave that is in the wrong phase of it’s life cycle which won’t support the surfboard.
This can be dangerous because the wave tips you upside down and spear heads you into the sand – potentially doing damage to your neck and back.
Compare a surfer to us traders navigating the markets for a moment – if you’re trying to ‘ride’ the trend, your timing needs to be good. Get in too late and you will most likely be wiped out by a counter trend move.
This is where the nature of swing trading comes into play – which is a trading style that works synergistically with price action based systems.
Swing trading is basically following, and working with the footprint price leaves behind to anticipate future price movement and pin point optimal market entry areas which I call ‘hot spots’.
Price won’t move in a straight line, it steps through highs and lows, which swing traders can quickly use to determine the market direction.
Just like price action systems, swing trading works very closely with support and resistance – important levels behave as the trend swing points. These are the key areas where we can identify the ideal locations for going long or short.
Swing levels in trending environments are the ideal locations for a price action signals to form.
They provide confirmation that we need to pull the trigger that will slot us into the trend at the right time.
On the chart above, a bullish rejection candle formed at a trend swing level which we used as a signal to buy into this trend.
As the trend developed further, a ‘breakout trap & reverse’ signal formed that gave us a second chance for trend entry.
In bearish conditions the swing points are in fact older support levels that are respected as a new resistance level. The example below shows an outside day signal that formed at a swing level in a bearish environment.
Price action trades, like this one are easily identified and only take about 5 minutes of your time to execute the order. There is no need to sit around staring at the trading screen all day, you simply go and live your life and let the market take care of the rest.
Using Price Action In Ranging Markets
Trending markets sounds great, but unfortunately most markets will only trend 30% of the time – sometimes less.
The remaining 70% are made up of ranging, or consolidating markets. Fortunately our price action trading system do cater for ranging markets also.
We always stick to our basic key principle of keeping trading simple – so the key areas to watch inside a ranging market are the upper resistance and the lower support levels for price action reversal patterns.
Price bounces between the bottom range support and the top range resistance. We capitalize on this by waiting for a clear entry signal on the top range and the bottom range.
The chart above shows an example of a rejection candle on the range top which is one of our price action signals. We already know that the range top is the key turning point in the market.
When this event is coupled with a bearish signal we get a low risk, high probability trade setup.
The middle of the range is considered ‘no mans land’ – signals that form here are considered low quality as this is a very ‘noisy’ part of the range. Some no mans land signals can work out, but if you trade them you better make sure you’re getting a very clear read from the price action and not just trading fluff.
A breakout is an event that occurs when price breaks out of a containment area.
This containment line could be a support or resistance level, a strong long term containment level, channel or trend line – or even some of the common candlestick formations like a triangular price squeeze (wedging price action).
Breakouts produce price explosions which can generate rapid returns that put big smiles on a traders face. There is however, a flaw with most trader’s approach to breakout trading – traders generally try to anticipate breakouts way before they happen.
They become the da Vinci predictors of market moves, and do something silly by going ‘ALL IN’. Trying to be one step ahead of the market like this only ends up with the trader crying tears of regret.
I have one war room member who tells me trader horror stories about a group of traders he knows in India who trade gold a lot. Apparently Indians are obsessed with Gold.
These traders are super aggressive, and try predict breakouts without any confirmation – entering ‘all in’, with no stop loss, based off a gut feeling.
Every single time these guys tried this insane idea, gold moved heavily against them and cleaned their account out.
Believe it or not, this kind of trading behavior is occurring more than you think across the industry.
To trade breakouts more accurately – we leverage the benefits of price action signals and swing trading market analysis. Using the two systems together, we can build actual value into a trade by identify breakout patterns at key market locations that have the increased chances of working out in our favor.
If a breakout event is triggered – we can use these candlestick signals as a ‘framework’ to build our entry and stop positions off.
Inside Day: Is a candle that has a range which fits completely within the previous candles range.
Indecision Candle: Is a candlestick sometimes referred to as a ‘Doji’. The Indecision Candle has a small centered candle body, with tails protruding out each side of the body.
