In its most basic form, Forex price action is precisely what its name implies.
It’s the “action” of “price”. It describes the way a market moves, including its trends and key support and resistance levels.
However, trading Forex with price action also includes buy and sell signals.
When we combine these signals with key levels and momentum, we get a style of trading that is both simple and effective.
In fact, it’s the only method I have used to trade the Forex market since 2010. Before that I was lost in a world of unprofitable trading robots and unnecessary indicators.
While some of you might already be familiar with the contents of this post, for others it will offer an entirely new perspective.
Even if you are familiar with price action in Forex, I encourage you to read on. This post will be a great refresher for you and may even shed new light on the topic.
I’ll cover a simple 3-step process to this style of trading, and also discuss the importance of being patient while making price action trading work for you.
Ready to do this? Let’s get started.
What Is the Market Telling You?
Trading with price action is about listening to the market and then reacting accordingly.
The advantage of trading this way is that it gives you insight into where buy and sell orders are located. We use the upper and lower wicks of candlesticks to view these buyers and sellers.
An entire candlestick, such as the engulfing pattern, can also give you the upper hand. Again, it’s all about using the patterns on your chart to decide whether or not you should act.
I should note that price action can take on two forms. It can take the form of candlestick patterns on your charts or even of entire price structures like a head and shoulders pattern.
Both forms of price action can be extremely telling. They can also be misleading.
So how do you go about finding these price action signals?
Here’s a simple 3-step approach:
Step 1: Draw support and resistance levels
The very first thing you should do after opening a new chart is to draw key support and resistance levels.
These can include trend lines, horizontal areas and even patterns such as ascending and descending channels.
I wrote an entire lesson on drawing key levels. Be sure to review it before attempting to trade the price action we’re discussing in this post.
Once you have identified the critical areas on your chart, it becomes a waiting game.
Step 2: Wait for the daily session to close
Patience is important here. It’s no coincidence that this is also where most Forex traders slip up.
In order to trade the daily time frame, you need to wait for the session to close.
Which session am I referring to?
I trade New York close charts. That means each 24-hour period closes at 5 pm EST.
Not all Forex brokers offer this type of chart. However, if you’re serious about trading with Forex price action, using New York close charts is a must.
Step 3: Watch for price action buy and sell signals
Want to know my two favorite price action signals?
When it comes to candlestick patterns, the pin bar is my favorite and the engulfing pattern is a close second.
The two share more in common than you may know. More on this later.
The pin bar is a candlestick with a long upper or lower wick, also called the tail. It’s what makes this pattern so profitable.
When buyers push the market back above key support, it suggests an increase in demand.
The same goes for a pin bar that occurs at resistance. But in this case, that long upper wick signals an increase in supply.
When trading price action, you want to look for bullish pin bars at support and bearish pin bars at resistance.
Be sure to also pay attention to the market’s momentum. We’ll cover this shortly.
First, let’s take a look at one last chart.
Both signals above offered incredibly favorable risk to reward ratios. Notice how long the wicks are compared to the surrounding price action.
Although different in shape, the engulfing signal is similar to the pin bar in that it suggests an increase in supply or demand.
The engulfing candlestick is an excellent way to identify exhaustion within a trend.
There is some controversy as to whether the body of the engulfing bar must completely engulf the previous candle.
I have been trading these patterns for more than seven years, and in my experience, it makes no difference.
As long as the body of the engulfing bar is about 80% of the previous candle and the range engulfs the former session, it has potential.
Here’s something else you may not know…
If you were to combine the engulfing bar and preceding candlestick in the AUDUSD chart, you would get a shape that looks like a pin bar.
This is why I mentioned that the two patterns share more in common than you may realize.
Using Forex Price Action to Evaluate Momentum
I often see traders discussing various momentum indicators. These individuals are looking for a way to spot trends and reversals.
Well, guess what?
You don’t need a fancy indicator to do that. Simple price action is all you need.
Those momentum indicators give off a lot of false positives. In other words, they will signal that a market is changing direction when it actually has no intention of doing so.
