Instead of indicators you use candles, support and resistance, and other chart analysis to make trading decisions. The point is that price action analysis allows you to predict with a high degree of accuracy what price will do next by understanding who has control of price, buyers or sellers.
If buyers are in control, you want to buy. If sellers are in control, you want to sell. It all seems very simple right? Well, some newbies make price action a lot more difficult than it needs to be. It forces you to properly analyses price. Instead of making a hasty decision, you are forcing myself to make an informed decision. Now, if I ask myself that question when trading 12 hour charts. Imagine how much more important it is when I am price action scalping a 5 minute chart; when I only have about 30 seconds to make a trading decision.
Being able to answer that question quickly and effectively is vital. And, it is also very stressful, which brings me to my next point. Price action trading is about being in tune with what price is doing right now, so you can predict with a high degree of accuracy what it will do next. A scalp trade normally only lasts minutes. So, to scalp effecitvley you need to analyse what price is doing right now, and what it will do for the next 30 minutes or so.
Most traders use indicators for scalping, which is a bad choice. The problem with indicators is that they lag behind. Scalping requires quick analysis, quick decisions, and quick trading. New traders think that strategy is the most important skill in trading. The truth is that trading breaks down into three core skills. In this article I will cover these skills as they relate to scalp trading.
And in this chapter I will cover trading psychology. Have you ever traded out of boredom? Have you ever closed a trade early out of fear? Have you ever held on to a losing trade in hope that it would turn around? And these mistakes slowly eat away at a traders win rate, confidence, and profit.
It does not matter how good your strategy is, if you cannot handle the stresses of trading, you will lose money. Successful scalpers know this, and they focus just as much on their trading psychology as they do on their strategy.
The video covers risk management as well as trading psychology, but the two are so interconnected that they are almost the same thing.
Watch the video closely and implement these things to be a better scalp trader. Before trading price action setups you need to know the basics. On larger time frames I specialise in reversal trading. I take price action based reversal from areas of support and resistance.
On small time frames reversals do not work very well. This is because reversal trading relies on identifying the precise moment in which a trend dies. On small time frames there is too much noise to effectively identify the death of a trend.
We will be trading trend continuations. We will be watching for price action signals which indicate a trend is strong. We will then trade a continuation when price pulls back to a area of support or resistance. This may sound simple but it is very stressful. One key component of this strategy is that you must maintain a risk to reward ratio of 1: That third point is the stressful one. When a trade is two pips from target and then reverses five pips… many people just close it out.
You cannot do that, you must maintain the 1: Even if it means your stop being hit, you have to stick to 1: I will explain this in more detail later. You will need to draw the support and resistance areas yourself. These rules do not only apply to scalping Forex price action, they are also used for my normal support and resistance areas:. Rule one is very simple. When placing support and resistance areas, fresh data is always better than old data. This is even more true on small time frames.
Price action formations that occurred twenty minutes ago are more significant than formations that occurred two days ago. So when placing support and resistance, make sure you prioritize recent data. Rule two may be a little harder to understand. I will explain it in more detail in the examples below.
The first step to placing support and resistance is to identify bounces on your chart. Ideally you will want several bounces that line up nicely.
I have highlighted three sets of obvious bounces. The lower set mark out a support area, they are highlighted green.
The higher set mark out a resistance area, they are highlighted red. Bounces will not always be this obvious. However, the more obvious the bounce the stronger the area; so you should only try to identify the most prominent bounces. Once you identify several bounces, draw a horizontal line between them and join them.
Support and resistance can be more complicated on larger time frames. However, on 5 minute charts, it really is easy. Now remember rule two? Body bounces are more important than wick bounces? You will notice in the image above I place my line at the candle bodies, not at the wicks. I do not like placing support and resistance at the wicks. I prefer to have my support and resistance where candles are likely to form. I am considering adding a video on support and resistance placement. Feel free to send me an email to let me know if you need a video to clarify this subject.
You should now have a good understanding of how to place support and resistance areas. The next step is actually finding trade setups. And I am going to show you exactly how to do that. There might be a small problem though. If you do not understand candlestick pattern and trend basics, the stuff below might not make sense. If you find that your are struggling with the concepts below, jump over to my price action basics in the Forex education section.
In there I cover basic price action and candlestick pattern concepts. Once you understand those concepts, the stuff below will be easy. Well in this case, that saying is kind of true.
We want to use price action to determine the trend, get a good entry and ride it for a short while. You should already know how to identify a dominant trend, I talk about this in the education section linked to above.
But the thing about trends is that they are rarely, if ever, smooth. Trends move like this:. See how buyers push back up to the former support after sellers break through it? That is how a trend works. In a bearish trend, sellers are in complete control of price.
Buyers try to take control all the time. Sometimes buyers take control briefly but sellers regain control and continue trending down. Here is an example of how trade continuation scalps play out. The image below is a gif, it will play like a video and show you how trade continuation trading works.
The basic concept is to trade with the trend. Using candlestick analysis with support and resistance allows you to determine if the trend is still alive. If the trend is still alive, you enter a trade for a quick pips. Your stops and targets especially need to be on point if you want to get the most out of price action scalping. The pairs you trade will usually be determined by their spreads. The common stop loss for this strategy is pips. So you need to trade pairs with very tight spreads to be profitable.More...