One of the Best Candlestick Patterns
Price action trading for me starts with first knowing the proper price action patterns to search for on the charts. That’s why I’ve introduced the day trading strategies using price action patterns PDF. In it, you’ll discover one of the most profitable chart patterns you can look at daily for different currency pairs. Price action alone is insufficient, so I’ll introduce other confluences that help you determine high probability trading setups.
Price Action in Forex
Price action is powerful in finding an entry on lower and higher time frame charts. The day trading strategies using price action PDF will show how lower time frames, those that are used for day trading, require greater confluence than time frames such as the daily.
These patterns must also be recognized immediately to enter a trade at the optimum time without any hesitation. I’ll briefly highlight the necessity of backtesting in order for day trade patterns to become second nature and in order to gain the certetude necessary to trade your plan. I also suggest restricting yourself to the 1hr and 4 hr time frames for day trading, since these are the more accurate time frames compared to the lower time frames.
You should approach the time frames to be chosen in the same way we should approach trades in general, take only the high probability trading setups. This seeking out of high probability trades can be reworded similarly for different time frames. Take only the trades occurring on the time frames that provide the highest probability, the 1hr, and 4hr. It’s your choice to try lower time frames, but you will need to do your backtesting to see if they are worth it for a particular pair.
Price Action in Forex Trading Needs Confluence
What’s a confluence? A confluence is some other chart or fundamental news feature that supports the price action. Confluences include a combination of round numbers, Fibonacci retracements, candlesticks, support/resistance on the current and higher time frames, overbought/oversold regions, and sentiments due to fundamental news.
Round numbers are numbers such as those shown below. They end in 50 or 00 and provide an added area of support or resistance. The 00 round number, in particular, provides strong confluence.
Support and Resistance themselves are well known, and my next article will deal with these more in detail. Suffice it to say that the patterns I mention below should coincide with some kind of local support/resistance and even better with support/resistance from a higher time frame such as the daily.
Applying a collection of these confluences together, especially with the fundamental news driver will result in a higher probability trade. Building the habit of patiently waiting for these higher probability trades will result in a winning strategy over time.
Day Trading Strategies Using Price Action Patterns PDF
The following day trading strategies using the price action patterns PDF are only a few examples of a variety of different strategies that can be used as part of a winning strategy. Noticed that I mentioned “part” of a winning strategy.
Again, factors such as confluence must be taken into account before applying the pattern. You could use the pattern as a trend reversal or part of a trend continuation strategy. The examples shown in the PDF accessible through the lightbox or link below will only apply to a trend continuation. If you’re interested in an online trading course that teaches this form of confluence, check out the following article: What are the Best Online Trading Courses? Part 1
The Importance of Backtesting
You must apply backtesting for each currency pair and time frame using the day trading strategies using price action patterns PDF accessible through this page’s lightbox or link below. Only then will you see how the patterns in the PDF work and under which confluence constraints. Only then will you be able to apply the correct risk-reward ratios appropriate for each time frame and currency pair.
A typical risk to reward is 1:2. I’ll provide a backtest with approximately a 1:2 risk to reward ratio using a Fibonacci extension, but there are other options for placing an exit target, You can backtest your own using the same price action pattern as an entry signal.
Back test each pair you plan to trade before you try them with real money and continually review this backtesting. Similarly, backtest each time frame individually and compare your results. Start with at least 2 years of data, enough to give you at least 50-100 trials.
On MT4, you can scroll one bar at a time as listed in the Day Trading Strategies Using Price Action Patterns PDF accessible below. The instructions are for a PC running MT4 only. It doesn’t work on a Mac unless you have the MT4 running on a virtual machine.
The one characteristic that cannot be backtested is the fundamentals because they occur on a real-time basis and are too difficult to access in back history. However, they will only enhance the exactitude of the systems. How this can be done requires more articles to address it. Start with the article I’ve listed here.
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