Trading with Price Action

Japanese candlesticks are a way of visually representing price movements on a chart that is widely agreed to be more descriptive than traditional Western bar charts, or indicators which are merely derived from price. A Japanese candlestick chart allows price information to be more easily assimilated by the human eye, so the lesson begins with an explanation as to how each candle is drawn.

The open, high, low, and close of any candle / bar hold significance, but this lesson focuses on how to identify three of five most important and predictive types of candlestick patterns: the pin bar (also known as the bullish reversal hammer or just reversal hammer), the inside bar, and the outside bar.

Following on from Lesson 8.1, we continue the previous lesson's material on types of Japanese candlesticks and patterns, focusing on how to identify the remaining two of the five most important and predictive types of candlestick patterns: the engulfing bar, and the doji.

We conclude with a discussion of how the location of candlesticks is usually more important than the candlesticks themselves, explaining how their relationship to support and resistance levels is a key factor.

In this crucial lesson, we bring together everything we have learned so far in the Academy to help you understand Price Action trading methods. Most new traders, and many experienced traders in pursuit of greater success, have found Price Action trading a refreshing, relatively easy, and profitable style of Forex trading.

The basis of price action trading is the ability to identify likely points of strong support and resistance, coupled with the ability to interpret Japanese Candlesticks and candlestick patterns, neither of which is as difficult as it first seems.

Trading has to be smart but it does not have to be over-complicated. Less can sometimes be more. Price action trading can keep your Forex chart as simple as it can possibly be.

This lesson is extremely important as it details tried and tested techniques for identifying and judging the strength of different types of support and resistance levels.
Inentifying support and resistance is extremely important and the largest technical skill needed in order to trade profitably. A support and resistance trading strategy should over time outperform all other types of trading strategies that can be executed with retail Forex brokers.

The following support and resistance levels are explained and ranked in order of reliability as follows:

• Horizontal levels
• Fibonacci retracement levels within major price movements
• Long-term trend lines
• Moving averages, pivot points, and round numbers

In this lesson, we demonstrate how real-life high-probability trades can be idenitifed and exploited by applying the combined skills of reading price action and identifying and judging support and resistance.

While no simple price action indicator is available for application, it is possible to learn and apply a few simple price action patterns and combine them with identified support and resistance levels to produce effective price action trading strategies.

This lesson exhibits how this could have been applied to the USD/JPY currency pair over a period of several months in 2013.