Did you know that the best strategy to trade any market is:

Price action trading?

Yes, it’s true

When I begin following trends I came to enhance my chances to win trades

to 90%

Yes, I win 9/10 of my trades

Some months I get 100% of my trades right

In this article I’m going to show you how I do that step by step (I share

everything)

It’s very easy and clean also!

What is price action trading?

Trading trends is not like scalping the market, it’s a long run game

The price action trading is a strategy based on following trends

Until it reverses its direction from a down trend to an uptrend or vise versa.

After identifying the point where the price will probably change its direction

Price action traders enter the market trying to make the maximum pips

They can profit from the new formed trend until it finished.

Trading using price action is about the most profitable system that

honestly makes great results

Because it is a strategy where indicators are forbidden to use

Indicators will not give you the correct decision, as they just follow the price

action

They never predict the market movements

The price action is a strategy that expects the price without the use of any

indicators.

It sounds like it is easy to trade using the price action

It’s simple…

But only if you could define the current trend and identify the time where

the price will change its direction.

Then manage the new formed trend using methods that will allow you to

profit from it until it’s finished.

You must also be careful about every detail of the price action.

But once you understand how price action works, you will make profitable

trades.

Trend price action traders

Traders who use trends to trade the markets (Forex, commodities, stocks…)

keep things simple

They trade with clean charts without using any magic mathematical

formulas

Indicators are the last thing price action traders care about

The “trend is my friend”, this is how trend traders think

But naked trading is not easy as you may think now

It needs a lot of skills and a good understanding on how markets work

Among the advantages of this method of trading is that it can be used to

trade all of the financial markets you know (Forex, Stocks, Commodities,

Futures…).

Some price action traders known as “tape readers”

They even do not use charts to make trades

They just analyze the number of orders, bid & ask prices, order speed to

make market decisions…

Price Action trading advantages

You do not need to buy any indicators or softwares, it’s totally free.

Clean view of the chart, no messy indicators.

You can use price action strategies on all financial markets (Forex, Stocks,

Commodities, Futures…).

No confused data, you need just to use the price history.

It’s fast, no need to wait hours to find trading opportunities.

Easy to understand, no mathematical formulas to use.

Trading with clean versus dirty Forex charts

In addition to the fact that indicators follow the price and do not predict it

Indicators spoil the look of your trading platform, this may lead you to take

some bad decisions because you take decisions according to different

indicator signals.

I will give you an example:

We suppose that you use the following indicators to trade:

1. Momentum indicator.

2. Relative Strength Index (RSI).

3. Moving Average Convergence Divergence (MACD).

4. Parabolic Sar.

5. Volume indicator.

If you use these indicators you will notice that they will give you

inconsistent signals

The momentum, RSI and the MACD may display a buying signal

On the other hand, the rest of the indicators will display a selling signal

The decision you will take in this case will be like gambling, you have a

probability of 50% or less to win the position

Also the chart will show five indicators which makes the chart messy.

The image below shows that by using five indicators we have lost the most

important part of our trading that we must use to trade the market, it’s the

price action

The indicators force you to reduce the image size of the price action

As a consequence you will focus on indicators instead of focusing on the

price movements.

Instead of using five indicators that give you confused trading signals

You can use the price action trading strategies by using trends only

This will help you to trade the markets using clean and pure bar charts like

this one:

Understand What is a trend line?

The trend line is the general direction of the price.

Usually the price moves in trends, they are controlled by trader’s emotions

and psychology.

If traders are greedy they try to push the price up (bullish market), if they

are afraid they try to push the price down (bearish market).

A trend line must connect at least two bottoms or peaks.

A series of ascending bottoms in a rising market can be joined together by a

line called an uptrend line.

Otherwise, a series of a descending peaks in a falling market can be joined

together by a line called a down trend line.

There are three trend types:

Long term trend line: this trend is characterized by its strength, this is

about the most profitable trend type you should follow to trade currencies

or shares, a forceful trend pattern is a trend where the price fail to breach it

for at least three times.

Intermediate term trend line: this trend is not strong enough, it could be

broken by the price movements almost easily, it’s important to avoid

trading during this kind of trends, it is known as it touches the price fortwo

times.

Short term trend line: these types of trends are trends that are easily broken

by the price movements, it’s necessary to not trade short term trends.

You should trade just the long term trend lines, avoid trading short and

intermediate trends.

How to Draw trends the perfect way

A perfect trend line must connect two points (peaks or bottoms) at least.

