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8 Price Action Secrets Every Trader Should Know About

Price action is among the most popular trading concepts and a trader who knows how to use price action the right way can often improve his performance and his way of looking at charts significantly. However, there are still a lot of misunderstandings and half-truths circulating that confuse traders and set them up for failure. In this article we explore the 8 most important price action secrets and share the best price action tips.

 

 

#1 Support and resistance zones are better than levels

Support and resistance is probably the most popular price action concept, but only very few traders can actually make money with it. The reason is often very simple, although it’s not as obvious at first glance.

Most traders just use single, horizontal lines when it comes to trading support and resistance which look great in hindsight but fail during live trading. The reason is that singles lines are no effective way of looking at price movements – creating support and resistance zones is much more effective when it comes to understanding price.

The screenshot below shows it nicely: the trader who just uses a single line either misses trading opportunities when price does not reach his lines or he gets thrown out during volatility spikes; the trader who uses zones instead can filter out the noise that exists in the zones.

12 21

 

 

#2 Highs and lows are all you need to focus on

This point describes a very basic concept, but it’s so important to understand and, sadly, not used widely enough. The analysis of highs and lows offers so much information about trend strength, market direction and can even foreshadow the end of trends and trade reversals in advance.

The analysis of highs and lows can be combined with all conventional trading methods and it’s a very powerful price action secret that should not be one. Here are a few things that will help you understand highs and lows beyond the general trading knowledge:

  • Do you see long trend waves with small pullbacks only? (this signals a strong trend)
  • Is price barely making higher highs/lower lows? (this could indicate fading momentum)
  • Do you see increasing volatility – larger candle wicks – while price makes new highs/lows? (you’ve probably heard the quote that volatility is greatest at turning points)
  • An uptrend where price fails to make a higher high should get your attention

I challenge you: take a look at any “textbook” chart pattern out there and you’ll see that the only thing that really matters is how highs and lows form within that pattern.

 

#3 Location – improve your trading instantly

Even if you see the best and most promising price action signal, you can still greatly increase your odds by only taking trades at important and meaningful price levels. Most amateur traders make the mistake of taking price action signals regardless of where they occur and then wonder why their winrate is so low.

In my own trading, I first draw support and resistance zones and mark supply and demand areas and then wait for price to get there; and I only take a trade when a price action signal forms at my pre-marked price areas. This does not only provide a stress-free trading approach (use price alerts around your levels to even free up more time), but it will significantly improve the quality of your trading.

 

#4 Everything is relative – get context

A big mistake many traders make is that they treat price action like a blueprint or template trading methodology and just hunt for candlesticks that fit their textbook criteria. In trading, everything is relative and you need to put price information in relation to what has happened before.

The graphic below shows what this means. During the uptrend, you see multiple pinbars but the first two are relatively small, compared to the price action before that. Thus, they don’t offer meaningful signals and the pinbars fail. The real pinbar at the very top showed a very strong rejection where the pinbar was even larger than previous candles.

Always compare the most recent price action to what has happened before.

candlestick_pattern_size

 

#5 The 4 clues of candlesticks and price action

This ties in with the previous point and it further demonstrates the importance of putting together the pieces when you trade price action and avoid blueprint-thinking. The 4 following points will help you avoid many of the common trading mistakes people make who just look for blueprint patterns.

 

bearbull11) The length of wicks
If you see a lot of long wicks, it means that volatility and uncertainty is increasing. Especially during market tops or tight congestions, wicks tend to get larger.

 

2) Bullish vs. bearish wicks
Do you see more/longer wicks to the upside or to the downside? Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

 

3) Position of the body
Is the body of a candle positioned closer to the top or the bottom of the candle? Bodies that close near the top often signal bullish pressure – especially if the candle comes with a long bearish wick.

 

4) The body
The ratio between the body and the wicks can tell you a lot. Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

 

 

#6 Broker time doesn’t matter

We get the question how broker time and candle closing time influences price action a lot. Truth be told, it does not make any difference to your overall trading although time frames such as the 4H or daily will look different on different brokers.

The graphic below illustrates what we mean. The charts show the same market and the same period and both are 4H time frames. They used different closing times for their candles and, thus, the charts look slightly different. Some of the important clues that the left market shows are not visible on the right chart and vice versa. So there is no broker time that is “better” than the other – just the signals you get slightly vary. The most important point is that you make consistent decisions and don’t confuse yourself by changing between different broker feeds.