This is where you can use Forex price action to evaluate the momentum. And just like everything we’ve discussed up to this point, it’s incredibly simple.
Now, I’m by no means saying that price action doesn’t give false positives. No trading style, method or strategy is 100% accurate.
That said, I have found it to be the most reliable way to analyze momentum.
Here’s how I do it:
Using the daily time frame, identify the swing highs and swing lows.
You’re looking for the turning points in the market. The amount of time between these points can range from a few weeks to a few months.
Perform this exercise for the last six months or so.
Once complete, you will begin to see a pattern. As long as the market is making higher highs and higher lows, it’s in an uptrend.
You want to be a buyer here.
If a market is carving lower highs and lower lows, it’s in a downtrend.
You want to be a seller here.
These swing highs and lows often form a trend line. When they do, spotting reversals in the trend becomes almost effortless.
By using this technique, you’re letting the price action do the talking. There’s no need for fancy momentum indicators or the like.
Even for those of you who already know this stuff, the simplicity illustrated by the charts above is a good refresher.
Are You Listening?
Now that you know what to look for when trading Forex price action, it’s time to discuss listening methods.
By listening, I’m referring to the way you interpret the market’s behavior.
Trading price action effectively is about reacting to what happens on the charts. You never want to try to outsmart the market by guessing what might happen.
You have no trading edge if you do that.
It’s far better to take a defensive and reactionary stance. By waiting for the market to make the first move, you can react with confidence.
You’ll have evidence that warrants action—or in many cases, a seat on the sideline.
One of the greatest hurdles when it comes to listening to the market is a lack of patience. Most traders want to trade the price action on their charts, regardless of what it’s telling them.
Bad habits such as this one stem from the desire for action. Many traders, both experienced and new, find that doing nothing gives them a sense of impotence.
Don’t mistake inaction for lost opportunity.
Those who struggle spend most of their time trading in and out of the market.
The profitable traders spend most of their time doing nothing.
Price action has been around for hundreds of years. There’s nothing new about it.
Yet there’s a reason it’s still used today—it just works.
It isn’t for everyone, and it’s important that you find a style that suits you. But if you’re tired of struggling with messy indicators and want a simple yet effective approach to the markets, this is it.
Trading Forex with price action allows you to view supply and demand in a way that no other trading style offers. You can see where buy and sell orders are without cluttering your charts with unnecessary indicators.
One of the best ways to use price action comes from the daily time frame. It offers a unique perspective that lower time frames can’t, particularly if you’re using New York close charts.
Just remember that a Forex price action signal such as a pin bar is only reliable if it forms at a key level. This is why it’s so important to draw support and resistance levels before scanning for signals.
Patience is the key to making Forex price action work for you. Always remember that the quality of the setups you take is far more important than the frequency.
Your Turn: Ask Justin Anything
I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.
To do that, I need your help.
Here’s what you can do to get involved and have your question answered in next week’s post:
- Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
- Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.
“Patience is the key to making Forex price action work for you. Always remember that the quality of the setups you take is far more important than the frequency”
Well said and so true. Patience is a must.
Absolutely. Most people are impatient, and the majority of Forex retail traders struggle. That’s no coincidence.
Very nice explanation. Thank you for that. How you determine your stop lost in daily candle chart. I always get hit, after that price going in right way.
You’re welcome. Glad you enjoyed it. This post should answer your question:
how do i determine the entry point with price action
It depends on the strategy/method you’re using as well as the level involved. Have a look around the website. I’ve written about those topics several times.
This is a superb article, Justin. Exactly what I needed to read after recently scrapping messy charts and indicators and coming into the world of price action trading.
I’m actually optimistic about my future trading success for once, price action resonates with me and just seems to make sense. I can certainly see myself ‘getting it’ fairly easily, although some of the more advance patterns will take some time to learn.
First week here at DPA, so I’ll look forward to spending the weekend reading your articles and connecting with other members in the forum.
Cheers for the support so far, you’ve already been a great help.
All the best,
Thanks, Dan. Glad to have you on board. It’s the journey most of us have to take to find what was in front of us the whole time.
