The Simplest Forex Trading Strategy in the World

If someone asked me to describe my trading strategy in as few words as possible, it would be this; horizontal levels and price action. Indeed, trading price action setups from horizontal levels is the “core” component of my trading theory and strategy, and if you were to take away only one thing from my website it would be that you can learn to trade the market effectively by simply drawing the core levels on your charts and waiting for obvious price action signals to form around them.

After you finish reading this lesson, leave a comment, like it on facebook, tweet it on twitter and share it with others. :)

Why are horizontal levels so important?

If you want to learn to trade a “naked” price chart, you’ll need to learn about two things at minimum; price action and horizontal levels. Everything in the market starts with a horizontal line; this is the back-bone of my trading approach as well as the trading approach of many other great traders. Indeed, traders like George Soros, Warren Buffet, Jesse Livermore and others, all pay (paid) close attention to the key levels in the market, because they know that these levels are significant and can thus have a strong impact on the direction of price.

Horizontal levels help with timing and they provide “value areas” that can help you define your risk by giving you a price level to place your stop loss beyond. I have been a disciplined trader of levels combined with price action for years; probably about 80% of my trades involve an obvious “core” horizontal level combined with a price action signal. Horizontal levels provide us with a confluent area to trade from, but they are not the only factor of confluence that I look for; the more factors of confluence you have lining up with a price action signal the better. However, I do consider horizontal levels to be the “core” piece of confluence in my trading strategy and I want to show you guys some examples of how I use horizontal lines and price action to trade the markets. Ready? Let’s go…

Examples of trading with horizontal lines and price action signals:

I teach a plethora of price action trading confirmation signals in my course that I combine with levels and the trend, here’s a few examples of how I trade price action signals with obvious horizontal levels in the market.

• Trading horizontal lines in trending markets with price action from “swing points”

My favorite way to trade with horizontal lines is to trade them in trending markets from swing points. As markets trend, they create horizontal levels as they ebb and flow, these levels are what I call “swing points”, and we can find very high-probability trade setups by watching for price action forming from these swing points in the market.

Look at the illustration below, note how the market is trending higher and as it makes new highs it also creates resistance when it falls away from these highs, then as it pulls back the previous high / resistance actually turns into support (swing point). Thus, old resistance becomes new support in an uptrend, and in a down trend old support becomes new resistance, also known as swing points.

The way that we take advantage of these horizontal level swing points, is to watch for price action strategies forming near them as the market pulls back. Look at the blue circles in the illustration above, these are the swing points at which you want to watch for obvious price action signals forming, then you are trading from a confluent point of “value” within a trending market.

• Trading horizontal lines in range-bound markets with price action

Another excellent way to trade horizontal lines in the market is to simply watch for price action setups forming near the boundaries of a range-bound market. Unfortunately, markets do not always trend like we want them to, instead, they often swing between support and resistance in a trading range. Fortunately, trading with simple price action setups allows us to trade in any market condition, so we can still find high-probability trade setups even in range-bound market conditions.

In the illustration below we can see an example of what a range-bound market might look like. When price is obviously bouncing back and forth between a horizontal support and resistance level, we can wait for price to hit one of the boundaries of the range and then watch for price action signals forming there. This provides us with a very high-probability entry scenario and a very simple trading strategy. It also gives us obvious levels to define our risk and reward. Risk is defined just beyond the trading range high or low from the boundary you are entering near, and reward is defined near the opposite end of the trading range.

• Trading “event area” horizontal lines with price action

Event areas are horizontal lines that can be very high-probability areas to watch for price action setups forming near. Essentially, when a major price event occurs in a market, like an inside bar breakout or a pin bar reversal, price creates an “event area” at this horizontal level. You will notice that these event areas are significant most of the time because price will often stall or reverse as it re-tests them.

In the illustration below we can see an example of the creation of an event area as well as how it could subsequently be traded. Essentially, any price action signal can create an event area if it sets off a substantial move from the event area / horizontal level. In the example below we can see an inside bar breakdown occurred and then price came back and re-tested this event-area / horizontal level. As price re-tests the event area we would watch closely for price action signals, as the formation of a price action signal at an event area is a very high-probability event.

However, event areas also provide us with the ability to enter without confirmation from price action. This is a more advanced strategy that I teach in my price action trading course, but it is possible to enter “blindly” at the event area as price comes back to re-test it, that is to say without confirmation from price action.

• Real-life examples of trading price action at horizontal levels

Finally, I wanted to show you guys a real chart of the EURUSD and analyze its recent price action and horizontal levels to show how you could have used simple horizontal levels with price action to trade the market.

1) Note the trading range that the EURUSD was in for about 3 months earlier this year. Price was bouncing back and forth between resistance near 1.4550 and support near 1.4100 – 1.4000. We didn’t get a lot of signals in this range, but there were at least three good pin bars that formed off the support of the range that traders could have made some very good money on.

2) Next, as the trading range formed and the pin bars developed along support, we got an event area forming around 1.4100 – 1.4000. As price began to move lower from the top of the trading range before it broke out, it formed a long-tailed pin bar and then an inside bar right at this event area. Thus, a break of the pin bar low meant a break of the event area and we can see a significant move followed.

3) Next, we can see an inside bar and a pin bar setup that formed as the market trended lower. These setups both formed at horizontal levels and we can see they resulted in large moves to the downside that provided good risk reward ratios for savvy price action traders

In closing, trading horizontal levels with price action signals is the primary technique that I use to analyze and trade the market. It is essentially the “foundation” of my trading strategy and I believe it truly is the “simplest trading strategy in the world”, as well as the most effective. It is obvious that horizontal levels are very important in the market, and by combining them with my price action strategies you have a very effective and simple trading strategy. If you want to learn more about how I use horizontal lines and price action, as well as my other trading strategies, check out my price action trading course here.