Don’t stress out about your broker time; over the long-term, everything averages out as long as you stay consistent.

brokertime

 

#7 The amateur squeeze and stop hunting

Conventional price action patterns are very obvious and many traders believe that their broker hunts their stops because they always seem to get stopped out – even though the setup was so clear.

It is very easy for the professional trader to estimate where the amateur traders enter trades and place stops when a price action pattern forms. The “stop hunting” you’ll see is not done by your broker, but by profitable traders who simply squeeze amateurs to generate more liquidity. You should either wait for the amateur squeeze to be over or add some extra space to your stop to avoid getting kicked out of potentially profitable price action trades.

 

#8 Correct market selection

Building a watchlist prior to your trading is important and market selection is a very misunderstood concept in trading. Let me give you an example from my trading: every Sunday I sit down and go through all of the 15+ forex pairs that I consider trading. However, usually only 6-8 make it on my actual trading watchlist for the week ahead. And the main reason why the others get cut is because of low probability price action which usually means tight congestions, squeeze consolidations and narrow ranges with a lot of volatility.

An effective market selection is important and you should only look for markets that offer clear price action and stay away from markets that are too erratic and noisy. Don’t make this mistake of being too fixated on the pairs you trade – rotate them and only focus on markets with good price action.

market_selection

 

Most of those tips are probably not considered price action secrets by most advanced traders, but amateurs can usually improve the quality of their trading and how they view the markets by just picking a few of them. If you have any other tips or know about some mistakes traders do in price action trading, leave a comment below.

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56 comments

  1. Very good article, thx. I agree with creating S/R zones vs just lines, but none of the articles I’ve read describe “how” to create a zone; how do you determine the high/low of the zone? If you could go one step further in what to look for when deciding that area, that would be a huge help.

  2. Hi Rolf,

    I really appreciate on your hardwork writing all of the articles here in Tradeciety. They have helped me ALOT in my trading, cant really express my gratitude and honestly speaking Im always looking forward to your post every week. Keep it up! Cheers mate!

    • Hello Hansen,

      that’s great to hear. Really happy to see that you are enjoying my work and benefit from it. That was the original reason why I started this site 🙂
      Thanks for taking the time and leaving a comment.

      Rolf

  3. Mário de Assis Pereira Carvalho

    I think that is very interesting.This i consider all kind of knowledge witha great step in direction of successfull.

  4. Great article! Thanks for the reminders and tips. I have learned and been reminded of so many little things in trading thanks to articles likes this. Please keep up the great work, it is very much appreciated, Rolf!

  5. Rolf,

    But How do we know that ameture are squeeze out and now for us to get in trade?

    • Hello Rick,

      that comes with practice and it’s a way of looking at price movements. The amateur squeeze happens frequently around tops and bottoms and you’ll often see spikes around highs/lows. Just go through my recent trade recaps and you’ll see what I mean.

      ROlf

  6. Very useful and clear article, thanks a lot

  7. Thank you very much for this tips,it is always a pleasure to read your articles !

  8. Adeyinka Adekunle

    this is one of the best trading guide article/website I have ever come across keep it up you are doing a great job

  9. Thank you , this article is very good , I’m glad to hear that . best regards

  10. Interesting and most likely valid techniques, read with interest. But there is lack of detail in how these concepts are practically applied. Likely great review for those who are experts but the beginner would like to know how to apply and use.

    • Thanks, Gary for your feedback. I’ll take your feedback and turn it into a new, separate article since I see your points.

      Thanks for taking the time and leaving a comment
      Rolf

  11. which is the best time frame for PA trading ?

  12. Hey Rolf,

    These are awesome tips! I especially love #3, only trade the price actions where it is formed at a meaningful areas. These will certainly filter out tons of trade and improve the quality of the trades.

    I am still developing my pre-trading routine such as to review different pairs each week and to do a trading plan and update daily. Setting alerts on Trading View is definitely a great choice 🙂

    Cheers,
    MJ

  13. Thanks Rolf for your wonderful writeup and sharing 😀

    May i know when you mentioned about the size of the pinbar not meaningful compared to previous price action, what does it meant? Do you meant that the pinbar size comparing to the size of its wick? Or you are referring to the size of the pinbar main body comparing to the previous candle? thanks

  14. Do you have any specific advice for the 5mn binary on Nadex. Such as the best time frame or any indicators that are useful?

