In this Forex trading strategies lesson, I am going to share with you guys three of my all-time favorite price action trading strategies. Trading the Forex markets does not need to be technically complicated, by making use of simple price action patterns like the ones discusses below, we can trade from a clean price chart as well as a clean mindset. Most traders end up over-complicating their trading approach, don’t be one of them, be different, trading with simplicity and clarity, trade with price action.
Pin Bar Entry
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” during the session to near or past the open.
The pin bar formation is easy to spot because it has a long “tail” or wick. It is a common reversal signal which typically needs to occur near a support or resistance area. Some traders use them in conjunction with Fibonacci retraces as well as moving averages or horizontal support and resistance 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-fulfilling and it also shows you when a change in price direction is imminent, whatever the reason may be.
In the chart below, we see multiple examples of what good pin bar setups look like. We also see some fakey setups that had a pin bar as the ‘false-break’ bar, you will read more about the fakey later in this lesson.
Inside Bar Entry
An inside bar is a bar or series of bars which is/are completely within the range of the preceding bar, 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.
In the chart below, we can see three different inside bar setups that occurred within the course of a down-trending market. Note the large risk reward opportunities that were available from these inside bar setups due to the small stop loss distance and the breakouts that occurred. Inside bar setups often lead to significant breakouts like this because markets tend to contract and consolidate before they make large directional moves.
The ‘Fakey’ Entry (Inside Bar “false break pattern”)
The fakey pattern is the result of a false break of an inside bar setup. Instead of the market going with the initial break of the inside bar pattern, the market “fakes out” and reverses back past the other side of the inside bar. This often initiates a solid burst of momentum which can last one day or more. As we can see in the chart below, a false break of an inside bar pattern occurred and the next day price broke up above the inside bar high and shot higher for the next 6 consecutive days. Now, not all fakey’s will result in such a strong move, but when trading with the existing trend like this they are usually a very high-probability price action trading setup.
If you would like more information on the price action strategies discussed here, and how to develop them into a complete Forex trading strategy, check out my Forex price action traders’ course and members’ community here.