Price Action - An Effective Trading System for Binary Options: Patterns, Models, and Application

Price Action is a powerful method of chart analysis based on recognizing patterns and candlestick formations. This approach enables traders to trade without indicators, relying solely on price movements, making it a popular choice among seasoned traders.

Price Action encompasses various trading systems built on recurring patterns and figures that appear on charts. These Price Action patterns can be used to predict price movements with high accuracy, making this method valuable for both trend trading and identifying reversal points.

It is important to note that while no trading strategy guarantees 100% success, statistics show that Price Action patterns tend to have higher accuracy compared to other methods of technical chart analysis. Many traders favor Price Action for its versatility and predictability.

Price Action is not a single strategy but a collection of several approaches, which include:

• Trend-following strategies — capitalize on market momentum
• Reversal patterns — help spot trend reversals for profitable trades

These strategies enable traders to profit in any market environment, whether in a strong trend or during price consolidation. Successful application of Price Action requires the ability to read price charts accurately, differentiate between trends and sideways markets, and properly mark and use support and resistance levels on the chart.

 

What is Price Action in trading?

Price Action is a method of analyzing real-time price charts based on price movements and candlestick patterns. This method includes several profitable Price Action trading strategies that are applied without using technical analysis indicators, making it simple and effective for many traders.

The distinguishing feature of Price Action lies in the analysis of clean charts with minimal additional tools. The primary focus is on market price behavior and support and resistance levels, which are key to understanding trend direction and potential price reversals.

How do Price Action patterns work?

The Price Action method allows traders to identify trading signals based on recurring figures on the chart—these could be candlestick models or other technical analysis patterns. These patterns help predict future price movements with a high probability of success. The repetition of these patterns creates opportunities to enter trades both in trends and at reversal points.

Market price movement and the role of supply and demand

The primary mechanism behind price movement in the market is the balance of supply and demand between buyers (bulls) and sellers (bears). If there are more buyers in the market, the price rises, forming an uptrend. When sellers dominate, we observe a downtrend, where the price declines.

• The price rises when there are more buyers (bulls) than sellers (bears).
• A downtrend forms when the number of sellers exceeds the number of buyers.
• A horizontal price movement indicates a balance of forces between buyers and sellers—this is called consolidation.

Who controls the market: bulls or bears?

For successful trading using the Price Action method, it is important to understand who currently controls the market—bulls (buyers) or bears (sellers). This will help traders make decisions on trade direction. If buyers control the market, it’s worth considering long trades. If sellers dominate, traders should look for shorting opportunities.

Tools for Price Action analysis

To accurately determine who is dominating the market, traders use support and resistance levels, as well as candlestick pattern analysis and other technical models. These tools help traders better understand price movements without indicators, identify entry and exit points for trades, and respond promptly to market changes.

Using Price Action in trading

The Price Action method in trading incorporates key elements of Dow Theory and the fundamentals of technical chart analysis. Important aspects include plotting the following elements on the chart:

• support and resistance levels or zones, which help determine potential reversal or trend continuation points
• Price channels or trendlines that help traders follow trend movements

These elements form the foundation of Price Action analysis, which enables traders to find trading signals and make decisions without the use of complex indicators.

 

Pure or 'naked' Price Action

Pure or 'naked' Price Action is a trading style that involves using minimal tools on the chart. The key elements include:

• Applying Dow Theory to understand overall market trends
• Technical analysis figures and candlestick patterns like Pin Bar and Inside Bar
• Support and resistance levels to identify key reversal or trend continuation zones
• Trading within channels, which helps follow trend movements

This approach helps traders make decisions based on price movement analysis without relying on technical indicators.

 

Price Action with volumes

Using Price Action with volumes provides additional insights into market sentiment. It is applicable for assets where real volume data is available, such as:

• Stocks
• Futures
• Indices

On markets where volumes are not available (for example, currency pairs), traders may use other methods of analysis.

 

Price Action with technical analysis indicators

Although Price Action traditionally involves clean chart analysis, many traders add indicators to improve accuracy. A popular tool is the moving average, particularly the Simple Moving Average (SMA) with a 20-period. Moving averages help define dynamic support and resistance levels, and combine candlestick patterns with indicators for more informed trading decisions.

Support and resistance levels — the foundation of Price Action

The core component of Price Action is support and resistance levels and zones. These are critical for predicting reversals and identifying important trading areas. These levels indicate points where the trend might reverse or continue. Understanding and correctly placing support and resistance zones is an essential aspect of any Price Action trading strategy.

