The Anatomy Of How I Enter Price Action Forex Trades
What goes on inside the mind of a successful Forex price action trader as they enter a trade? What is the process they use to succeed? This article will demonstrate five trades that were valid price action trading setups over the last two months. I will walk you through them one by one and explain to you the reasons for taking them, what the proper entry and exit parameters would have been, and why. You should use this article as a reference tool and also to learn how an experienced price action trader thinks about and trades the Forex market…
GBPUSD – Fakey with Pin Bar Setup – 18th April 2011:
This price action trading setup was a fakey with a pin bar. We can see the momentum was higher, as evidence from the 8 and 21 day EMA’s suggests. Price showed clear rejection of the horizontal level near 1.6150 on the day the pin bar formed. So, we had confluence with the existing bullish momentum, the horizontal level rejection, and a very well-defined fakey with pin bar trading strategy.
This setup had two potential entries. The first entry would have been a limit buy entry near the 50% retrace level of the pin bar. This 50% entry is an option on fakey’s with long-tailed pin bars like the one in the example below. The other entry option would have been a break of the high if the inside bar. Since the inside bar and mother bar high were so close in this example, you could have entered at the inside bar high. Normally the fakey is not triggered until the mother bar high breaks though. Stop placement would have been below the low of the pin bar if you had entered at the 50% retrace. If you had entered on a break of the inside bar high you could have placed your stop near the 50% level of the pin bar.
Achievable rewards on this setup were at least a 3 times risk winner if you entered at the 50% retrace, and at least a 2 times risk winner if you entered near the
inside bar high breakout. We can see after giving us a 2 or 3 times risk win potential the market reversed sharply, this is an example of why it’s good to take a profit of 2 or 3 times risk when it presents itself, or at least lock it in by trailing your stop loss up.
This was a solid price action setup that had multiple factors of confluence supporting it, and it was very obvious; there was no guessing or hoping with this setup. We clearly identify our edge and trade it. If there is a lot of doubt or confusion, there is probably no setup worth risking your money on.
GBPJPY – Fakey with Pin Bar Setup – 11th May 2011:
On May 11th a large pin bar / false break occurred in the GBPJPY. Three inside bars preceded this false break, and the momentum was clearly lower as the 8 and 21 day EMA’s show us in the chart below. Furthermore, the pin bar showed clear rejection of the horizontal resistance near 134.00. So, we had confluence with the bearish momentum, the rejection of resistance, and an obvious price action setup.
This setup could have been entered near the 50% retrace of the pin bar, just like the setup discussed above. It also could have been sold on a break of the inside bars as price came back the other way, or the mother bar.
Now, the obvious problem with this setup was the significant support level near 130.00, which price would need to break through for this trade to have any chance at providing a decent risk reward potential. However, in the previous trade example above, the GBPUSD was facing stiff resistance near 1.6400 as well, and that trade worked out nicely.