One of the most challenging frontiers for Forex traders has been interpreting Price Action without the known presence of order flow. Although there are many methods which dip their fingers into the toppings of the pie and get a taste of the price action , none of them seem to get fully into the bedrock of our subject - into the actual ingredients of price action.

What is Price Action?

Price action is essentially the closest relative to order flow in Forex and across all markets. It is the direct result of order flow. Thus, it has the fingerprints of bias, speed of buying/selling, where buying and selling is occurring (support/resistance) when a breakout is genuine and where a likely reversal is occurring. From the continuous flow of price action which pours onto our charts, all indicators are born and thus dependent upon it. Hence, understanding and being able to interpret price action becomes an essential component to our trading. It is a way to get into the essence behind what creates the indicators and most technical signals in the markets.

The 4 Staples

Since there have been countless books, articles, etc. written on how to find and use support and resistance levels, lets dive into four unique methods or staples for understanding price action.

1) Impulsive vs Corrective

Although I dont promote the use of Eliot wave, Elliot Wave theory had the wisdom and insight to examine the difference between moves. The two essential moves everyone sees is either an Impulsive move or a Corrective move.

Impulsive Moves

An impulsive move is characterized by a forceful or strong move in one direction. It is quite fast and powerful, thus producing some of the larger candles in a set albeit any time frame. It is also usually followed by several candles moving in one direction, or the bulk of them in a move. The candles are often signified by closes towards the top or bottom of the candle, depending upon the direction of the impulsive move.

They are ultimately created by a large amount of capital with the buyers/sellers coming in at a particular level with a specific direction in mind. The other scenario is they are created due to a price cascade, via tripping up large stops and, thus, removing the defenses to the upside or downside of a support or resistance level, creating an imbalance to the order books. Impulsive moves can happen on any time frame.

Figure 1 illustrates a recent impulsive dive in the EUR/USD. In this 1 hr chart, notice how the move starts with the largest candle in the entire down move and the close being towards the bottom of the candle (signaling constant selling pressure for the entire hour).

Also notice how before, the move is a mix of red/blue candles, but once the impulsive move begins, we have six red candles in a row.

This move sends this pair on a capitulaiton lower from 1.5928 to 1.5756 (172 pips) in a matter of 6 hours. The daily ATR (average true range) for this pair was clocking in at 133 pips from top to bottom on a daily basis, but in 6 hours it moved more than the average daily range by almost 22%. This is a great example of an impulsive move.

These are the types of moves we want to be in. They are the moves where the order flow is most consistent and heavily biased in one direction. Its no secret the larger players move the market. Thus, being able to identify impulsive moves and riding such waves give us some of the best trading opportunities.

Congested Corrective Moves

Corrective moves are the most common moves to follow an impulsive move. They are practically the inverse of impulsive moves. The candle bodies are usually smaller in nature with closes not particularly aligned to the top or bottom. They are usually a mixed bag of fruit with both up and down candles and generally have little or no bias. It is important to identify these because they are the prelude to the next impulsive move.

From an order flow perspective, they are usually created by one of two scenarios: 1) profit taking after an impulsive move with few significant buyers/sellers coming in to challenge the previous move, or 2) a clear mix of buyers and sellers residing at the same place and a potential reversal point. More often than not, a corrective move following an impulsive move is usually a continuation move.

In Figure 2 we are looking at the same EUR/USD move which displays the corrective move before the large triple landing dive for this pair, followed by another corrective move and then further selling.

Remember, when trading, we want the order flow bias to be heavily in our favor. Corrective moves offer little bias with order books closely aligned to 50% buyers and sellers. Even in the better case scenarios with a 60/40 tilt, you still have a much higher percentage of players on the other side of the market, moving the price action in the opposite direction of your trade. Ideally, we want the highest tilt available and corrective moves in and of themselves do not offer this for us as forex traders.

The next two forex methods are interesting

2) Pips Gained vs. Pips Lost

Looking at figure 3, we can see the NZDJPY pair was on a heavy decline from just above 85.00, falling all the way down to 68.00. The pair had bounced off the lows 400 pips to challenge the 72 figure. After a little dip, the pair re-attacked the 72 level and looked to break to the upside. There was also the presence of a small Inverted Head and Shoulders pattern which is a clear reversal pattern.

In front of all this, I would stil feel bearish. Regardless of the top from this down move (87.05), the pair had started the year at 80.48 with the current price being 72.15 on the close of the then current day. The pair had ultimately lost 833 pips on the year. The price action had suggested for the bulk of the year, traders were much more apt to be selling instead of buying. Furthermore, using our impulsive vs. corrective analysis, the most impulsive moves for the six months of price action were clearly to the downside, with the series of moves having more consistency in the sell-offs vs. the buy-ups.