Experienced traders use support and resistance zones to identify high-probability trading opportunities. These zones help assess price dynamics and determine whether buyers or sellers control the market.

Candlestick analysis in Price Action trading

Candlestick analysis is a key element of Price Action trading. This method helps traders instantly identify whether bulls (buyers) or bears (sellers) currently dominate the market. Traders use candlestick patterns like the Pin Bar, Inside Bar, and Engulfing to forecast trend changes.

Unlike many indicator-based strategies, candlestick pattern trading in Price Action adapts to current market conditions. This makes it a versatile approach suitable for any time and market environment.

Indicators in Price Action

While indicators are not typically a core part of Price Action trading strategies, they can help traders fine-tune their signals. For example, the LEV00 indicator places round price levels on the chart, which assist in identifying key support and resistance zones on lower timeframes such as M15 and below.

How to Understand and Analyze the Market with Price Action

To effectively analyze price movements using Price Action, a trader must learn to identify key patterns and monitor signals of trend reversal. Trend analysis is based on nuances such as changes in impulse angle and the reduction in the distance the price travels. If the price begins to move in a more horizontal direction, this could be a sign of a weakening trend and a possible reversal.

Analyzing Candlesticks and Their Length in Trends

The length of candlesticks and their number in a trend can serve as an important indicator of trend strength. For example, in a strong downtrend, we often see a series of large red candles with rare retracements. In contrast, a weak trend is characterized by smaller candles, where red candles may frequently alternate with bullish (green) ones, indicating possible trend weakening.

Retracements as an Indicator of Trend Weakness

Price retracements can also signal an impending trend reversal. If the retracements become steeper and deeper compared to previous ones, this suggests that the trend movement may soon end and transition into consolidation or reversal.

Analyzing Candlestick Bodies During Retracements

The body of the candles during retracements can provide important clues about the market's direction. If large candles appear during retracements, moving against the current trend, this is a signal that traders should prepare for a possible price reversal. These candles typically form at the end of a trend, indicating interest in reversal from either buyers or sellers, depending on the trend's direction.

Practical Example of Trend Analysis

Let’s consider an example based on a real price chart:

1. The downtrend begins after the price exits the consolidation zone.
2. The price reverses against the trend and returns to the consolidation boundary, consolidating at this level.
3. The impulse continues—a strong downward movement with a series of large red candles.
4. A normal retracement against the trend, which does not indicate a reversal.
5. The trend impulse shortens—a first sign of trend weakening.
6. The retracement against the trend almost matches the last impulse—this is the second signal of trend weakening.
7. The price breaks through the local minimum, continuing its downward movement.
8. The reversal starts with large green candles, almost fully compensating for the previous decline. This may be the beginning of a trend reversal.
9. The second attempt to break the minimum fails.
10. The formation of a Double Bottom pattern indicates a reversal figure.
11. The price returns to the previous trend but fails to update the minimum—a sign of the bearish trend's end.
12. The start of an uptrend after breaking the previous maximum.

Analyzing an Uptrend

Now let’s look at an example of an uptrend:

1. A strong trend impulse—the price updates the local maximum.
2. A reversal against the trend occurs.
3. A weak trend impulse—the price failed to break the resistance level, indicating weakening of the uptrend.
4. The retracement updates the previous minimum, but the strength of the bulls is still intact.
5. The next trend impulse is strong, confirming the uptrend.
6. The retracement with large red candles signals trend weakening.
7. The impulse fails to update the previous maximum, ending below—this is a sign that the uptrend is ending.
8. The last retracement with large red candles confirms the end of the uptrend.
9. The final weak upward movement with small green candles indicates the end of the trend and possible consolidation or the beginning of a downtrend.
10. A weak downward movement brings the price back to the support level.
11. The bulls’ final attempt to push the price higher fails.
12. The renewal of local lows signals the beginning of a new downtrend.

The key point here is that when the price stops updating local highs, this is one of the clearest signs of trend completion. These signals can be used to open trades in the opposite direction in a timely manner.

Using Support and Resistance Levels in Price Action Trading Strategies

Support and resistance levels and zones are one of the key elements of technical analysis in Price Action. They help traders accurately determine entry and exit points for trades. Trading based on support and resistance levels is especially effective when these levels are correctly plotted on the price chart. Traders use them to analyze market movements and forecast potential reversals.

