Price action analysis is one of the best methods to trade the Forex market with. By simply analyzing a naked price chart we can spot profitable setups that re-occur in the market. The best approach to take while using price action to trade forex is just to master a handful of time-tested and easily identifiable setups; this will allow you to trade in a calm and collected manner and will thus help you achieve consistent profitability in forex. This article will introduce two of my favorite price action setups; the reversal or pin bar setup and the inside bar or inside day setup.
Price Action Reversal Bars:
Reversal bars often occur at major swing points or at significant support and resistance levels in the forex market. Price action reversal bars can tip the keen trader off to large directional movements and also give traders a concrete method to exit a previous large directional run. Specific examples of price action reversal bars can be found on numerous websites across the internet; YouTube is host to some very good price action video tutorials. Reversal bars are a great way to enter a trending market or a range-bound market. Once mastered, specific price action reversal bar setups can prove to be your bread and butter forex trading method. You will find various names for reversal bar setups in forex such as, the pin bar setup or the shooting star setup in candlestick terms.
Inside Bar Setups:
Inside bars indicate the market is taking a breather from its most recent run. They are found in strongly trending markets but also in consolidating markets, they occur at market turning points but also as continuation signals. The inside bar setup offers a low-risk high reward scenario as often times they will break out strongly in one direction and allow the trader to employ a very tight stop loss. Knowing how to trade the inside bar setup off the daily and weekly time frames can be a very profitable and thus valuable tool to the forex trader. The inside bar setup is an essential technique to become a professional price action trader. Often times there will not be a valid pin bar setup but there will however be a nice inside bar setup. As with the pin bar setup there are many great price action analysis videos that demonstrate how to profit from the inside bar setup.
To conclude, price action analysis is one of the most profitable yet simple ways to trade the forex market. Reversal bars such as the pin bar or shooting star are great entry techniques and can also be used as exit signals. Inside bars work great in strongly trending markets as continuation signals. They also can be used at market turning points after a correction or swing level has been hit. Learning a few powerful price action setups such as pin bars and inside bars can really make the difference in your forex trading. Find a great forex mentor or a reputable price action trading site and begin your education today.