Given the chart, you would umtimatley be favoring selling this forex pair.  The pair then further declined 340 pips over the next two weeks. Being long the pair at that time was clearly not the option.

Thus, we can see how measuring pips gained vs. lost gives an insight into where the previous buying and selling had occurred and where the next likely move is. Another stellar example of this is the USD/CAD.

In the late summer of 2007, the USD/CAD (figure 4) had started to show some bottoming after a torrential sell-off. After some consolidation, the pair sold off from 1.1800 to 1.0400 in a period of 4 months. This was a merciless move that could find nobody willing to step in front of the locomotive selling. The pair finally found a decent floor after bouncing off the 1.0400 handle and settled between 1.0500 and 1.0700. At this time, hundreds of technicians and economists, still baffled by the overextended downtrend and momentum of this move, were calling for a reversal, at least in the short term. Now consider some very important questions using the pips gained vs. lost method.

The pair sold off roughly 1400 pips in 4 months and was down about 1100 for the year. On top of that, it was only 4.5 years ago the pair was at 1.6000 (5500 pips ago) and had yet to complete anything greater than a 50% retracement of any major leg, with each retracement going to its corresponding extension. In light of all that, why in the world would anyone be paying attention to indicators and their over-extension since the pair had no regard for them? Furthermore, who in the last 4 years made significant money buying the USD/CAD? And since the order books/price action were completely dominated by an overwhelming pips lost vs. pips gained, who could even think about buying or a reversal until we have a clear bottom, albeit an activated reversal pattern or a 61.8% fib break of any major leg? The answer was obvious – keep selling until proven otherwise since that is where the price action had reigned king and had yet to be dethroned.

Measuring pips gained vs. pips lost gives us a pure look at where the order flow is most consistent leading up to the current day/time. This method is very powerful over longer time frames, but is incredibly helpful on shorter intraday times as well. Be wary of trading in front of serious moves where the pips gained vs. lost is against you.

3) Counting Candles

Counting candles in a series or leg of a move can be useful on many fronts. First, it can tell you how many weeks/days/hours/minutes a pair has been bought up or sold off. If you are looking at an entire year, this can be very helpful in identifying where the clear buying/selling pressure is likely to continue. Even on intraday moves, this has potency. It also gives you a rough idea for a particular leg, what the percentage is you will make money on that candle, or lose money.

A look at figure 5 ushers some insight into this. Looking at our NZD/JPY daily chart, while heading into this trade, for the year the pair had 59 red candles and 52 blue candles. That meant on any given day up till that point in 2006, there was about a 50% chance of making money if you entered and exited the position on the beginning and ending of each day. However, using the pips gained vs. lost method, the 50% became much more heavily weighted to the downside suggesting if you sold on any day and were correct, you would make more money. The counting candles gave us an initial % value to the likelihood of our trade being successful, but combined with another method, increased the value of our short position significantly.

4) Time Variables

Pattern recognition and Elliot wave methods do a solid job of bringing in time variables into trading, but they leave many details into question. Two methods to working with time variables are listed below.

a) Time lapse/display for patterns

When looking at a pattern, albeit Head and Shoulders or IHS, wedges/triangles, or even consolidations, it is important to examine the time lapse/display involved and how it should play itself out.

The GBP/JPY from late 06’ to the beginning of 08’ was forming a large Head and Shoulders pattern. This was heavily watched by technicians as the break was suggestive to be massive with the distance between the head and neckline roughly 2900 pips. What was more interesting was the time displayed in the formation of the pattern.

Looking at figure 6, notice the vertical lines which identify the touchdowns where the beginning and ending of each shoulder was made. The left shoulder from initial floor around 221.41, to its rise and fall back down to the same level took about 4 months and 3 weeks. What was tough for traders to figure out was when the right shoulder was forming, particularly if the second touchdown on 221.41 in late November was going to be the last stand at the OK Corral. Notice how the pair bounced just a bit, and then re-attacked the same price level to easily break it the 2nd time around. When the RS was forming, the space or time displayed between the 1st/2nd touchdown was only about 3 months, yet the initial LS took 4 months and 3 weeks suggesting the RS should take about the same amount of time to form.

If you look at when the pair finally activated the break of the neckline, the time lapse or display was 4 months, and 2.3 weeks. This is very common amongst patterns - to have a consistent time lapse or display within themselves. Some other notables are wedges and triangles which usually complete or exit their patterns between 2/3rds and 3/4ths of the move. Rarely ever do they go to completion.

b) Length of consolidation

One other important time variable is how long a consolidation is forming. The larger the consolidation, the greater the probability the ensuing breakout will be legitimate and powerful. Breakouts are such a mystery to so many traders. Measuring the length of the consolidation can provide us powerful insights into this trading conundrum.

