FX SUMMARY NOTES.

Most important Price Action Patterns and Strategies.

{Price Action trader}

 Price Action Reversal Patterns.

i. The Head And Shoulders Pattern
NB.If the high of the right shoulder is found to be below the
swing low of the move up which created the head, then it's
not a head and shoulders pattern and should not be treated
as such.
 The right shoulder should be equal or greater than the
left shoulder in most cases.
ii. The Double Bottom And Double Top Patterns
NB. The two swing low or two swing high should form at a
similar prices to one another.Or around the same zone but
not far away.
iii. The Rising And Falling Wedge Pattern
 Sometimes the market contracts before the end of the
up-move or down-move forming a wedge shape.
 Many false signals will appear as the swings contract
and the pattern nears completion.So its better to wait for
breakout and retest of the structure for entries.

 Price Action Continuation Patterns

i. The Rising And Falling Wedge Continuation pattern
 Rising wedge in a downtrend and Falling wedge in an
uptrend indicating continuation.
 This pattern in the market will form as retracements
during up or down moves.
ii. The Rising And Falling Flag Pattern
 Rising flag forms in the downtrend and Falling flag
forms in the uptrend indicating continuation.
 You can see the pattern is basically constructed off of
two points. The first point is the sharp bullish/bearish
move higher which takes place right before retracement
begins (the pole of the flag) and the second point is the
retracement itself.
 The retracement is the flag part of the pattern and
should always terminate before reaching the 50%
fibonacci retracement level of the downswing which
 creates the flag pole. If you see the market retrace
beyond the 50% level it's usually a sign the pattern is
changing from a flag into something else.
Rule:if the market moves beyond the 50% level of the flag
pole swing the probability of pattern remaining a flag
decreases dramatically.
 Usually the point where a flag will terminate is the same
point as where a supply or demand zone has formed.
 So if you want to try to get an entry into a flag pattern
trade, it's best to do so around the point where a nearby
supply or demand zone has formed, as this is point
where the flag is likely to end and cause the prior
trend/movement to resume.
iii. The Ascending And Descending Triangle Patterns
 Triangle patterns have one straight edge that acts as a
resistance or support level until the market breaks out of
the pattern and continues to move in the direction of the
prior trend.


 The ascending triangle forms during up-tend and is

always seen as a continuation signal.The straight edge
of the ascending triangle is a support level, and this
level stops the market from moving lower during the
time the pattern is forming.
 

 The descending triangle forms during downtrend

signaling continuation.The straight edge is a resistance
level which stops prices from rising higher during the
formation of the pattern in the market.
 The ascending and descending triangle patterns are
good to know but not that great for trading, due to the
way a few false breakouts will usually take place before
the real breakout occurs.

 Price Action Candlestick Patterns

i. Pin Bar/Hammer/Rejection Candlestick.
 Is a single candle rejection pattern.very few pin bars
actually cause large reversals to take place in the
market.
 Pin bars happen to form exclusively from the bank
traders either placing trades because they want to make
the market reverse,(causes large reversal) or from
taking profits off trades which they've already got
placed.(causes small reversal).

Characteristic of a worth trading pin bar

candlestick.
To determine whether or not a pin bar is worth trading:
i. The pin bar formed in bigger time frames such as the 4
hour or daily time frame should be taken into consideration.
 Ignore signals from smaller time-frames ,they generate lots
of false signals.
ii. The pin bar formed in line with the direction of the market
is more powerful than the one which is formed against the
trend.
iii. Pin bars with longer tails are more powerful.
iv. Pin bars that retraces to the key levels.

The Psychology behind the pin bar candle

formation:
 Pin bars are formed when prices are rejected, this rejection
doesn’t always indicate a reversal signal,they can form
everywhere in your chart.
 The most important areas to watch when trading pin bars are
major key levels such as: support and resistance, supply and
demand zones, and moving averages.

Pin Bar Strategy

Trading the pin bar candlestick with the trend
 You start:
i. Identify a clear trend uptrend or downtrend.
ii. Identify key level: support or resistance.
iii. wait for a pin bar to occur after a pullback to support or
resistance level. (signal)
 Sometimes, even if the market is trending, we can’t draw support
and resistance levels, because prices move in a certain way which we
can’t spot static key levels.
 If you are in this situation, you can use the 21-moving average which
will act as a dynamic support in an uptrend market and a dynamic
resistance in a downtrend market.
 Entry options :
i. The aggressive entry option:
 this method consists of entering the market immediately after
the pin bar closes without waiting for a confirmation.
 This strategy will help you catch the move from the beginning,
because sometimes the price goes higher after the close of the
pin bar, and if you are not in the market, the trade will leave
without you.
 Stop loss: above the long tail.
 Target profit: the next support or resistance level.
ii.The conservative entry option:
  this strategy consists of entering the market after 50% of the
range bar retracement.
 This strategy sometimes will work and it gives you more than
5:1 risk/reward ratio, and sometimes the market will leave
without you.
 Same stop loss and target profit.