What are Support and Resistance Levels?

Support and resistance levels (SR) divide the chart into areas of interest for buyers and sellers. Support levels are areas where the price tends to stop and reverse upward as buyers become more active. Resistance levels are zones where sellers dominate, causing retracements or downward reversals.

Once a level is broken, it can switch its role: support becomes resistance and vice versa. This mechanism is used to understand price behavior in the market and correctly place trade orders.

The Importance of Strong Levels in Trading

It is important to differentiate between strong and weak support and resistance levels. Strong levels, such as yearly, monthly, and weekly highs and lows, have a greater impact on the price and are more likely to lead to reversals or trend continuation. It’s also important to pay attention to psychological levels that end in *00, *50, *20, and *80, such as 1.1350 or 1.1400. These round levels often provoke a strong market reaction.

• Yearly, monthly, and weekly highs and lows
• Round psychological levels such as 1.1400 or 1.1350
• Areas on the chart where price reversals have sharply occurred
• Mirror levels — after being broken, a support level can become resistance, and vice versa

It's not wise to "chase the price" at every level you see on the chart. It’s far more important to focus on strong supply and demand levels that truly affect the price. If a level has caused multiple reversals or retracements, it increases its importance for future trades.

How to Draw Support and Resistance Levels

Properly plotting levels on the chart is an essential part of technical analysis and Price Action trading strategies. The main rule is to find two or more reversal points at the same horizontal price level. The more often the price has reversed from this level, the stronger its influence.

• Two or more reversal points at the same price level indicate an SR level
• More recent reversals are more important than older ones
• Mirror levels — levels that first acted as support and then became resistance
• Round levels — psychological levels like 1.1400 should immediately be marked as important
• Mark only the key levels — if the entire chart is covered with levels, it interferes with analysis

On higher timeframes, levels should be drawn according to the candle bodies, as they are more significant than wicks. However, if we're talking about support and resistance zones, wicks often indicate the width of the zone, allowing for more accurate price movement forecasts.

How to Use Support and Resistance Levels in Trading?

Support and resistance levels are crucial reference points for building trading strategies. They help traders determine zones for entering trades during a breakout or bounce from the level. For example, if the price approaches a strong resistance level and signs of trend weakening are visible, this could be a sell signal.

Additionally, a breakout of a level often indicates a continuation of the trend or its reversal. Levels also help traders predict when the price will start retracing and where a reversal is likely to occur. Therefore, understanding these levels and correctly using them in trading helps traders make more precise decisions and minimize risks.

Candlestick Analysis — The Basis of Price Action Trading Systems

Candlestick analysis is not simply about identifying candlestick patterns on price charts as beginners often think. In fact, analyzing candlestick patterns in Price Action involves a comprehensive view of candlestick models within the context of the entire chart, considering their interaction with support and resistance levels. Only this way can you gain a complete understanding of the market situation.

Why Do Candlestick Patterns Work?

Have you ever wondered why reversal candlestick patterns work in some cases but not in others? It's important to remember that no strategy is 100% accurate, but correctly using candlestick models can significantly increase the chances of successful predictions. To achieve this, you need to analyze not only the candlestick patterns but also their interaction with other market data:

• Where did the pattern form?
• What candles preceded its formation?
• How do the candle wicks look?

These factors help you understand who currently controls the market — buyers or sellers, allowing you to choose candlestick figures that are more likely to lead to profitable trades.

An Example of Using the Pin Bar

Let's take one of the most well - known reversal patterns as an example — the Pin Bar (also known as the "Pinocchio Bar").

A Pin Bar is a reversal candlestick with a long wick and a small body. It may seem simple to analyze — spot a Pin Bar and enter a reversal trade. However, this isn't always the right decision. Let’s look at two examples:

In the first case, the Pin Bar has a large wick and closes above the opening price, making it a strong signal for a reversal. However, the second Pin Bar has the same long wick, but the close occurred below the opening price — making it a weaker signal, though it could still be used as a reversal signal. Interestingly, in this case, the second Pin Bar led to a price reversal, while the first was ignored by the market.

The Influence of Support and Resistance Levels on Candlestick Patterns

Now let’s consider the situation from a different perspective, considering the influence of support and resistance levels. These levels are an essential part of technical analysis in Price Action because price often reacts to them. In our example, the first Pin Bar forms between support and resistance levels, so its signal is weaker. In contrast, the second Pin Bar is located directly at the support level, making it more significant to the market.