Taking a look at the EUR/USD in figure 7, on July 10th, 2008 the pair had opened the European session at 1.5724, dipped to the round number at 1.5700 and then come early NY session was bought up in solid fashion up to the 1.5800 handle. This 100 pip move occurred over 3 hours, where it not surprisingly tapered back a bit at the London close. The pair then consolidated from 9am PST within a 36 pip range for the next 18 hours.

While it is not surprising there was no breakout during the Asian session, what is interesting is that from Noon – 4pm EST, where there is still plenty of liquidity, the pair could not find any new buyers/sellers. For the next 13 hours, the pair still trotted in place not just through the Asian order books, but also through the first four hours of the European session. That means through three sets of different order books/interest, the pair was hemmed in a 36 pip range and nobody could alter this for a total of 18 hours. When you see a consolidation for that long a period of time, expect a significant breakout to occur.

The following breakout gave us a nice retest of the previous resistance level and then generated a 160 pip move in roughly 4 hours. This was the largest single day climb of the week and ironically followed the longest consolidation of that week.

One last example of this method can be delivered via the EUR/CAD (figure 8). In the fall of 2006, this pair had entered a really tight consolidation between the end of August to the beginning of November, encroached between 1.4060 - 1.4350 (290 pip range). This was the tightest 60 day plus range over the last 4 years. With the Bollinger Bands applying their python like constriction, a large breakout was calling out to most traders. When the pair finally did breakout, it gave us a handsome retest of the previous 70day resistance level, and then went on a Himalayan trek for a 1000 pip climb in only one month. Being able to identify long consolidations can point us towards legitimate and powerful breakouts.

In Summary

Although there are many great methods for gleaning solid information out of price action (candlesticks, Elliot wave, pattern recognition), it is important we reach deeper into one of the most unexplored areas of technical analysis – that of understanding and interpreting price action. Being the closest relative to order flow and the mother of all technical indicators, a continual and intensive study of price action can only provide us with some of the most important gems of information to support our trading decisions.

The 4 staples or methods listed above are designed to give the traders a unique set of tools for approaching their charts and building a recipe for solid trades. Through the lens of these and other methods, ones trading can be vaulted to another level of insight, ability and success in trading the Forex market.  More in depth information on price action and real world trading examples can be found throughout this website.

Traders have slashed the price of the U.S. dollar. And that’s terrific news! Now you can get your hands on greenbacks far cheaper than you could only two weeks ago.

If you are a regular reader, you know that my long-term theme is that the dollar will climb sharply through most, if not all, of 2009. And now’s certainly not the time to deviate from those expectations.

Let me explain …

One Head, Two Shoulders, and
Some Juiced Dollar Bears

The recent move against the buck wiped off roughly 9% in 9 days—that’s a bunch! At the same time, the dollar tore through multiple support levels on the charts. And while I had expected the dollar to correct, the decline was deeper and faster than I thought we’d see.

The volatility in the U.S. Dollar Index is at record levels. Just take a look at its weekly chart below.

At the bottom of the chart, in blue, is the Average True Range. This represents the Index’s daily trading range from high to low. As you can see, it is now well above where it has been over 12 years.

And I expect these huge moves will continue.

The initial catalyst for the two-week assault on the dollar had a lot to do with the technical picture. Traders keyed in on a common reversal pattern rearing its head in the U.S. dollar daily chart shown below.

This pattern delivered exactly what it had forecast … and then some. If you acted on this signal, it paid off. But now this same chart is throwing off another signal, in the opposite direction, that will likely pay off equally as much. I’ll explain in a minute.

First, let’s look at the market rationale for this sell-off in the buck, beyond the technicals …

Fed-Speak Added Extra
Momentum to the Dollar’s Fall …

On Tuesday, the Federal Open Market Committee opted to go beyond consensus expectations. Instead of dropping 50 basis points to 0.50%, they targeted a range between 0.0% and 0.25%.

The Fed said it will do whatever is necessary with monetary policy in restoring order to financial markets and shoring up the U.S. economy. That includes purchasing any asset from anyone at anytime if said asset is causing financial stress.

The Fed’s words added fuel to the inflationary fire-breathers. These pundits are pointing at the inflationary impact of the drastic measures being taken by the Federal Reserve and U.S. government.

They believe that if the Fed succeeds in propping up the economy, it’ll happen by re-inflating asset prices. And by that time excessively easy money and easy credit is going to knock down the buck’s value.

Hence, the dollar’s big sell-off.

