#6: 11 Price Action Trading Strategies And Techniques That Work
I'm ecstatic because, in today's training, you will discover eleven price action trading strategies and techniques that work.
Here is a glimpse of what you're about to discover:
- A reversal trading strategy which offers low risk and high reward trading setups
- The BWAB trading strategy to ride massive trends.
And so much more…
The examples I will be sharing, later on, are primarily in the Forex markets. It doesn’t mean that it only works in the Forex market.
You can apply it to Forex, Stocks, and Futures, etc. You can trade it on a daily timeframe, weekly, it's up to you.
These techniques that I'm about to share with you are robust.
But promise me one thing, whatever I'm about to share with you. Don't take it at face value.
I want you to do the work to validate whether this works for you or not. Just because something works for me, doesn't mean it's going to work for you.
You must do the work, take the concepts, stick to the strategies that I'm about to share with you. Validate it on your own and see whether you can make it work for yourself.
Let's get started…
1. False Break
This is a reversal trading technical strategy that allows you to find low risk and high reward trading setups.
Here's how it works.
- Strong momentum moves into support
- Price takes out the previous lows of support
- Within the next 1-3 candles, the price rallies strongly and close about support (And vice versa)
It looks like this. Price makes a strong momentum move into this area of support and then quickly reject it up higher and closed strongly above support.
Vice versa for a short trade.
You're just looking for a strong momentum into resistance, get a price rejection, and that's pretty much it.
S&P 500 weekly timeframe
You can see what I mean over here.
At this point, you can see that we have a strong bearish momentum coming in down into this area of support.
It even took out the lows of this support.
Why are we looking for the price to break below the lows of support?
Because that's when breakup traders will be looking to short this market.
If the price breaks down below support, traders say:
“Ahhhhhh…It's doomsday let's sell, sell, sell”
Then the go short, sell the market and when they sell, they would have put a stop loss in place. In case the trade goes against them.
For traders who short the breakdown, where will they put their stop loss?
Look at this chart.
If you are shorting this market at this point, where will you put your stop loss?
If you're like most traders, I'm going to guess that you will put your stop loss, maybe above this high, maybe somewhere here or the conservative one even above this high.
Here's the thing. We are looking to profit from this group of breakout traders if they get it wrong.
How do we know when they're about to get it wrong?
That's where we have the false break set up.
When a market makes a sudden reversal up and close bullishly above support.
At this candle, you can see that this market makes a sudden reversal and closed strongly above support.
This is a signal for you to go long, right. And do trade the opposite end of this bearish momentum that occurred previously.
This is what I mean by a false break set up very simple, strong momentum into support price took out the previous lows, and then we have a strong bullish reversal closing back up above support.
2. Breakout with a build-up
If you take the first letter, B-W-A-B.
I call it the BWAB trading strategy.
This is simply a breakout trading strategy, which allows you to ride massive trends because you are entering right at the knees and stitch of a new potential trend.
What to look out for:
- Range market
- The price consolidates at resistance (otherwise known as a build-up)
- Look to buy the breakout of the resistance
If you want something more objective, look for at least 80 candles or more.
You notice that we have a range market over here.
There are at least 80 candles over here.
We look for a build-up.
We can see clearly that this build-up form at the highs of this resistance that I've drawn earlier.
This is a sign of strength because it's telling you that even though the price is at resistance there are still buyers coming in willing to buy it at this higher price.
Even though they all know it's a resistance.
There is a demand for this particular market, which is the Dollar against the Chinese Yen.
What you can do is that once you identify a build-up at resistance, all you need to do is just a place buy stop order above the highs of resistance.
In this case, it's above this high
You can go long the moment the market breaks out above it.
You can wait for a candle to close above it and that’s fine. This is what I meant by a breakout with a build-up.
In essence, you can see that why you can ride massive trends is that because you're about to trade in the direction of a new trend.
In this case, the prevailing trend earlier was in a downtrend.
Then the market consolidates.
If it does break out, you are pretty much entering as early as possible in this new existing uptrend.
This is why I said it allows you to ride massive trends in one way. You can trail your stops using the 20MA or 50MA.
We are going to combine these two techniques, and it's what I call the pre breakout technique.
This is an entry technique to let you enter the breakout before the breakout. How do you enter a trade before the big move occurs?
Well, you need to use the pre-breakup technique. Very simple.
- Look for a build-up on the higher timeframe
- Go down to a lower timeframe and look for a false break setup (H4)
NZDCAD (Daily timeframe)
First and foremost, you want to look for a build-up:
Now we need to go down to a lower timeframe to look for false break setups.
I'm going to do some magic here.
Let me just split the chart into two.
This is the New Zealand Canadian daily timeframe and four-hour timeframe.
Let me just orientate you quickly.