Trading pin bars with confluence.

 Confluence happens when many technical indicators generate the
same signal, this trading concept is used by price action traders to
filter/confirm their entry points and spot high probability signals in
the market.
 Trading with confluence is a must, because it will help you focus on
quality setups rather than quantity.
Factors of confluence:
i. The Trend: you can’t trade any setup without identifying if it is in line
with the direction of the market or not.
ii. Support and resistance levels and supply and demand areas.
iii. Moving averages: i personally use the 8 and 21 moving average, this
technical trading tool acts as dynamic support and resistance.
iv. Fibonacci retracement tool: I use the 61% and 50 % Fibonacci
retracement to find the most powerful areas in the market.
v. Trend lines

TIP: If you can find just one or two factors of confluence that come up
together with a good pin bar setup, this is quite enough to make a
profitable trade.
Here:Trend,Key level,Signal,Another signal.

Trading pin bars in range-bound markets.

Strategy 1:
 To confirm a ranging market, i have to look for at least two touches
of support level, and two touches of resistance level.
 Then the next touch in either level is where we need just to wait for
a clear price action setup for entry such as a pin bar candlestick.
NOTE: Even in range-bound markets,Trade in the main direction that the
market was moving before starting to range.
 Trading from major key support and resistance levels is the easiest
way to make money trading range-bounds markets, don’t never try
to trade any setup if it is not strongly rejected from these areas.
Strategy 2:
 Trading in the direction of the breakouts of major key levels
or waiting for the prices to retrace back to the breakout
point and then you go long or you short the market.

How to confirm pin bar signals using technical

indicators.
 Using technical indicators to confirm your entries will increase the
probability of your trade being profitable.
 If you can combine your price action strategies with the right
indicators, you will be able to filter your signals and trade the best
setups.
 One of the best indicators that i use to confirm my entries when i
examine a range-bound market is the Bollinger bands
indicator.They have dynamic support and resistance levels.
 We will combine horizontal support and resistance with the upper
and lower Bollinger bands , if prices are rejected from both major
key levels and from the bands, this is a confirmation that the market
will bounce from these levels.

Remember: This technical indicator is used just as a confirmation tool in

range-bound markets, don’t use it to generate signals, use it always in
combination with horizontal key levels, and you will see how this
strategy will affect positively your trading account.
 One of the most difficult markets to predict can be the sideways and
ranging markets, i always recommend traders to focus on trading
trending markets, but the problem is that the markets spend more
than 70 % of their time in ranging motion.

Engulfing Candlesticks strategy

 All Pin bar candle strategies also applies on Engulfing candlestick
strategy.
 Trading the engulfing bar with supply and demand
zones
 Supply and demand areas are more powerful than support and
resistance levels, it is the place where banks and institutions are
buying and selling in the market, if you can identify these turning
points, you will make a difference in your trading account.

Three factors that define quality supply and demand areas:

1. Accompanied by strong move:This zones are accompanied by
strong moves, if the market leaves the area quickly, this is an
indication that banks and institutions are there.
2. Good risk/reward: You have to make sure that the level provides a
good profit zone.
3. Bigger time frames: The daily and 4-hour supply and demand areas
are the most powerful zones in the market.

 The secret behind supply and demand areas is that big players put
their pending orders there, when the market approaches these
zones, we see a crazy move from these levels.
 If you can combine trading supply and demand areas with the
engulfing and Pin bar price action signals, you will increase your
chances to make money as a trader.

Money management trading rules

 After a high probability setup is in place, there is no more

analysis to be made, just make sure your trade has a potential
of at least 2:1 risk to reward ratio.
 Price action signals with low risk /reward ratios should be
ignored.
 Studies have shown that successful traders don’t risk more
than 2% of their equity on each single trade.
 Don’t risk what you can’t afford to loss per single trade.

NOTE: Don’t think in term of making money as fast as possible, think in

term of becoming an expert of what you do, and then money will follow
you wherever you are.

Time frames and top down analysis.

 As a price action trader, your primary time frame is the 1H, the 4H
and the daily.{ Trend-Pattern-Signal}
 If you want to trade the 4hr chart,look at weekly chart first,then the
daily chart.If the weekly and daily analysis align with the 4hr
chart,take the trade.
 If you want to trade the 1hr chart,look at daily chart first,then the
4hr chart.If the daily and 4hr analysis align with the 1hr chart,take
the trade.This called Top down analysis.
 What to look for in bigger timeframes:The trend ( is it uptrend,
downtrend ,range or choppy market).Major key levels (support and
resistance,supply and demand zone). The last candle (tells you how
the market has been moving).
 What to look for in smaller timeframes: The same as above and the
signal (Pin bar or Engulfing candle).

NOTE: The smaller timeframe should align with bigger timeframes for
you to have high successful trades.

 Keeping the analysis simple is most often the best way to go,
and top down analysis is one of the easiest approaches that I
recommend to master if you want to trade the right way.
 STRATEGY TESTING
1. BOS then change in trend