I think these people are looking too far out at this point. And that means the dollar sellers overreacted. Two reasons why …

1. Deflationary forces impacting the global economy appear too strong to be counteracted by Fed policy in any reasonable amount of time. In other words, the stimulus isn’t going to bring back a recognizable boom. The recovery process will take some serious time.   

2. The global economy is shifting quickly, and the rest of the world is lagging the U.S. downturn. When stabilization of financial markets and the U.S. economy does finally occur, there’s a good chance the U.S. will be looked upon more favorably than many other comparable players in the global economy.

So This Is the Super Deal
You’ve Been Waiting For …

Right now, buying the dollar might offer the clearest and most profitable opportunity we’ll see for quite some time.

Have a look …

I’ve circled three price bars in the above chart. When such a three-bar pattern occurs at a significant intermediate-term low, it generally represents a key daily reversal pattern. Based on each part of each bar — open, high, low, close — you can see how the bulls have overtaken the bears.

So what had been strong momentum for the bears has turned on a dime.

After pushing to new lows with the second bar, sentiment changed dramatically that same day and became bullish with a close above the close of the first bar. Confirmation of this sentiment change occurred with the third bar closing above the high of the second bar.

Is this a Holy Grail trade setup? No. But given the bullish fundamentals, this new technical pattern tells me that there couldn’t be a better time to own dollars.

Potential for GBPUSD to move up to 1.5500 after bullish oin bar reversal on Friday

Martin here with a few words from my father, J. Irving Weiss, about the Great Depression. Before he passed away, he wrote:

“In just three short years between the peak of the stock market boom in 1929 and the bottom in 1932, it felt like the entire world was falling apart.

“The financial bubble burst.

“Giant companies failed.

“America lost 13 million jobs as unemployment surged to 25 percent.

“Industry cut its production nearly in half, and home construction plunged by more than four-fifths.

“Over 5,000 banks failed.

“And yet, despite it all, there was one all-important investment vehicle that not only survived, but actually thrived: The United States dollar.

“Why? Because of deflation and fear.

“Thanks to deflation, prices fell on virtually everything — commodities, farm land, homes, automobiles, consumer goods, even labor. And because of fear, investors shunned risk and sought the safety of cash in greenbacks. Result: The dollar’s purchasing power and value surged.”

That’s What’s Happening Today!

Today, like in the early 1930s, unemployment is surging, with over a half million jobs lost in the month of November alone.

As in the 1930s, America’s largest financial institutions — Fannie Mae and Freddie Mac, Washington Mutual and Wachovia, Bear Stearns, Lehman Brothers, and Merrill Lynch … even giants like AIG and Citigroup — have gone under, been bailed out or forced into shotgun mergers.

Most important, as in the 1930s, prices are falling, with fear driving millions to the safety of hard cash.

The net result: The U.S. dollar — virtually given up for dead not long ago — is now gaining steadily and rapidly in value.

In this midst of all the bad news, this is the one, outstanding ray of hope — for two reasons:

First, it indicates that, despite all the economic pain still ahead, the United States dollar will survive and thrive.

Second, it means you are now witnessing the first phase of a dollar rise that opens up some of the largest and steadiest profit opportunities of our lifetime.

The 1HR Chart shows us the continuation of this channel and the movement of the USD/JPY pair as it has bounced around the highs and lows of this channel.

Traders should be aware of the top of this channel is containing the market lower. It looks like more falls are due.

Price action on the 28th of November has produced a Mother Candle (Outside Bar) as the pair seeks to consolidate from a recent dip.

The last 4 Daily Bars have all been Inside Bar Days (that is, they have formed within the range of the Mother Candle.)

The range of the Outside Bar is a High of 1.2199 and  a Low of 1.1960.

Traders should keep on eye on these levels as they could prove significant in any short term breakouts.

Potential for fall from resistance at  8580-600 (this is not advice)

Trend remains bearish

The entire market had a wild volatile ride during the last fortnight, and BHP was no exception, moving in a radical $11 range.

Our countires giant symbol of commodity and mining wealth dropped the ball and stumbled lower,  trading at levels close to $20.00. Lower levels didnt last long though, and bargain hunters pushed the stock back to $31.00 by last Friday.

BHP decision to bail on the merger with RIO Tinto has obviously created havoch amongst traders and funds, but its now more apparent that the selling was a little over done. When we say overdone, we are talking about a move from $31.00 to $20.00, a percentage move of over almost 40%!

With that said, we also feel last weeks recovery of the shares is a little to much, and as we approach the $32.00 to $34.00 resistance bracket, traders could consider using this strength to get short.  We are confident the $32.00 to $34.30 range is going to see a stall in prices because this was a huge support level prior to its failure back in October.

A retest of this old support should see sellers form a wall of resistance under the level.