Over here this is the build-up portion. I'm going to click on this and the H4 chart will adjust accordingly.
In the daily timeframe, this portion here is equivalent to this portion that you see over here on the 4-hour timeframe.
Now you understand where you are in a big picture
What are we looking for?
We are looking for a false break set up on the lower timeframe.
Look at this H4 chart and do you see a false break setup at resistance?
Yeah. I see a couple…
Two false breaks out the highs before the real move cut down lower.
You may or may not get stopped out on the first try, which is this one over here. But if you attempt another try, this would allow you to catch the strong move lower.
This is what I mean by the pre-breakup technique.
Identify the build-up in the higher time and go down to a lower timeframe and look for a false break set up.
Can you see how we are building concepts on top of concepts?
Most people go like all this has happened after the fact and easy to watch. Let’s look at something that has not happened yet.
4. Break of structure
This is an entry technique that gets you into a new trend early.
What you want to do is:
- Wait for the price to approach an area of value on the higher timeframe, e.g. Support and resistance, trendline, moving average.
- Look for a break of price structure on the lower timeframe
USDNOK (Daily Timeframe)
You can see over here, on the daily timeframe, the price has come into this area of value. This is the previous resistance that could now act as support
Here's the thing at this point, what if you don't get a false break setup?
You don't have a strong bullish price rejection to show you that the buyers are in control.
This is where you can go down to a lower timeframe and look for a break of structure.
I'm going now to a lower time frame. Let's say an eight-hour timeframe and have a look for a break of the structure.
At this point you can see at this level, this black line over here is the same level that we have seen earlier.
Splitting the chart into two. This is the daily timeframe. This over here is the USDNOK on the H8, you can see that on an eight-hour timeframe. You're looking at this point on the daily timeframe price came into this area of support.
Previous resistance turned support. And on an eight-hour timeframe, you can see a break of structure because at this point the price made a higher high.
Reverse down, lower, and then breaks out higher.
At this point, when a price breaks above this high.
You now have a higher high and a high low.
It's a change in market structure because of the previous market structure, it was making a series of lower highs and lower lows.
At this point, when the price breaks above these highs...
This is the first touchpoint, where you made the higher high and a higher low. And this is a break of structure.
It has broken the prevailing previous market structure. On top of it, we are trading this leaning against an area of value.
We are leading against this area of value at a higher time.
We are not just blindly trading a break of structure. We are leaning against the area of value on a higher timeframe.
This is how you want to trade the break off structure technique to lean against the higher timeframe.
This is an entry technique that allows you to catch the trend if you missed the first wave.
I often miss trading opportunities in the market.
- Don’t chase the markets
- Wait for a pullback towards previous resistance turned support
- Look for bullish price rejection at support
Well, first and foremost, the first thing you want to do is don't chase the markets. That is the worst thing you can do.
Because if you do that, chances are you will get stopped upon a pullback or even the reversal.
Don't chase the market.
Wait for a pullback towards previous resistance turned support, or if you are trading on a short sight, you're waiting for a pullback towards previous support and resistance.
Look for bullish price rejection at support.
AUDUSD (Daily timeframe)
You see a retest over here. The price break below this area of support. And then we have a retest.
Of course, on this timeframe, there wasn't any entry trigger to go short because, on this same candle, the price spiked up and spiked down.
But if you go down to a lower timeframe, there could be possible trading opportunities, which you can see over here.
This is what I mean…
And we're looking for a retest because at this point the market has hit down lower and I know it can be tempting to chase this market down lower.
This is the mindset that many traders would have. The problem is that when you are chasing the market this is when its likely to make a reversal or a pullback.
When it happens, you're likely to get stopped out.
Don't chase the market, let the market come to you.
But where could the market come to?
This is where you use the technique I just shared.
Previous support that could act as resistance. This is what we call the retest.
The price retested this level that we have marked out ahead of time.
At this point, you have a much more favorable trade location to trade from. The price shows you a bearish price rejection at the retest level that you're looking at.
At this point, if you sell over here, your stop loss could just go above this price structure
You can see that your stop loss is in a safe location because for the price to reach this level, it has to go against an obstacle or a barrier.
This barrier is in the form of previous support that could act as resistance so the price would have difficulty going through.
Not that it can't, but you have to make it work hard to get your stop loss, you see the difference?
And in terms of our target, you can see that there's a good chance to go swing down, back low into the swing low.
And you would have a decent risk to reward. This is what we mean by the retest.
6. First Pullback
This is an entry technique, which allows you to catch the trend. Even if it doesn't make a retest
What you want to do is:
- Don’t chase the markets
- Wait for a pullback and let the 20MA catch up with the price
- Look to buy the breakout of the swing high
The price may not make a retest all the time. This is where the six technique called the first pullback comes into play.