  15. what do you mean by “When a pattern looks too good to be true, it usually is.”? Means when it signals reversal signal but actually its not? just for instance

    • Hi Gerald,
      it means that when a trade is too obvious and too many traders are ready to take it, it usually does not move as smoothly or shows a fakeout to shake out all the traders.
      Rolf

  16. Hi guys, you are great! You have great teaching skills and I love your videos a lot.

    I have been trying to swing-trade for 2 years now. But I am not getting anywhere in terms of profit. Last year I made 25-30% and this year I am down 15-20%. I think it is because I only trade stocks, which are cheap to trade at my broker. My account size is just about 10.000USD.

    I would like to try trading currency, but I am scared of getting started, as I do not understand the basic principles of position sizing. My broker charges med 10USD if I make a trade under 50.000EUR in the EURUSD, and 2 pips if my trade is above that. And as my account size seems very low in that regard, I don’t want to jump straight into it.

    So my question basicly is if You could make an example, if You have time, explaining in actual numbers how a trade of like 50.000EUR vs USD would play out in terms of profit or loss. That would be a big help.
    Also if you could advice me on whether my accountsize is too small to begin with.

    Again, thank you so much for you fantastic teaching, it helps me a lot, even though the stock market doesn’t play along with me right now.

    Kindest, Rasmus

    • except trading in n scrips, select only 1 scrip & trade in that whose options are also listed so that u will get its sideways price action advantage too.. because the most important is this will help you to get hold on its price action. that doesnt mean u should be overconfident after that but u will get good grip on it & like this it will get converted into good returns. Rest all Rolf & moritz will guide u.

  17. Rolf, you guys are great. Love your site. Very genuine and can see the effort and sincere work that goes into it. Very different from the other sites. Great job. I am a big fan of you guys now. Helping me to learn a lot as well.

  18. Rolf,

    Have you posted any previous articles on how to set up Stop Loss limits? This is something i have been struggling with and would like your advise on. Thanks

  19. i just like to clarify – i understand if the body of the candle is around the resistance zone and with long wick is a sign of failed attempt to go higher so it must be an action to sell the next day. this is called inverted hammer? what if the body with long wick is in the support zone, then it is to buy. correct me if i am wrong. thank you

    • Hello Sandra,

      yes, long wicks at either support or resistance show rejection. It’s not necessarily a signal by itself, but it’s a good first indication that price does not have enough power to break that area.

      Rolf

  20. Hi Rolf,

    Just want to tell you that your site is one of the best educational ones I have come across. Thank you for being so genuine in helping others become better in this business. I’ve learnt a great deal from reading your articles. You’re amazing! 🙂

  21. I was googling nd I happened to land on this site. I wish I found this site before I blew my account 3 time, but I won’t give up. I will read all the articles on this site. Thank you for your work.

  22. My first day on the site and I am enjoying all the articles here. Highly educative and straight to the point. Bless you.

  23. I saw your website yesterday and since then I have made it as part of my Technical Analysis learning everyday because of the excellent quality of your articles. please keep posting.

  24. Thanks Rolf

    Great and good job. Wonderful to have guys like you all.
    thanks.

  25. This is the article i have been looking for. very useful information

  26. hi

    if i trade for long term, i will look in monthly trend, the S&R. next zoom in 1h for entry and exit using PA ?

    and if i trade swing in 1 to 5 mins, can i use PA ? possible ?

    • Hello Leslie,

      if you trade long-term, you probably don’t have to go to the 1H. It’s too low. I’d recommend using the combination of weekly/daily or weekly/4H timeframe.

      On the 1min and 5min timeframe, I have no experience. Sorry.

      Rolf

  27. just curious, is it for PA, there is a needs for at least one indicator ?

    else i saw many analysis do have indicator/s

    • Hello Leslie,

      I do user indicators – MAs, Bollinger Bands and RSI. They add more objectivity to a trader’s process. If you know how to really read price and waves, you can often pretty accurately guess from price action alone what the indicator will tell you.

      Rolf

  28. Hello, Under #4, what about the pin bar at 14:00, it has a large body with sizable wicks, what made it not reverse the trend?
    Thanks in advance.

  29. This is great tips on how to improve one’s trading skills. Good information right there.

  30. Thanks Rolf ! Very useful one

  31. Richard Sepulveda

    Very helpful👍🏼

  32. ProTradeMarkets.Com

    Long description but sounds good.

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