The Inside Day and Indecision Doji signals communicate the market was in a period of consolidation, indecision or just general neutrality, for that particular period.
Once the market gets moving again, and breaks free – a nice breakout power move can follow through.
The simple, straightforward way to trade indecision/ inside day signal breakouts is to buy when the market breaks above the candle high, or sell the breakdown of the candle low.
The second way to increase your chances of entering a profitable breakout trade is to trade with the core trend momentum.
You are going to exponentially increase your trading results by trading within a trend, and capturing breakouts with the momentum.
A simple strategy to get started with is to identify an established trend – then wait for an indecision, or an inside day signal to form. Only take breakouts in the direction of the core trend pressure.
For example, in bullish trends only take breaks of the highs of breakout signals, and only take breakouts of the lows in bearish trends.
Beware of the Breakout Traps
Breakout trading may sound simple enough – but unfortunately isn’t as black and white as it may appear to be.
Breakouts can really go two ways – you catch a breakout and your trade quickly hits its profit target. This is the picture perfect scenario.
Or, there is scenario two, which a lot of traders fall victim to: you’re triggered into a breakout trade – everything looks good, so you walk away and go have some lunch, or go to the gym.
When you return, you’re shocked to notice the trade is falling sharply into the negative against you – the breakout has collapsed on itself, and is driving price aggressively in the opposite direction!
The market set you up!
You’ve were baited into into entering a breakout which was actually a trap – you’ve put your money into a false move. How many times has this happened to you?
I am guessing your nodding at the screen right now. This is a common everyday occurrence, especially with scalpers and day traders.
Breakout traps usually occur around strong support and resistance levels, or other strong technical focus points on the charts.
Price temporarily starts pushing through these levels to fool traders into thinking a breakout of a major area on the chart is occurring. While you’re learning breakout trading – always try to trade breakouts that drive price away from important support or resistance levels, not into them.
Once all the unsuspecting traders are drawn into the initial breakout trap – price flips the other way and goes to town on everyone’s stop losses.
Price likes to move in the path of least resistance
With stops being triggered, there is now less resistance for the market to move in the opposite direction due to an influx of closing trades. This produces a very powerful ‘aftershock effect’, where price can move great distances on the chart during that session, and beyond.
This creates an excellent opportunity for us to catch some pips – it’s one of my favorite breakout strategies and it is simple called, the breakout trap and reverse setup.
First we wait for a breakout trap to occur around these key areas on the chart – once we get confirmation the breakout failed, we can enter the aftershock move using stop orders at the opposite end of the previous candle’s range.
Breakout trap and reverse moves can be violently explosive and give you very high return on investment.
Next time you see a break out occur, watch the price action to see what happens. Is the breakout sustained and produce a nice powerful move, or does it collapse and cause price to charge in the opposite direction.
How To Master Price Action Swing Trading
I hope today’s walk-though of some basic price action trading strategies has been insightful for you, and gotten you interested in the power of ‘simple’ trading.
There is no doubt that learning how to trade Forex with price action trading is the most simple and effective way to approach the markets.
It’s something that’s been used since the inception of trading and will still be around for many years to come. Just by applying some simple but powerful price action strategies to your trading plan, you are really going to see the charts through a completely new set of eyes and discover many trading opportunities which have eluded you in the past.
Price action trading allows you to divorce indicators for good and lift that mental trading fog, build confidence in your own analysis and make more decisive trading decisions.
Today’s discussion of these strategies really are just scratching the tip of the iceberg when it comes to learning how to trade Forex using these simplified, but highly effective systems.
If this kind of trading has you interested and you really want to learn how to part with your indicators, lift the mental fog, and actually learn how to read a plain price chart using price action & swing trading methodologies – our Price Action Protocol course is probably something you would be very interested in.
The course actually goes into much more detail about trading successfully with price action and actually includes powerful money management strategies that go with the signals we teach.
If you would like to learn more about the Price Action Protocol course and become a master chart reader – check out our War Room members area, which is where you will get lifetime access to the course.
All the best on the charts for this week’s trading.