If you see me repeating a point multiple times, this is where you get a pen and scribble it right in front of your forehead.
You want to look for a pullback. The key thing about this pullback is the range of the candles has to be relatively small.
You don't want to pull back with a huge massive candle because this tells you that it could be a reversal instead of a pullback.
You want the 20-period moving average to catch up with the price, to touch the lows of the pullback.
You can look to buy the breakout of the swing high.
You can see this is the area of resistance. You can see that when the price broke out again.
Many traders who would be waiting at this point, which I just taught you earlier, the retest, and that's fine.
That's perfectly fine. A retest of previous resistance turned support. But I’m sure you can agree with me that the price may not do this.
This is where you want to wait for the market to do a pullback.
You just pull out your 20MA.
The 20MA is still far away from the price. You have to give it some time to let the 20MA catch up with the price.
For this to happen, the market has to make a pullback with a small range of candles.
The market starts to make a pullback over here and at thig point, you have it the market has just made a pullback
The 20MA has not touched the lows of the pullback. At this point, it’s different because if you where to buy the breakout of these highs
You have a logical place to place your stop loss.
Where is that?
You could set it below the 20MA or the swing low.
If you're thinking about this previously the 20MA has caught up with price somewhere about here.
You don't have a logical place to set your stop-loss besides this previous resistance turned support.
You can see that your stop loss is done because your reference point is far away.
But when you're a patient, when you let the price come to you, when you let the 20MA catch up with the price, you have a logical place to set your stop loss.
Now you can manage your risk. In this case, when a price breaks above this high.
You can now set your stop loss, a few options are with the 20MA
Which is below the recent swing low. You can use 1ATR below it as a buffer. Does it make sense?
This is what I mean by the first pullback, just because you miss a move doesn’t mean that it's over. There are still tricks that you can use to catch the move.
7. Don’t trade far from an area of value
- This helps you to avoid low probability trading setups.
- If the price is “overstretched” from the area of value, then skip the trade
CH5USD (Daily chart)
This is the China A50 market. You can see that this market is in an uptrend. It’s above the 50MA and bounces off it pretty much.
And if you look at this chart, as the price approach the $15,000 price point by now you should know that you shouldn't be buying at this point because this is where the market is overstretched.
This is where it could make a pullback, this is where the price is far away from the area of value.
Where is the real value?
If you look at this chart, I would say the 50MA serves as a good area of value somewhere here
This means that the price could retrace back towards this area of value and then continue higher.
If you want to be buying at this point.
These highs over here, then there's no good level to set your stop-loss, because if you set your stop-loss here
It doesn't make sense because the market could just as well swing down lower, make a pullback towards the area of value, and then continue higher.
You're going to get stopped out.
Avoid trading when the price is far away from an area of value or near the area of value because when you trade near the area of value, your stop loss can be much tighter.
8. Don’t set your stop loss just below support
- Help you avoid stop hunting
- Instead, set your stop loss a distance away from support
Don’t set your stop loss above resistance. This helps you to avoid, stop hunting, instead you want to set your stop loss a distance away from this key price structure.
USDMXN (Daily Timeframe)
You can see at this point the market is in an uptrend. Most traders might look at this and say
“Oh Rayner, there’s a Doji pattern over here, this is indecision in the market. The market is about to reverse lower, buyers and sellers are in control”
The short the market. And where do they set their stop loss? Most traders say:
“Oh Rayner, most textbooks say you should set your stop loss above the highs and resistance, would you let me set my stop loss above these highs?”
That’s what they do right?
When you set your stop loss above these highs, it is a very prime candidate to stop hunting because this is where everyone else sets their stop loss.
It's very easy for the price to reach those levels and then reject those levels after you have been stopped out of your trade.
In this case, you can see that the price spike up higher.
Those traders who set your stop loss above these highs. Guess what? They're stopped out.
Then before it continues to reverse down lower.
Don't set your stop loss above the highs or just below the lows.
9. Avoid shorting higher lows into resistance
- This is a sign of strength, not weakness
- Market likely to breakout higher
I know many traders. They look at the chart and they say:
“Oh Rayner, the price is at resistance. It’s time to sell”
Not quite because you want to see how the prices approach the level of support and resistance.
That gives you a big clue whether the level will hold or break
BTCUSD (H8 Timeframe)
Do you see how this market, the way it approaches resistance, strong momentum moves into it? It's not a nice strong power move into it.
Rather there is a stair-stepping price action into it. Like a staircase climbing up into resistance.
You have a series of higher lows into resistance, this is a sign of strength.
Previously we talked about the breakup with a build-up. We are looking for this type of price action to trade the breakup, not the reversal.