Begin with a blank chart –> add indicators –> struggle –> remove indicators –> find success with a blank chart.
I salute you sir. All your informative articles really opened my eyes on price action and it’s all for free. God bless you.
Pleased to hear that. Thanks for stopping by.
This is a very important strategy, could you please send me a pdf of this strategy . Once again thank you
You’re welcome. Sorry, I don’t have a PDF to send.
Im using heiken ashi candles, two volume weighted moving averages and the awesome oscillator to assess trend on daily timeframe, with check on weekly for longer term. I dont trade against longer term direction.
At present this is giving about three trades right out of four, using either an opposite colour heiken ashi candle or a trade profit on paper over a few days of 100 pips or more to terminate.. For the period 1/9 to 21/9 Im looking at a realised paper profit of about 1650 pips trading all available pairs, probably about five trades a week. Im using a stop loss from sum of the two largest heiken ashi candles in say the last month, whether up or down, ie maximum likely price movement.
I dont use the close of day, but close to the trade end of day by my broker, two hours ahead of gmt. Usually this is a time of very low volatility. If I happen to be a little into the new day it doesnt matter, what matters is what the last full candlestick is showing about continued trend or proximity to a support or resistance level. I dont use the news or calculated levels, they tend to let you make assumptions about what the market will do as against watching what it is doing. Support and resistance and channels are fine, they are good warnings of possible outcomes.
I think its a good idea to test ones strategy out on a lower timeframe, maybe the one hour. It wont work as well, but it will give you a quick idea of whether you are on the right track. I think anything under this timeframe is too noisy, even with heiken ashi.
Its worth thinking about the shape of a rising or falling market line, it usually isnt linear, but tends to roll off in a logarithmic way, so you can get a good idea of momentum by just looking at the shape of the curve.
After a while, by looking at all the pairs once a day, you can get an idea of what might be called the overall mood of the market, and which currencies are of most interest. If the market overall is being dull colourless and boring, its not a good time for a trend trader to get excited: let the market be your emotions!!
Finally, record everything about every trade: how the indicators were read when accepting it, how the risk was calculated, what the price was each day, reason for decision in finishing the trade. Generally its less than half an hour a day and maybe a couple of hours over the weekend. And if it isnt fun, dont do it!!
Thanks for sharing. It comes down to what works best for each trader.
Really your price action content was excellent. Plz provide me your pin bar course study details . Previous also am requested about this.
Pleased to hear that. I no longer offer the free pin bar course that you’re referring to. Feel free to watch the webinar instead: https://dailypriceaction.com
Great article Justin.
Ive never understood why people want to have a complicated and more “advanced” trading system or method as they “progress” as traders. Does a more advanced complicated system really lead to more profits in trading? Im guessing it doesn’t.
I think people like the idea that they have a trading system that is extremely advanced and worked out by some market guru who can read the future and can rationalise and predict market behaviour with a self proclaimed 90% success rate.
Keeping it simple with an edge that plays out over time, along with a good risk/reward ratio is how to survive in the game. Also don’t chop and change strategies as your edge will never be given the chance to play out in the long run.
Thanks, Stuart. A lot of it has to do with human tendencies. We’ve always had a knack for making things more complicated than they need to be.
That said, it’s also important to find something that fits your personality. Seeing that there’s no shortage of those in the world, it’s no surprise that there are so many trading styles and strategies.
Thanks Justin. Am learning to be patient as well
You’re welcome. Having patience is certainly key to making price action work for you.
Really appreciate all this write up..just gave me more insight on PA.. What time frame can I locate my supply and demand zones perfectly so as to be profitable in fx
That’s great to hear, Peter. The daily is by far my favorite time frame for trading price action. You can learn more about it at the link below.
Looking at the 9/22/2017 close for AUDJPY Daily chart how would you setup a trade given that a bullish pin bar just formed right after a bearish engulfing candle?
So you’re asking what to do if there are conflicting market signals?
I’ll add that to the list of future post ideas. Thanks.
very clear , simple and short explination of price action strategy
i love it and it’s smart to combine the two candels to extract a pin bar
it means that your chart vesion is deep.
thank you very much
You’re welcome, Mustapha. Glad you enjoyed it.