$32.00 is the first major area of resistance, and this will become a serious point for the market.

Remember, dont just play every pin bar, not all pin bars are created equal. The ones that have higher values are at swing lows or swing highs, and are formed on either heavy Support and Resistance .Th eoin bar forms due to false breaks of these key levels.

They also form at retracement levels or major EMAS (moving averages). Also remember, the higher the time frame the higher the probality. I find the dailys tend to have around a 75 + % success rate, with the hourly around the 60% (lower time frames have 50/50). However, 50 50 strike rate is more than enough to result in solid profits, because your risk reward is huge.

To play a pin bar(if it formed on a upswing) place the sell stop underneath the nose, or use the 50% retracement of the candles range to enter. The important thing to note is that whichever direction the pointy part of the candlestick is, we expect the market to move the other way.

The pin bar reversal wil work in trending markets or from extremes of ranges (s an r).

Hope that expands a little on the topic of Pin Bars in trading forex.

For more on Pin Bar Strategies, Visit other sections of the website, there is a detailed explanation here > Pin Bar Article

Theres solid proof in my own trading results that using trends in cobination with price action signals, will increase the expectancy of winning any one trade..

So the lesson we have learned for today is when learning to trade, or when developing a trading plan, you could start with using 2 filters.

Forex Trading Strategies Filter 1, use a basic trend definition tool such as the 8 and 21 day exponential moving averages, or a simple visual trend analysis to pick the current monentumand direction. This filter will enable you to at lease have some form of clarity before entering a trade. So filter 1 is to have a method to decide the direction.

Forex Trading Strategies Filter 2, pick 1 or 2 price action signals and learn to master them (refer other articles), and use these to enter a trades in the direction of the trend.

I believe the price action signals themselves are much more important to learn , because the trend is interpretable. I teach my price action strategies and forex trading strategies in my trading course.

You can learn the forex trading strategies I use in detail, in much more detail than the free Videos.
Go here to take a look at my forex trading course.

Making a living trading from home Making a living trading from home is the dream of just about every trader and active investor. Nial Fuller offers his simple trading strategies, without the complex indicators or heavy charts, that can be used by anyone anywhere to make a killing and earn a living.

Nial Fuller was bitten by the trading bug at the age of sixteen, and ever since he’s thought of little else other than how to make a fortune as a home-based trader. He bought his first stock in 2000, when he was just a High School senior, and then spent the next decade chasing his childhood dream. Finally, in 2004, nearly bankrupt and ready to quit, Nial Fuller had an epiphany that changed everything–and since then he hasn’t had a losing year and rarely even a losing month. His trading account has mushroomed . What did Nial Fuller discover that makes him stand out from the rest? How did he achieve trading success and continue to bank large trading returns.?
Find out how.. visit - www.learntotradethemarket.com

What you won’t find is mathematical formulas, complex technical indicators, heavy charts, or elaborate software demands. What you will find is a simple, straightforward approach to home-based trading that can be used by virtually anyone, anywhere. Unlike most experts teaching traders today, Nial Fuller has actually made it as a home-based trader. In his trading course , Nial outlines his low-risk trading strategies and explains how to use them to trade forex and futures markets–his preferred vehicles.

Nial Fuller deals in reality. If you want to really learn to trade for real profits, not hypothetical, mumbo-back-tested programs, this website is a must. New traders will find great benefit from looking over Nial’s shoulder as he generously shares with the trader, the valuable knowledge he has gained over the years.. You’ve heard what the experts have to say about trading the markets. Now find out how it’s really done from a consummate pro,. Nial runs a private trading website where he shares a wealth of free knowledge, his home study course informaiton is also on the website.

You only need to master one trading setup to be a consistently profitable trader.

Screen time will allow you to master one setup.

After you have mastered one setup “own it” you can add another setup. This can be an ongoing process developing your own style.

The best setup to begin with is the one that you see and understand easiest. If you are forcing yourself to learn a setup because you believe another person is successful using it you may be taking the longer route to profitability. We are all different . Our brains and personalities will gravitate to different setups. This is also true of exit techniques. Most traders I hear from lengthen their road to profitability by trying to apply too many concepts before owning the first one. They have studied a myriad of techniques but have yet to master any. This allows them to talk about trading but unable to consistently trade profitably.

The first decision to make is; do you desire to be a counter trend trader? or a with the trend trader? Eventually, you can be both. At the beginning, or a new beginning perhaps, you will do best choosing to master a setup and follow the trend. If you have been at this game for awhile and are not yet consistently profitable you know what I am saying is correct.

This site contains trading techniques and setups with the intent that it will aid you in creating “your” trading style. My personal trading style is a combination of various styles and setups.
I trust this website will be an exercise in my personal understanding of my own style allowing all to benefit.

