The term price action, if kept simple, refers to the study of price movement securities. In price action trading, traders will study past price data to identify any clues about the next market direction.
An indicator is needed to identify price movements. Armed with this indicator, traders can learn the price bar which will then provide details about the position of entry and exit from the market, also knowing the high and low prices during a certain period.
Analyzing this kind of information is the main key to price action trading. If interpreted further, price action is the study of the actions or behavior of active sellers and buyers who are involved in the market. This is if price action is literally defined.
That is why, by analyzing what forex players do, traders can get a unique picture which can then be applied when making trading decisions. And among all the tools most often used in price action trading, namely candlestick charts.
1. Price Action Hammer Strategy
The hammer pattern price action trading is a bullish signal that gives significance about the high probability that the market is moving upwards. The hammer shows that the seller is pressing the market to a new low. But, the seller is not strong enough to stay at the bottom and opt out of his position.
This situation makes the market rise again which in turn triggers buyers to enter the market. Open and close prices must be in the upper third of the hammer candlestick. Generally, the close price is below the open, but more can produce a strong signal if the close price is placed above the open price.
The GBP / USD chart above shows two examples of hammer patterns (marked with yellow squares). By analyzing prices from open, close, high and low positions, this pattern tells us that the market is moving upwards. In this example, prices do move up after the candle is formed.
Entry point: among the possible points to enter trading, i.e. when the next candle moves past the height of the hammer candle. The height of the hammer candle, which occurred on February 10, is 1.2959. From here, the entry point chosen should be 1.2960.
Stop-loss: stop-loss placement is most likely under the hammer candle. If the market has given an entry point signal but no buyers have entered, this is a warning that the market is still too high. That is why, don't place a stop-loss too close to the entry point. With the low point of the hammer candle at 1.2727, the possibility of stop-loss is 1.2726.
Target profit: there are many ways to exit trading by bringing profit, such as going out near the candle when in a profit position, also by setting target support and resistance with a trailing stop. In this example, the target is the previous swing above, or 1.3200.
Trading: with an entry point of 1.2960 and a stop-loss of 1.2726, the total trading risk is 234 pips. Trading at 0.1 lot means the same as if the entry point was triggered and then touched stop-loss, the total loss could touch USD 234 and the estimated winnings of USD 240.
2. Price Action Shooting Star Strategy
Trading price action shooting star pattern is a bearish signal that gives a high probability of the downward trend of the market. This strategy is often applied to markets that experience a downward trend. In short, this is the opposite of the hammer pattern.
The shooting star pattern shows that the buyer is pressing the market to make a new high point. But the buyer is not strong enough to survive and opt out of position. This situation makes the market fall so that it triggers the seller to enter the market.
Open and close positions must be in the lower third of the candle. Alternatively, the close position is placed above the open, but it will give a better signal if the close is placed below the entry point position. The following picture can be a simple example of shooting star patterns in price action.
In the GBP / USD chart, there are three examples of shooting star patterns marked with yellow squares. By analyzing open, close, high and low price positions, this pattern implies a downward movement in the market. In this example, the price moves down after the candle occurs.
Entry point: the possibility of an open position to start trading when the price passes the bottom of the shooting star pattern. The bottom of the third star shooting pattern, which formed on November 4th, is 1.2957. From here, the entry point worth taking is 1.2956.
Stop-loss: the possibility of placing a stop-loss is at the top of the shooting star candle. With the shooting star's candle height reaching 1.3173, the best possible stop-loss is 1.3174.
Target profit: there are several ways to get out of the market by bringing profit, such as closing trades near a candle if in a profitable position, or by targeting support and resistance with a trailing stop. In the example, the target is the previous low swing, which is 1.2663.
Trading: with an entry point at 1.2956 and stop-loss at 1.3174, the total risk of trading is 218 pips. If trading with 0.1 lot, then the possibility of loss reaches USD 218, while the total possibility of profit reaches USD 293.
3. Price Action Harami's Strategy
Price action with a Harami pattern is often characterized by two candle patterns that represent uncertain conditions in the market. This strategy is often applied when market conditions breakout. This strategy is often called the inside candle formation because there is a small candle which is no bigger than the size of the previous candle, as if in a candle.
Harami bears are formed when the seller's candle moves high to low following the previous buyer's candle to high to low. Because there is no continuity to form new high points, bearish harami represents market uncertainty that could trigger a downward breakout.
Harami bullish is formed when the buyer's candle from high to low develops along with the high and low of the previous seller's candle. Because there is no continuation to form the latest low points, bullish harami represents market uncertainty which causes a breakout towards the upside.
Then how do you trade in harami patterns as part of a price action strategy? There are actually a number of ways, although none is truly perfect. But many traders use this pattern as a stand-alone breakout pattern.
For price action trading with bullish harami, there are some basic rules that must be followed.
1. Identify bullish harami patterns (high and low buyer candles that develop according to the previous high and low seller candles).
2. Enter 1 pip above the highest point of the last candle.
3. Place a 1-pip stop-loss below the previous lowest candle.
4. Target 1: 1 between profit and risk, which means targeting the same number of pips.
5. If trading is not triggered by opening a new candle, cancel the order. If trading is triggered, leave it in the market until the stop-loss and target are touched.
For trading price action with bearish Harami, the rules are not much different.
1. Identification of a bearish Harami pattern (high candle low sellers develops according to the previous high candle low buyers).
2. Enter 1 pip below the last lowest candle.
3. Place a 1-pip stop-loss above the previous highest candle.
4. Target ratio of 1: 1 between risk and profit.
5. If trading is not triggered by a new candle, cancel the order. If trading is triggered, leave the order in the market until it touches the target.
