BeanFX Price Action Setup
BeanFX Price Action Setup page will introduce traders to strategies that are not indicator based (free of indicators).
Basically, price action setup allow traders to read the market from a subjective point of view. Trade decisions are made on recent and actual price movement.
Primarily, price action is dependent on technical analysis tools such as Trendlines, zig zag, fibonacci e.t.c.
Price action involves the primary use of swings (HH, HL, LH, LL), Candlestick patterns, Channel breakouts, trendline breakout, support and resistance, megaphone price swing, pin bars, V and inverted V, Head and Shoulders, quasimodo.
Others are Flag patterns and consolidation or continuation patterns (symmetrical triangles).
Price action may not be easily interpreted the same way by two or more people. In other words, price action interpretation differs from one trader to another.
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Market Structure:
Understanding Market Structure will help traders to read price charts and determine descent trade entry zones.
Market structure identification involves the building of price direction or bias from a higher time frame to a trading time frame.
The ability to identify if price on the chart is trending up, trending down or if it is a ranging market is key to price action traders.
The area of Support (Demand) or Resistance (Supply) on the chart also form part of the market structure.
We have the Bearish Market Structure, Bullish Market Structure and Ranging Market Structure.
In a Bullish Market Structure, price is guided by ascending trendline or ascending channel.
While in a Bearish Market Structure, price will be guided by descending trendline or descending channel.
In a Ranging Market Structure, we have the upper and lower price range. Breakouts usually occur at the part of the range where price spend most time at.
Understanding market structure allows traders to filter out low probability trades and focus more on high probability trades or setups.
Swing movement:
Uptrend price movement is primarily characterized with Higher highs, and Higher Lows. Successive swing highs followed by higher swing lows
While downtrend, price forms Lower Highs and Lower Highs and Lower Lows. Successive swing lows followed by lower swing highs.
Basically, price action traders will scan the chart to determine if price is trending or not.
Meta Trader tools such as zig zag can be used to plot the swing points.
Where HH is Higher High, HL is Higher Low, LH is Lower High and LL is Lower Low.
As soon as an uptrend is established, traders will buy at support or at breakouts;
On the other hand, as soon as down trend is established, traders will sell resistance or at breakouts;
A Higher High can be followed by either a Higher Low, Double Bottom or Lower Low.
A Higher Low can be followed by either a Higher High, Lower High or Double Top.
A Lower Low can be followed by either a Higher High, Lower High or Double Top.
A Lower High can be followed by either a Higher Low, Lower Low or Double Bottom.
A Double Bottom can be followed by either a Higher High, Lower High or Double Top.
A Double Top can be followed by either a Higher Low, Lower Low or Double Bottom.
Technically, there is a point when a trend changes. In a Bearish trend, traders usually look out for a Higher High to confirm that the Bearish trend is about to change (reverse).
In a Bullish trend, traders also look out for a Lower Low to confirm that the Bullish trend is about to change (reverse).
The development of a Higher Low after a Lower High informs the trader that the Bearish Trend is weakening.
However, the development of a Lower High after a Higher Low informs the trader that the Bullish Trend is weakening.
Candlestick patterns:
Candlestick patterns are very important features and are critical to the use of price action trading strategy.
Continuation Candlestick patterns such as Rising Three Methods will normally hint traders that the current trend will likely continue.
However, Reversal Candlestick patterns at special areas (such as Support and Resistance areas) will hint traders that a Trend Reversal is likely to occur.
Engulfing Candlestick Patterns:
These are trend reversal patterns and can either be Bullish or Bearish. They are used to spot potential market reversals.
The Engulfing Candlestick pattern is the inverse of Harami Candlestick pattern. It is the result of Big Money players coming into the market.
Engulfing candle is more effective at area of support or resistance. It’s occurrence is mostly at the point of swing highs and swing lows.
It gives traders clear trade entry signal. It tells the price action trader that one side of the fight has overwhelmed the other side.
Engulfing candlesticks have large bodies, longer than the immediate candle(s). It wraps itself around the previous candle(s).
The Engulfing candlestick must be the opposite of the candle before it.
Your trade entry for the Engulfing Candlestick trade must be placed on when the candle closes.
For a Bullish Engulfing bar, your stop loss will be 10 pips below the low of the Engulfing bar.
On the other hand, for a Bearish Engulfing bar, your stop loss will be 10 pips above the high of the Engulfing bar.
Pin Bar Candlestick Patterns:
Pin bars are mostly trend reversal candle stick patterns. It can appear in the form of Hammer, Shooting Star, Inverted Hammer, Hanging man, doji e.t.c on the chart.
The pin bar consists of the small candle body, a small candle wick on one side, and a long tail on the other side.
Pin bars are more effective when the form at the support or resistance area.
The longer the tail, the more powerful the pin bar is. The bigger the time frame, the more powerful the pin bar is.
Hammers are pin bars that form at the bottom or end of a bearish trend, and they are similar to inverted hammers.
Hammer candlestick pattern indicates a potential price reversal to the upside especially when formed at a support area.
The confirmation of the hammer trade is that price must start moving higher than the hammer candle.
Hammers are more effective when they are preceded by three or more bearish candle bars.
The bigger the time frame, the more powerful the Hammer is.
Shooting stars are mostly trend reversal candle stick patterns. It is similar to Hanging man on the chart.
The confirmation of the shooting star candlestick trade is that price must start moving lower than the shooting star candle.
Shooting stars are more effective when they are preceded by three or more bullish candle bars.
The bigger the time frame, the more powerful the Shooting star is.
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