There is a famous news coming tomorrow, German election which expecting high volatility in the market next week. Wouldn’t it effect the trade we entered already? SL and TP in vain?
If you know there’s news coming that could affect your positions, you should manage them accordingly. Either take full/partial profit or ride it out. The choice is yours.
God Bless the day I found your site and consequently found you. I know my labour with fx over the years searching for the right way is now being rewarded. I feel happy every time I read your write ups and always look forward to hearing or reading from you. Amazing grace how sweet the right knowledge, I once was blind but now can see. Its a miracle!
Great to hear. Don’t hesitate to reach out with any questions. Cheers.
, Justin, you have done a very good job in this write up. Thank you. I need explanation on swing highs and swing lows. What do they mean and how to identify them on a chart.
Pleased to hear that, Philip. Let me know if you have any questions.
I just want to know what’s your preferable broker and what account type do you have ECN account or market maker ?
Feel free to send me an email.
hello Justin Bennett,
I’m glad to read from you and learn a lot of tricks and methods, your articles are very intuitive, I want to know where Justin Bennett trade this market? what is your broker and what account type do you have, please reply and thank you.
Hi Justin, been with you 12 mths now, still trade demo, but it is getting better now and patience for set ups is improving.
I know as a group we all prefer mt4, which I find reasonably user friendly, but as you know we get charged on spread.
That is fine if trading small size, but once we trade multiple lots the transaction costs can be significant.
My question is, I’ve recently heard of interactive brokers, which appear quite cheap for transaction costs especially for share trading and and am thinking they would be cheaper than mt4 especially when trading size.
The only problem I find is that the platform is not so user friendly, but does offer many other markets to trade.
I really enjoy currencies, but a successful stock trader has told me to stay away from currencies, and that stocks are better to trade since we are buying into businesses, and all we need to do is find great businesses, choose the best from financial reports and then buy and hold for a while or until price action tells us to get out.
I would like your opinion since you mentioned you were a stock trader.
I like currency trading, but my thinking is maybe with stocks if the financials say company is good, and chart shows a pullback, then we just wait for a buy signal exactly like we do with forex.
Hope this makes sense.
I need to watch your videos on these teachings to drive the principles thought in them into my subsconcious mind.
Can you come up with the videos. If they exist already, please do share the links.
Very nice explanation, thank you…
Very good info… Just wanna ask that how can we setup the newyork close charts and what’s it’s benefit?
Can a pin bar form from 2days. eg if you combine two candlesticks for 30th and 31st July 2019 on euraud daily chart
First of all I would like to thank you for valuable information for me. I would like to ask which trend trading system we can use you can advise us? Brgds
Such a great article and congrats on your success trading. I see you have used price action since 2010 and of course have been very successful. I never heard of the pin bar strtegy as well as the engulfing pattern. Seems like you learn a new strategy the more you read and learn forex. I had no idea their were so many.
Thank you for the true revelation about price action.
My question is, how can one combine price action signals with news?
Thanks very much. This is my first time to go through this very interesting moment God bless you Amen. Thanks
yes ,price action is key. mixing and matching indicators have been detrimental to my trading and confusing as well. i fully agree that price action is the best way to go. thanks for sharing
Hi Justin. How does your mentorship work
Can you give more infor pls
Thank you very much for this beautiful article. I really enjoy this. This is very informative. I really appreciate it. Great work.
In this article you give very useful information about Forex price action. price action is a trading strategy that analysis the price movement.Price action forex strategies relate to pricing movements and fluctuations, and they work best in the forex trade.
Hi Justin, I was having issues coming around the price action concept thanks to you my mind is clear now and am really grateful. Thank you
Thank you Justin you give this simple and easy to understand yet very important information for free. Now I have found the missing piece of my puzzle…. “Patience” that’s what I lack of. More profits to come!
Just loved the content thanks
Best content ever 😊
Thank a lot. I understood everything you talk about
I would love you to talk more on multiple times frame strategy