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An indicator is needed to identify price movements. Armed with this indicator, traders can learn the price bar which will then provide details about the position of entry and exit from the market, also knowing the high and low prices during a certain period.
Analyzing this kind of information is the main key to price action trading. If interpreted further, price action is the study of the actions or behavior of active sellers and buyers who are involved in the market. This is if price action is literally defined.
That is why, by analyzing what forex players do, traders can get a unique picture which can then be applied when making trading decisions. And among all the tools most often used in price action trading, namely candlestick charts.
1. Price Action Hammer Strategy
The hammer pattern price action trading is a bullish signal that gives significance about the high probability that the market is moving upwards. The hammer shows that the seller is pressing the market to a new low. But, the seller is not strong enough to stay at the bottom and opt out of his position.
This situation makes the market rise again which in turn triggers buyers to enter the market. Open and close prices must be in the upper third of the hammer candlestick. Generally, the close price is below the open, but more can produce a strong signal if the close price is placed above the open price.
The GBP / USD chart above shows two examples of hammer patterns (marked with yellow squares). By analyzing prices from open, close, high and low positions, this pattern tells us that the market is moving upwards. In this example, prices do move up after the candle is formed.
Entry point: among the possible points to enter trading, i.e. when the next candle moves past the height of the hammer candle. The height of the hammer candle, which occurred on February 10, is 1.2959. From here, the entry point chosen should be 1.2960.
Stop-loss: stop-loss placement is most likely under the hammer candle. If the market has given an entry point signal but no buyers have entered, this is a warning that the market is still too high. That is why, don't place a stop-loss too close to the entry point. With the low point of the hammer candle at 1.2727, the possibility of stop-loss is 1.2726.
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Target profit: there are many ways to exit trading by bringing profit, such as going out near the candle when in a profit position, also by setting target support and resistance with a trailing stop. In this example, the target is the previous swing above, or 1.3200.
Trading: with an entry point of 1.2960 and a stop-loss of 1.2726, the total trading risk is 234 pips. Trading at 0.1 lot means the same as if the entry point was triggered and then touched stop-loss, the total loss could touch USD 234 and the estimated winnings of USD 240.
2. Price Action Shooting Star Strategy
Trading price action shooting star pattern is a bearish signal that gives a high probability of the downward trend of the market. This strategy is often applied to markets that experience a downward trend. In short, this is the opposite of the hammer pattern.
The shooting star pattern shows that the buyer is pressing the market to make a new high point. But the buyer is not strong enough to survive and opt out of position. This situation makes the market fall so that it triggers the seller to enter the market.
Open and close positions must be in the lower third of the candle. Alternatively, the close position is placed above the open, but it will give a better signal if the close is placed below the entry point position. The following picture can be a simple example of shooting star patterns in price action.
In the GBP / USD chart, there are three examples of shooting star patterns marked with yellow squares. By analyzing open, close, high and low price positions, this pattern implies a downward movement in the market. In this example, the price moves down after the candle occurs.
Entry point: the possibility of an open position to start trading when the price passes the bottom of the shooting star pattern. The bottom of the third star shooting pattern, which formed on November 4th, is 1.2957. From here, the entry point worth taking is 1.2956.
Stop-loss: the possibility of placing a stop-loss is at the top of the shooting star candle. With the shooting star's candle height reaching 1.3173, the best possible stop-loss is 1.3174.
Target profit: there are several ways to get out of the market by bringing profit, such as closing trades near a candle if in a profitable position, or by targeting support and resistance with a trailing stop. In the example, the target is the previous low swing, which is 1.2663.
Trading: with an entry point at 1.2956 and stop-loss at 1.3174, the total risk of trading is 218 pips. If trading with 0.1 lot, then the possibility of loss reaches USD 218, while the total possibility of profit reaches USD 293.
3. Price Action Harami's Strategy
Price action with a Harami pattern is often characterized by two candle patterns that represent uncertain conditions in the market. This strategy is often applied when market conditions breakout. This strategy is often called the inside candle formation because there is a small candle which is no bigger than the size of the previous candle, as if in a candle.
Harami bears are formed when the seller's candle moves high to low following the previous buyer's candle to high to low. Because there is no continuity to form new high points, bearish harami represents market uncertainty that could trigger a downward breakout.
Harami bullish is formed when the buyer's candle from high to low develops along with the high and low of the previous seller's candle. Because there is no continuation to form the latest low points, bullish harami represents market uncertainty which causes a breakout towards the upside.
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Then how do you trade in harami patterns as part of a price action strategy? There are actually a number of ways, although none is truly perfect. But many traders use this pattern as a stand-alone breakout pattern.
For price action trading with bullish harami, there are some basic rules that must be followed.
1. Identify bullish harami patterns (high and low buyer candles that develop according to the previous high and low seller candles).
2. Enter 1 pip above the highest point of the last candle.
3. Place a 1-pip stop-loss below the previous lowest candle.
4. Target 1: 1 between profit and risk, which means targeting the same number of pips.
5. If trading is not triggered by opening a new candle, cancel the order. If trading is triggered, leave it in the market until the stop-loss and target are touched.
For trading price action with bearish Harami, the rules are not much different.
1. Identification of a bearish Harami pattern (high candle low sellers develops according to the previous high candle low buyers).
2. Enter 1 pip below the last lowest candle.
3. Place a 1-pip stop-loss above the previous highest candle.
4. Target ratio of 1: 1 between risk and profit.
5. If trading is not triggered by a new candle, cancel the order. If trading is triggered, leave the order in the market until it touches the target.
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