In this case, you don't want to be selling at resistance. You want to avoid selling it resistance because this is a sign of strength.
You have a series of higher lows into resistance. This is a sign of strength and likewise when you see a series of lower highs into support. This is a sign of weakness.
You don't want to be buying support at this point.
I repeat. You don't want to be buying support at this time, because this tells you that the selling pressure is stepping in. They're coming in and put selling pressure in this market.
If you look at just the basic price action if you look at the range of the candle.
The rebound keeps getting weaker.
This tells you that the buying pressure is being contained by the sellers. This is a sign of weakness and this market is likely to break down lower
Avoid shorting higher lows into resistance and likewise avoid buying when you see lower highs into support.
10. Volatility contraction leads to expansion
- Look to enter your trade during a low volatility period.
- The favorable risk to reward
Here is the thing, the market moves in uptrend, downtrend, range. This applies to volatility.
Volatility goes up, then contracts and the go up again.
As a trader, If you're looking for favorable risk to reward if you're looking to risk $1 to make $3, $1 to make $5.
Then you must be looking to enter your trades during a low volatility period because that's where your stop loss is tighter.
If the market expands in your favor.
If the volatility expands in your favor, this is where you can reap a favorable risk to reward on your trade.
That's what the pre-breakup technique is all about.
You're entering your trade earlier. When we talk about a pre-breakup technique is when the volatility of the market is low and when volatility expands in your favor,
That's how you reap a favorable risk to reward on your trade.
You might even forget about that already.
Let's do a quick recap of this concept.
Using the pre breakout technique we spoke about earlier. We talked about the NZDCAD and I mentioned that over here, we have this build-up being formed.
This is in a low volatility environment. Then we've got an entry trigger on the lower time frame using the pre breakout techniques.
On the daily timeframe, over here is in a period of low volatility, and on the H4 timeframe, this is where we got our entry technique.
Notice the false break set up that we mentioned earlier. This was the false break setup that we had possibly over here and over here.
When you go short, what happens if volatility does expand in your favor?
In this case, we see over here,
Volatility expands in your favor, hits down, retraces, and offers you favorable risk to reward on your trade.
Volatility contraction leads to expansion, ideally, you want to be entering trades during a low volatility period.
You have a tighter stop loss, which offers you are much more favorable risk to reward.
11. The Ultimate price action combo
- Multiple plans of attack
What I mean by this is that as a professional price action trader, you cannot just be a one-trick pony.
For example, I just share with you 10 different trading strategies and techniques to trade. And I hope by now you don't just wait for support.
Don’t be a one-trick pony because the market has its way of fooling many traders out there. And making many traders miss the moves.
You got to approach price action trading using multiple plans of effect.
If plan A doesn’t happen then I have plan B.
To sum up what price action trading is all about. I call this the ultimate price action combo. If you can embrace this concept that I’m about to share with you.
You are going to be the ultimate price action trader.
We can see that this market is in an uptrend and it's consolidating between these highs
For a newbie price action trader, what would they do?
I can tell you what they would do.
They will say
“Oh Rayner, the market is in an uptrend, I will wait for the price to break out, retest this level form a hammer then I go long”
That’s not a bad plan, that’s fine.
Let me ask you,
What are the odds of that happening?
Sure, it could happen.
But that’s only one plan of effect. If you are a skilled and professional price action trader, let me share multiple plans of attacks that you can come up with.
You can look to trade a breakout with a build-up. We can look at this price is at this highest price could come up higher and consolidate this high. If you pull out your 20MA we want to see the support of the high, the lows of this build-up, and if the price could break above this high or above this high over here, whichever you can is your reference point.
We could go with the retest technique that many traders are familiar with. This is the area of resistance. Let's say the price breaks out without a build-up. We can wait for a retest to form a price rejection in this area and to get long.
What if the price breaks out but it doesn’t form a retest What we can do is we can look for the first pullback technique like the bull flag pattern, a retracement with small range candles and I look to buy the breakout of this high.
What if the prices don’t form a nice flag pattern? What if the price breaks out and it forms a new range? At this point, it can be difficult to buy near this swing lows over here. You can go down to the H8 or H4 timeframe to look for a false break setup.
Can you see how a professional price action trader would think? They don’t just have one trick up their sleeves.
They can envision potential scenarios that the market could unleash and trade it accordingly.
This is what I mean by the ultimate price section combo. You have multiple plans and not just trading in one direction.
If you want to, you can even trade the reversal towards the downside using the same concept.
Hopefully, by the end of this training video, I have given you an idea of how price action can be like.
- False break
- Break of structure
- First pullback
- Don’t trade far from an area of value
- Don’t set your stop loss just below support
- Avoid shorting higher lows into resistance
- Volatility contraction leads to expansion
- The ultimate price action combo