PICK ONE, MASTER IT, BE CONSISTENTLY PROFITABLE

Follow just the price, and riches will follow

For today’s article, I will be introducing traders to ‘price action signals for Foreign Exchange (FOREX)

Today I am presenting an introduction to what price action is, and will provide a basic price action pattern for traders to use in their trading.

What is price action?

Price action can be simply defined as trading from a naked price chart, with no other inputs. We display a bar or candle chart on time frames such as daily, weekly or hourly etc. The term price action signal will be given to any pre determined pattern/trigger which develops from a single price bar or series of price bars.

Most traders will remember my core philosophy is to KISS,’ keep is simple stupid’. Price action is trading from a first tier piece of information. Our decisions are based on 1 input i.e.: price. Conversely, when we trade from indicators and fancy patterns etc, there is subjectivity and multiple inputs. Trading price action is trading the here and now, with no lag or delay. Price action allows the trader to trade what he is seeing first hand, without subjectivity.

How can a trader make life easier?

When a trader has to make fewer decisions in regards to every trade, his life becomes livable and stress free. Contrary to what most so called experts say, it is very possible to trade with fewer inputs. Inputs would be areas like financial, economic news, world news etc etc. Another input might also include the number of indicators and charting tools that are used for discovering and managing trades. Another input that could be avoided is listening to friends opinions about what or when to make a trade (except us of course)

Whenever you listen to the news and the opinions of others, you then have to filter that data through your thinking process. You actually have to make some kind of decision concerning all those bits of information you come across. Attempting to understand how all those various inputs will affect the markets is usually difficult to manage. Predicting how traders will react to the plethora of news items is often a haphazard and illogical process to go through. It is really a guessing game that most so called experts are unable to consistently figure out.

The best alternative is trading price action!

In a nutshell, great forex traders, always go back to the very foundation of a price chart, (a raw blank candle or bar chart), and make decisions based on the truest information available.

Observe the price behavior

Without any indicators, a market can be seen as trending, hitting resistance or support, congesting sideways, etc etc. No computer or indicator, or news item will provide this information perfectly, except the human brain.

Brining it together to trade.

This article was not designed to teach a complete method of price action entries, but merely introduce you to the concept of trading from raw price charts and to remove all other variables.

The remainder of the article will help you discover one pattern which has a statistical edge in trading.

Example of a price action entry in 3 steps

Refer to the daily AUDJPY currency chart below.

1. We have observed price behavior as trending UP. We can see over the last 30 days prices had been moving higher and higher,. There was clearly, low volatility and no trading congestion, the market was in a runaway trend.

Step 2. With our assumption that the trend is up , we naturally would be happy to go long (buy), if a price action signal developed. We are now on the look our for [U][B]a trigger bar, or series of bars.[/B][/U]

Step 3 Find an entry trigger -

A pin bar reversal is a key reversal candle or price bar on a chart which shows an obvious change in sentiment during that period. The candle typically has an obvious shadow (long tail), with the close near or above the open.

A logical example is when a market opens, moves down 1 percent and then rallies hard to close above the open.

The bar looks like a “Pinocchio Nose”, thus the term “Pin Bar”.

See below

AUDJPY daily

Where to trade a pin bar

The pin bar is traded best from support or resistance, trendline or from a key moving average , potentially even a 55% retracement of some form.

Keep a look out for the obvious pin bars, and trade in the opposite direction of the tail. If the price moves up to recent highs and prints a pin bar with tall upper shadow, then the signal is to short. The opposite is true for longs.

Pin bars are often created near extremes in price swing, and often occur at false breaks, but thats another article in itself.

See below EURUSD

Below, the EURUSD charts has 2 examples.

1. A very large bearish pin bar after prices broke to a new false high. Subsequent behavior was negative. False break outs to new recent highs or lows often result in pin bars.

2. Trading a very large pin bar from the 50% retracement zone, subsequent behavior was bullish.

3. Pin Bar within Trend

In summary,

Price action is a golden tool, because we can combine very simple multiple price inputs together.

I.e.:
Support and Resistance in conjunction with a pin bar.
A trend retracement level with a pin bar.
Or simply, follow a short term trend with pin bar entry.

Try to back test past occurrences of these pin bar reversal patterns on your daily and weekly charts at first, do research on them and begin master them. Continue to learn the art of price action trading and you will surely advance your trading career 10 fold.