Thus, the correct interpretation of the Pin Bar depends not only on its shape but also on its location relative to key levels on the chart. This demonstrates that analyzing reversal candlestick patterns without considering context is a significant mistake.

Errors in Using Candlestick Patterns

One of the main mistakes traders make in the binary options and Forex markets is using candlestick models without considering the overall market situation. Finding a pattern, many expect the price to behave according to the classic descriptions, which is not always true. For successful trading, it's crucial to consider not only the pattern but also its interaction with support and resistance levels.

Candlestick Analysis for Trend Continuation — The Three White Soldiers Pattern

Let’s take a look at one of the most popular candlestick patterns for predicting trend continuation — the Three White Soldiers pattern. This pattern consists of three candles of equal size, with no significant wicks, each closing higher than the previous one.

The Three White Soldiers pattern is a classic trend continuation pattern, signaling that the bulls are in control of the market. It is expected that after this pattern forms, several subsequent candles will also be bullish with long bodies. However, as we see in the chart, after the Three White Soldiers, two candles of indecision (Doji) appeared, followed by a small upward movement. Where’s the promised strong upward move?

The Influence of Support and Resistance Levels on Trend Continuation Patterns

Let's add support and resistance levels to the chart to get the full picture. The Three White Soldiers pattern filled the space between two strong levels, which limited further price movement. Buyer and seller interest zones often create barriers to trend continuation, as seen here. The bears, aiming to protect their price, halted the asset’s upward growth.

Conclusion: Trend continuation patterns work best when they don’t face strong support or resistance levels. Otherwise, even powerful patterns like the Three White Soldiers can be neutralized by market forces.

Three Black Crows — The Mirror of the Three White Soldiers Pattern

The mirror pattern, Three Black Crows, signals the continuation of a downtrend. Unlike the previous example, in this case, the price drop was not limited by support levels, allowing the pattern to fully play out.

How to Properly Analyze Candlestick Patterns in Price Action

Candlestick analysis is not just about memorizing candlestick patterns and their names. It's essential to understand what the candles themselves are telling us and their context. When analyzing candles, consider:

• The size of the candle bodies
• The length of the wicks
• The candle's position on the chart
• The closing price relative to previous candles

Candle wicks always indicate resistance or support from bulls and bears. The longer the wick, the greater the resistance to price movement. Wicks are especially common in consolidation zones when the market moves in a tight range.

The Presence of Wicks and Support and Resistance Levels

A large number of long wicks indicates strong support and resistance levels. The longer the candle wicks, the more significant the level they are indicating. This helps traders assess how strong the current price obstacle is.

How to Determine Trend Strength Using Candlestick Analysis

When the market is in a trending movement, the wicks of the candles usually become shorter or disappear altogether. This is especially true for candles moving in the direction of the trend. During retracements, the price tends to form candles with long wicks, indicating opposing pressure from both bulls and bears.

To determine the strength of a trend, pay attention to the size of the candle bodies. If the bodies are growing larger, the trend is strengthening and is likely to continue. Conversely, if the bodies are shrinking and the wicks are getting longer, this signals that the trend may be weakening or ending.

Candle Close as a Market Pressure Indicator

The closing price of a candle is a critical indicator of bullish or bearish strength for the given timeframe:

• If the candle closes near its high, the bulls control the market.
• If it closes near its low, the bears dominate the market.
• A candle with long wicks and a close near the opening price suggests indecision in the market.

Understanding how candlestick patterns work in the context of support and resistance levels and how to interpret price behavior through candles is the foundation of successful trading using Price Action.

Popular Price Action Patterns for Binary Options and Forex

Price Action patterns are candlestick models and technical analysis figures that should be viewed as part of the overall price chart, not in isolation. For a proper understanding and forecasting of Price Action patterns, a trader must be able to identify and mark support and resistance levels on the chart. These patterns represent ready-made trading strategies that include their own conditions and rules of application.

In the world of Price Action, there are many patterns, but we will cover the most popular and effective models that can be used both in binary options and on the Forex market.

Pin Bar — Reversal Pattern in Price Action

One of the most well-known reversal patterns in Price Action is the Pin Bar, also known as the Pinocchio Bar. This model is a candlestick with a long wick pointing in the direction of the current trend and a small body. The Pin Bar forms only at the peaks of upward movements or the bottom of downtrends.

