The 3 step Price Action Trading Strategy ONLY Top 5% use...

The Trading Geek

24 Aug 202214:33

Summary

TLDRThis video script outlines a simplified three-step process for mastering price action trading, which involves trading without indicators by focusing on price movements. The steps include identifying trends and market structure, preparing and predicting potential trade setups, and taking action with confidence by entering trades at key levels with proper risk management. The speaker emphasizes the importance of trading with the trend, using support and resistance, and employing candlestick patterns to confirm trade entries, ultimately aiming to achieve profitable trades with a favorable risk-reward ratio.

Takeaways

📈 Price Action Trading: The script introduces price action trading as a method of trading without indicators, focusing on price movements and patterns to identify profitable trade setups.
🔍 Identifying Trend and Structure: The first step in trading is to identify the trend of the market and the key support and resistance levels, which help in determining entry points for trades.
📉 Trading with the Trend: It's crucial to trade in the direction of the trend, as trading against it can lead to significant losses if the market moves against your position.
🤔 Preparing and Predicting: After identifying the trend, traders should wait for confirmation signals, such as candlestick patterns, before entering a trade to ensure higher probability of success.
🕊️ Doji Candlestick: A doji indicates indecision in the market, often signaling a potential reversal in the trend, which can be a sign to prepare for a trade.
🐻 Bearish Engulfing Pattern: A bearish engulfing candlestick pattern suggests strong selling pressure, indicating a likely continuation of a downtrend and a potential entry point for a sell trade.
📌 Stop Loss Placement: Proper placement of a stop loss is essential to limit potential losses and give the market some room to move without triggering the stop loss prematurely.
💰 Take Profit Strategy: Setting a take profit level based on the market's previous behavior and key resistance levels can help maximize profits when a trade goes in your favor.
🚫 Avoid Overly Tight Stop Losses: Placing stop losses too close to the entry point can result in being stopped out by minor market fluctuations, missing out on potential profitable trades.
🌟 Importance of Market Structure: Understanding and utilizing market structure in determining entry and exit points is fundamental to successful price action trading.
🏆 Successful Trading Outcomes: The script emphasizes that with proper identification of trends, patterns, and market structure, price action trading can yield successful and profitable outcomes.

Q & A

What is price action trading?
-Price action trading is a method of trading financial markets without the use of indicators, focusing on the price movements and patterns to find profitable trade setups. It involves analyzing support and resistance levels, candlestick formations, trend lines, and chart patterns.
Why is it important to trade with the trend in price action trading?
-Trading with the trend is important because it increases the probability of successful trades. Going against the trend can be risky, as the market might move against your position and potentially wipe you out if the trend is strong.
How do you identify the trend in price action trading?
-The trend is identified by observing the price movement and looking for patterns such as higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend.
What is the significance of structure in price action trading?
-Structure refers to the key levels or zones on the chart that have historical significance due to previous price action. Identifying and understanding these levels can help predict future price movements and potential reversal points.
Why is it necessary to wait for confirmation before entering a trade?
-Waiting for confirmation, such as a candlestick pattern or a chart pattern, ensures that the market is showing signs that align with your trade setup. This reduces the risk of entering a trade prematurely and increases the likelihood of a successful trade.
What does a doji candlestick indicate in price action trading?
-A doji candlestick indicates indecision in the market. It suggests that the price is likely to reverse direction, as it has tested a key level and is showing no clear direction, often preceding a trend reversal.
Why is it important to place the stop-loss order above a key level when selling?
-Placing the stop-loss above a key level when selling ensures that if the price reverses and moves up, breaking the key level, the trade is closed out with minimal loss. This is based on the understanding that if the price breaks above the key level, the trend may have changed.
How should you determine the take profit level in price action trading?
-The take profit level is typically determined by looking at the most recent significant low in a downtrend or the most recent significant high in an uptrend. This is based on the assumption that the price will likely retrace to these levels before continuing in the established trend direction.
What is the importance of the breathing room for a stop-loss order?
-Giving the stop-loss order some breathing room prevents the trade from being stopped out by minor price retracements. It allows for some natural market volatility without closing the trade prematurely.
Why is a risk-reward ratio considered when placing a trade?
-A risk-reward ratio is considered to ensure that the potential profit from a trade is worth the risk being taken. It helps traders to avoid trades with a low potential return relative to the potential loss, aiming for a ratio that is favorable, such as 1:3 or higher.
How can you identify a potential reversal from a downtrend to an uptrend in price action trading?
-A potential reversal can be identified by observing a new higher low in a downtrend, followed by bullish signals such as a bullish engulfing candlestick. This indicates that buying pressure is increasing and the market may be preparing to move upwards.