After huge demand for the Course, I finally completed my 150 page Text and Video Forex Trading Course

Please take a look and I highly suggest you consider purchasing if you are looking to completely understand how I trade the market, and how price action works. You can check it out here Forex Trading Course

Take Care

Nial

The slump on the New York Stock Exchange, which has resulted in this great change in the monetary outlook, is one of the spectacular episodes of financial history. A prolonged upward movement, the extent of which is illustrated by some graphs which we print in a later column, has been built up over a series of years on the amazing and unexampled prosperity of America. But some two years ago the speculative movement seemed to lose all touch with reality; and in spite of occasionally vigorous but more often half-hearted, measures by the banking authorities of the United States, speculative fever spread throughout the nation and carried prices, mainly with the aid of borrowed money, to fantastic heights. Writing of the efforts made to check the movement, a high authority observes:

“The market fought its way upward against Reserve banks and member banks, and there was truth in the boast that it defeated them . . . bankers are not the owners of the funds in their custody, and the market defeated them by going round them and inducing depositors to place their funds at the disposal of ‘the street.’ Democracy triumphed over authority and leadership in the advance, and the orgy at the finish was all its own.”

Highly coloured stories of devastating ruin and of paralysis of economic life must, as always in such cases, be heavily discounted; but it is natural that people should be asking themselves how widespread and of what character will be the economic reactions of this slump. The question acquires added importance from the fact that in its later stages the Wall Street movement pervaded the whole world by drawing money, not merely from all corners of America, but from every continent. It resulted in an embargo on the export of gold from Canada and monetary difficulties in the Argentine, while its financial repercussions were painfully felt in every monetary centre. If this was the effect of the boom what will be the effect of the collapse?

Turning first to the direct effects in this country, there are undoubtedly many private investors, as well as trust companies and other financial institutions in London who have suffered substantial losses. But circumstances have somewhat mitigated what might easily have been much more serious effects in Great Britain. There has notoriously been considerable British buying of American securities during the last two years, and the advent of the Labour Government gave an added incentive to those who thought that it was time to escape from the British frying-pan into what, in the event, proved to be a very hot American fire. In September, however, the shock to the London Stock Exchange caused by the Hatry disclosures, together with the growing uneasiness as to the giddy heights to which American securities were soaring, undoubtedly led, in some cases, to forced sales and, in others, to precautionary withdrawals of money invested in the United States. There were signs of a backward movement from the United States even before Bank rate rose in September; but after the rise these withdrawals rapidly increased. London’s interest in Wall Street was thus considerably lightened before the slump occurred. After the slump had taken place, large quantities of international securities were offered in the London market at, in some cases, very low prices. These have been absorbed and London has thus done something to stop the rot.

But while the direct effects are not of really serious importance to this country, the influence on the economic situation here depends on more general considerations than the technical position at the time of the slump and, above all, on the answer to the question which everybody is asking but no one is prepared to answer, namely, what will be the economic effect of the slump on business in the United States? It has many times been pointed out that the present slump differs from most of its predecessors in the fact that it has not been accompanied by industrial over-production or rising commodity prices resulting from an expansion of credit. If the industrial situation is unduly expanded, as in 1920, and the whole economic situation is precariously balanced like an inverted pyramid upon its apex, even a moderate shock from the Stock Exchange might produce a general collapse. This is not the situation today. The question presents itself rather in this form: Can a very serious Stock Exchange collapse produce a serious setback to industry when industrial production is for the most part in a healthy and balanced condition?

Optimists say that there is no precedent for such a harmful reaction, and that the worst that need be expected is a slight shock reflecting itself in a short-lived hesitation. Even though some temporary contraction of demand for consumers’ goods of the luxury type may be inevitable, it is argued that cheaper money should lead to increased expenditure on capital goods by industrial corporations, and that official encouragement, backed by the steady propaganda of the “sunshine artist,” should quickly produce a renewal of the upward trend of industry as a whole. A more serious view is taken by others, who point not only to the heavy “break” in certain commodity prices which has accompanied the slump, but to the danger that Wall Street losses may have gravely shaken the psychological confidence of America in the prospect of unlimited expansion. These observers think that the orgy of speculation in the United States has been so widespread that persons of all classes deceived by, in some cases, real, but in many more cases, purely paper profits from their investments, have been living beyond their means, or, at all events, mortgaging their future by purchasing luxury goods up to, or even beyond, the full limit of their incomes.

It is said that this has resulted in a precarious situation owing to the extensive buying on the instalment plan, and that the slump will lead to widespread defaults and a slowing down of production in the trades chiefly concerned. The ordinary man, however, cannot spend paper profits without realising them, and while it may be true that the confident expectation of large Stock Exchange profits may have encouraged an extravagant scale of living which may have to be reduced, it remains true that the bulk of instalment buying rests upon the income of wage and salary earners which will not be affected by the present slump, unless it extends its ramifications throughout industry and produces unemployment. Indeed, as Professor Seligmann has recently argued, “instalment credit, extended as it is largely to recipients of wages and salaries, is likely to produce less effect on the business cycle than producers’ credit, resting upon profits.” It may, however, be taken for granted that there will be some curtailment of the consumption of luxury goods, and that this will mean a certain restriction of trade.