Some traders draw a trend by only connecting one point like you see in the

image below, this is not a real trend line and it won’t give you any technical

analysis results.

As I said above, you need to connect at least two points to get a true trend

line.

In the Forex trading there are two types of markets the bull & bear market.

A bull market is a period of time where the price is rising and buyers control

the market (Uptrend).

A bear market is a duration where sellers control the market and the price

decrease (Downtrend).

Drawing a trend line when you are in a bull market is different than drawing

the trend line when you are in a bear market.

An uptrend is a strong directional movement in the up, followed by

corrections (downward moves) that usually formed by traders that take

profit from the market.

An uptrend is constructed by connecting at least two rising bottoms (I

recommend to connect the first and the last higher lows like you see in the

image below).

A down trend line is constructed by a decreasing price movement Peppered

by some corrections in the opposite direction (upward).

A downward trend is drawn by connecting the first & last lower highs, it’s

simple just do it like you see in the image below and you will get a very

significant down trend line.

A trend is reversed when the price broke it.

Except the fact if you trade in a stagnant market

If you are in a down trend market, the trend will reverse its direction at a

specific moment.

Otherwise, if you are in an uptrend, the trend may reverse its direction

to the downward direction at a particular time.

To trade using trend lines you should focus on that moment where the trend

reverses its direction.

So you could make profitable trades.

How to distinguish trend line breaks (Reversal or consolidating trend)

If a trend line is breached by the price movements from a down trend to an

uptrend or vise versa

The new trend can signify either a reversal or a resumption in the previous

trend line

But…

How we could know that this new trend line is a reversal trend or a

consolidating one?

There is a general rule that you should know about:

The penetration of a trend line with a sharp angle is more likely to result in

a consolidation than a reversal

An angle is known as sharp if it is between 0 to 90 degrees

As you see in the image below the upward trend is breached, but the price

continues its direction in the same direction of the first trend because of the

sharp angle.

The trend reverses its direction often if the sharp angle is not constructed

As a consequence a +90 degree angle emerges

Price Action Candle Basics

The candle is the first tool price action traders need to maintain to trade the

market the perfect way

A candlestick chart is a visual summary of the price movement in a period of

time showing the opening and the closing prices, the highest and lowest

prices, and the upward or downward price action.

The candle combines all the information you need to know about a market:

The opening price.

The closing price.

High price reached (wick).

Low price reached (wick).

Describe the upward or downward price movement.

The white candlestick occurs when the price moves up

The black candlestick when the price moves down

It’s simple…

Also:

A combination of multiple candlesticks constructs the price chart

You have to master candlestick charts in order to trade successfully using

the price action strategies

There are multiple significant candlestick patterns:

1. Hammer

The hammer pattern is the most powerful, when it happens, there is a huge

probability that the price will reverse its direction for a while.

2. Engulfing pattern

The engulfing pattern is a reversal signal that the price will change its

direction

Simply, it is a bullish candlestick followed by a bearish one, provided that

the body of the bearish candle is bigger than the bullish candle’s body.

3. Morning/Evening Star

This is a very strong pattern, it could reverse the market trend aggressively

It’s a strong candle followed by small candles, followed by a new strong

candle in the opposite direction of the first one, the new candle should close

at least at the half of the first candle.

4. Dark cloud pattern

It’s a strong candle followed by another candle that past the high or low of

the first, but can’t continue in that direction and closes in the opposite

direction.

Those four candlestick patterns are the most powerful according to my

experience in trading, they could reverse the price at least for a while when

they occur.

What you need to do is to wait until a pattern is constructed then enter the

market

You can make profitable trades using just candle patterns

Support and Resistance Zones

S & R lines are zones where the price reversed its direction in the past

There are two types of them:

Major S & R lines: they are lines that are tested in multiple times.

Minor S & R lines: The lines that have not been tested yet, specifically they

are: the higher higher (HH), higher lower (HL), lower lower (LL), Lower

higher (LH) [ I will explain that better later]

The more a support or a resistance line is tested the more this line is strong.

Also, you should know that a broken support becomes a new resistance line,

and a broken resistance becomes a support line.

Support & resistance lines are important for price action traders

It’s easy to find them..

But I will show you something that the majority of traders doesn’t pay

attention to it:

It’s crucial to search major S & R lines not all of them

The S & R lines that will have a significant impact on the price action and

will probably reverse the major direction of the trend line.