How far this will extend must at present be a matter of conjecture. A great deal must in any case depend upon the situation of the banks. The one influence that could throne back the full brunt of the speculative collapse upon industry and produce a real depression throughout the country would be banking trouble. Certain Wall Street banks made some spasmodic efforts to check the slump, but were careful to dispose of their holdings at the first opportunity, and there is no reason to suppose that they have seriously handicapped themselves by efforts which never went the length of attempting to stop the rot by holding large blocks of stock off the market. There are, however, known to be large quantities of securities not yet absorbed by the public which for the time being have to be carried by banks and finance houses. Many banks will, moreover, have made very large bad debts, while others will have to finance customers for a long or short period. Some bank failures, no doubt, are also to be expected. In the circumstances will the banks have any margin left for financing commercial and industrial enterprises or will they not? The position of the banks is without doubt the key to the situation, and what this is going to be cannot be properly assessed until the dust has cleared away. On the whole, the experts are agreed that there mint be some setback, but there is not yet sufficient evidence to prove that it will be long or that it need go to the length of producing a general industrial depression.

It remains to consider what effect a setback, whether great or small, in the United States will have upon other countries. The trade reports contained in our Supplement this month show a not unnatural hesitation as to the effects of the American situation. The fear is, however, expressed that if United States producers suffer from a diminution of their home market, it will, on the one hand, strengthen the demand for an increased tariff at Washington, and, on the other, lead to the exporting of the surplus products at low prices abroad. This last event is one which has long been awaited with some misgiving by European producers. But the expectation that there will be a flood of American exports as a result of the tide having turned in the United States overlooks one or two features of recent American development. In the first place, American technique has developed on the lines of very greatly reducing production for stock and it is the practice today to curtail output schedules at the first sign of reduced sales. Secondly, mass production means production at a very narrow margin of profit per unit of output. Thirdly, the apparatus of foreign sales, except in those products which already have a foreign market, cannot immediately be improvised. We need not, therefore, assume either that there already exist in the United States, or that manufacturers will continue producing so as to create, large surplus stocks of manufactured goods; nor can they afford to sell abroad at less than cost, at the expense of the American producer, more than a small proportion of their output. While, therefore, there may be some sales of goods at low prices, which may prove embarrassing for competing producers, it is not to be contemplated that the great stream of American production can suddenly be switched from the home market into export channels.

In any case, against any disadvantage arising from American competition must be set the great advantage which we mentioned at the outset, namely, the return to cheap money conditions. This should assist trade recovery throughout the world, which has been handicapped for so many months past by the abnormal financial conditions in New York. If we are justified in assuming that the setback in American industry will only be temporary, we may look forward to steady development in 1930, free from the incubus that has of late been hampering world conditions.

Almost feels like they where talking about today, not 80 years ago!

An inside bar is a bar or series of bars which is/are completely within the range of the preceding bar, or , i.e. it has a higher low and lower high than the bar immediately before it (some traders use a more lenient definition of inside bars to include equal bars). On a smaller time frame it will look like a triangle.

An inside bar indicates a time of indecision or consolidation. Inside bars often occur at tops and bottoms, in continuation flags, and at key decision points like major support/resistance levels and consolidation breakouts.

They often provide a low-risk place to enter a trade or a logical exit point.

The most logical time to use an inside bar is when a strong trend is in progress. If we play the break out, our stop loss can be defined by placing it below the half way point of the outside bar or mother candle.

See Chart Below

Pin Bar Entry

A pin bar is a 1 bar formation. The pin bar is a price bar which has rejected higher or lower prices. Price will open and move in one direction, and then “reverse” durign the session to close at or past the open.

The candle is easy to spot because it has a “tail” or deep wick. It is a common reversal signal which typically needs to occure near a support or resistance area. Somne traders use them in conjunction with Fibonacci retracemens as well as moving averages or pivot levels.

In a nutshell, Pin bars are the ultimate strategy for picking up major swings in prices. In my experience, the Forex market is most responsive to this entry signal, due to the number of traders in Forex, the pattern becomes self fullfilling.

See Chart Below

The ‘ Fakey ‘ Entry. (Inside Bar “false break pattern”)

This pattern is where we have a false break on the inside bar. Instead of the market going with the intial break of the inside bar pattern, the market “fakes out” and reverses back above the open and makes new session highs.

This initiates a solid burst of momentum which can last 1 or more days.

see chart below