Here is how to do it:

As a price action trader you are forced to trade higher time frames

We suppose that you have chosen today to trade the 4H time frame

To define support & resistance lines, do not use the 4H time frame chart

The key point is to use the next time frame – Daily TF – to determine S & R

lines

First Step: Set the daily time frame on your trading platform, then define

the major support and resistance lines like you see in the image below.

Here is an example of two lines:

Second step: Switch to the 4H time frame, you will notice two major support

& resistance lines:

Those two lines are the most powerful support and resistance lines that you

should pay attention if the price closed to them, it could be a significant

reverse of the major trend line.

Price action trading strategies

There are a lot of price action trading strategies but the most strategy that

get results is the strategy that focus on trading the markets by following

trends.

[I have explained to you above how to draw trends the right way so I will skip that now]

The impulsive moves with corrections leads to the formation of highs and

lows of the trend

In an uptrend the high is formed when the correction begins, otherwise, in a

downward trend the low is formed when the correction ends.

After the end of the correction, the trend resumes its direction

An uptrend is formed when you notice the formation of higher highs and

higher lows

A down trend is formed when you observe the formation of lower lows and

lower highs

There are multiple tools that you should master if you want to be a

successful trend price action trader

1. Corrections

The correction is the first thing you must know

The correction happens when traders begin the collection of the profit from

the market

It occurs also because of some traders believe that the price may reverse its

direction

So as a result, the price goes in the opposite direction for a while after that it

resumes its direction

If the correction creates new small highs and lows, this is a signal that the

current trend is very strong, the trend will continue its major direction as

well.

You can predict the trend changing using the high and lows

But you should pay attention to your analysis

If you are in an uptrend, you must wait until the last higher lower (HL) is

breached by the price

Then enter the market with a short position

However, if you trade in a down trend, you should wait until the price

breached the last lower higher (LH)

Then enter the market with a long position

But do not make the mistake to enter the market before the last HL or LH is

breached

Look at this example:

As you look at the image above, when the price breached the last (HL) the

price change its direction targeting the first (HL).

Look, the general rule about corrections is:

To consider a move as a correction it mustn’t reach the last HL for an

uptrend and the last LH for a down trend

Like you see in the image above, we are in an uptrend

You could observe that the impulsive moves (Blue lines) are bigger than the

corrections

Also:

The last (HL) is breached by the price (trend changing signal)

The price line (A) is a new impulsive move not a correction

Because the price does not create a new (HH-HL) we can’t consider the line

(A) as a correction

The same thing for a downward trend, corrections are considered if the

price creates new (LL-LH).

Here are the rules to define HH, HL, LH, and LL:

Look at this image:

The first LH is confirmed because the first impulsive move breached the

beginning of the correction (LL1).

The second LL-LH is confirmed after another impulsive move is formed

that breach the beginning of the second correction (LL2).

The potential LL you see in the image is not confirmed by an impulsive

move, the price reverses quickly until it forms a new LL that is confirmed by

the second impulsive move.

Also the potential LH is not confirmed because the price goes up and

reverses quickly, if the potential LH pass the LH2 we can label it as the new

LH instead of the LH2 that we have defined.

So the rules are clear:

1. Define the first LL and LH.

2. Wait for an impulsive move to reach the beginning of the last correction to

confirm them.

3. Repeat the process.

For an uptrend:

1. Define the first HH and HL.

2. Wait for an impulsive move to reach the beginning of the last correction to

confirm them.

3. Repeat the process.

As you see the principle of finding highs and lows is simple, you just need to

wait for impulsive moves and corrections to confirm the validity of your

highs and lows.

You should neglect any unconfirmed highs and lows

You need to focus when it comes to the determination of them

Any mistake can cause you to form wrong price action analysis.

Now, I will explain to you another example:

Look at this image:

As you see we are in an uptrend market

The HH (A), HH (B), HH (C) and HH (D) are confirmed by impulsive

moves that surpass the beginning of corrections.

I will give you an example:

The HH (C) is confirmed after the price surpass the beginning of the

correction (the third white circle) with an impulsive move to the upside.

The potential HH (1) is not confirmed because the price doesn’t past the

beginning of the correction, the price goes up and quickly back down

You should disregard to consider Higher Highers like those.

The HH (E) – HL (J) are not confirmed as new HH-HL

Because the price do not surpass the beginning of the correction

As I said previously, to confirm the validity of a HH-HL or even a LL-LH

you need an impulsive move that surpass the beginning of the correction

But how can we distinguish an impulsive move?

It’s simple..

Look:

An impulsive move to be a strong one it needs at least to equal

approximately 2 times the length of the correction

Let’s do the math:

To consider a move a strong one you need to verify the validity of this

equation:

Strong impulsive move = correction * K

⇔

K = Move / Correction

With: 1,5<K≤2

Here is an example:

As you see in the image above

We have an impulsive move length of 922 pips (527 + 465)

We have a correction length of 527 pips

We can consider it as a strong impulsive move, as we have:

K= move/correction

⇔K= 922/527

⇔K= 1,75

So K = 1,75 and it is in the interval of 1,5-2

As a consequence the first LL-LH is valid

Note:

You do not have to do that each time you want to define swing highs and

lows

Just focus on the chart, I do it every time just by observing…

I will give you another simple example:

As you see above

K=Move/Correction = 2, so this is a strong impulsive move that confirms

the first HH-HL.

The last HH-HL has not been confirmed by a strong impulsive move, this

why you should disregard them.

You see now how this is simple?

2. Degree, size, amplitude

You have learnt the right ways to identify HH-HL, LL-LH

It’s not over

There is something to consider when you define them

It’s the wave degree:

1Wave = 1Correction + 1Impulsive move

The waves must have slightly the same:

1. Degree.

2. Amplitude.

3. Size.

It’s very easy, look at this example:

Looking for waves that have the same size, amplitude and degree is hard to

find

Do not give much importance to this step

Just look for waves with slightly the same size

Make sure that if you could find waves with these conditions

Your swing highs and lows will be powerful, and you will make profitable

trades.

3. Trend rebound

The trend changes its direction when a wave in the opposite direction

emerges

It means that:

In an uptrend, the last HL is breached by the price

And, in a downward trend, the last LH is breached by the price

But pay attention to the major direction of the trend

The first step to do is to define the major trend you have:

I use one only indicator that helps me to define the major trend

It’s the 200 Moving average (Do not use it to enter the market, we don’t

use indicators!)

We suppose you trade at the 4H time frame (it gets awesome results with

the price action strategies)

Switch to the daily time frame, then activate the 200 Moving average

indicator

There are two situations:

If the 200 moving average is above the price, then the major direction of the

price is down

As a consequence you should look for short positions.

However, if the 200 moving average is below the price, then the major

direction of the price is up

As a consequence you should look for long positions.

Do not enter against the major trend!

4. How to enter the market?

To enter the market, it’s almost easy to do using price action trading

strategies

After you define the major trend you are in, and the HHs-HLs for an

uptrend and LLs-LHs for a downward one

If you are in an uptrend:

Enter the market when the last HL is broken by the price movements

Otherwise, if you are in a down trend

Enter the market when the last LH is breached by the price

Do not complicate the process, it’s very simple!

Here some examples:

We are in an uptrend

The last HL is broken by the price

We enter for a short position (The major trend line must be in a

downward trend situation).

The other situation:

As you see above, if you are in a down trend

Enter the market when the last LH is breached by the price (The major

trend must be an uptrend).

4. How to monitor your trade?

To monitor your trades, you just need to establish a good risk management

strategy to limit your losses

I have talked previously about that in my post: 10 Forex risk management

rules to make money even if you lose 50% of your trades.

Do not worry if you don’t trade the Forex markets, it’s the same concept for

all financial markets.

5. How to exit a trade?

It’s easy…

If you trade during an uptrend exit the trade when the first HL is broken

Like you see in the following image:

However, if you trade in a down trend

Exit the trade once the first LH is breached by the price movement

Exactly like you see in the following image:

This is nice, clean and super simple

6. Stop loss settings

Stop loss is an important tool to protect you against losses

Setting a stool is a must for every trader

Without a stop loss you will probably lose all of your money

When it comes to price action trading, like it is simple to make trades and

monitor them

It’s also very easy to set a powerful stop loss to protect your account

Just set the stop loss at the last HH in an uptrend

Look at the high reward/risk ratio on this trade

The good thing about the price action trading is that your reward is at least

three times what you risk

… And set the stop loss at the last LL in a downward trend line

Conclusion

The price action trading or the naked trading is the most powerful trading

strategy that gets results

You just need to master the principles of this technique

Just follow the instructions above, you will make like those results:

I advise you to:

1. Define the major trend.

2. Define the swing highs and lows.

3. Wait for a trend changing in the direction of the major trend.

4. Enter the market.

5. Set a stop loss

6. Monitor your trade.

7. Exit the market at the right time.

Those 7 steps, I use them to trade the Forex market

I win 90% of my trades using these simple steps

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