How to Trade the Pin Bar:

• The Pin Bar’s wick should be at least three times the length of the candle body.
• The candle body should ideally be the opposite color of the trend (e.g., a red body in an uptrend), which strengthens the signal.
• The Pin Bar should only form at strong support and resistance levels, or its signal may be false.

Trading the Pin Bar:

• A simple method is to open a reversal trade at the beginning of the next candle with an expiration of one candle.
• A more complex method is to wait for confirmation of the reversal and open a trade for 3–5 candles in the direction of the reversal.

Both methods have their risks: the first method may fail in a strong trend, while the second may miss the best entry point.

Inside Bar Pattern — A Signal for Trend Continuation or Reversal

Inside Bar is a pattern of indecision that can be viewed as a signal for trend continuation or reversal, depending on its location on the chart. This pattern forms when the body and wicks of a candle are completely within the range of the previous candle.

There are several rules for trading the Inside Bar:

• If the pattern appears during a trend, it is better to consider it as a trend continuation signal.
• If the Inside Bar forms at a support or resistance level, it could be a signal for a price reversal.

Trading the Inside Bar:

• Set horizontal levels at the high and low of the inside bar. When one of these boundaries is broken, open a trade in the direction of the breakout.
• If the next candle closes within the inside bar’s range, the signal remains valid, and you should still wait for a breakout.

The Inside Bar can also be considered a reversal pattern if it forms at the top of a trend or at the bottom, especially if this level is confirmed by strong support and resistance levels.

The Importance of Support and Resistance Levels for Price Action Patterns

The effectiveness of most Price Action patterns directly depends on their formation at key support and resistance levels. For example, reversal patterns such as the Pin Bar and Inside Bar are significantly strengthened when they form at strong levels.

The ability to correctly identify and use support and resistance levels not only increases the likelihood of a successful trade but also reduces the risk of false signals.

Engulfing Pattern or Outside Bar — A Reversal Pattern in Price Action

The Engulfing pattern is one of the key reversal patterns in Price Action, which consists of two candles: the body of the left candle is completely engulfed by the body of the right candle. This is a strong signal for trend reversal, especially if it forms at important support and resistance levels.

The rules for forming an Engulfing pattern are the same as for the Pin Bar:

• The pattern should form at a strong support or resistance level.
• The Engulfing should appear at a price maximum or minimum.
• There should be an empty space to the left of the pattern.

How to Trade the Engulfing Pattern:

• Enter without confirmation—right after the pattern forms on the next candle.
• Enter with confirmation—wait for one candle, and if it confirms the reversal, open a trade for 3–5 candles.

Three-Candle Reversal — A Price Action Reversal Pattern

The three-candle reversal pattern is another popular Price Action reversal model. It consists of four candles, but the emphasis is on the second candle. Initially, three candles move in the direction of the trend, and then the fourth candle moves against the trend, signaling a possible reversal.

The essence of this pattern is to wait for the breakout of the second candle’s low in an uptrend or high in a downtrend. After the breakout, a reversal trade can be opened for 3–5 candles.

How to Use the Three-Candle Reversal:

• Look for the pattern only at strong support and resistance levels.
• Enter a trade only after the second candle’s high or low has been broken and the candle closes beyond the level.
• In a trend, look for the pattern only in the direction of the main trend for higher chances of success.

Pivot Reversal — A Key Price Action Reversal Pattern

The Pivot pattern is a three-candle model that signals a trend reversal. The central candle must have a higher high or lower low than the candles to its left and right. The first candle moves in the direction of the trend, and the third candle completely reverses the trend, engulfing the body and wick of the previous candle.

The Pivot pattern works best when it forms at strong support and resistance levels and after sustained price movements. Entry into the trade occurs after the third candle closes.

False Breakout of a Trendline — How to Catch a Reversal

A false breakout of a trendline is a strategy aimed at capturing the beginning of a new trend. To do this, draw a trendline along the candle bodies and identify the latest local high (in a downtrend) or low (in an uptrend).

When the price breaks this level, you should enter the trade in the direction of the breakout. This technique helps to catch a good trend movement at the very beginning and exclude false reversal signals.

Trading the False Breakout of a Trendline:

• Look for entry points after breaking local highs or lows.
• Enter the trade only after the candle closes beyond the trendline.
• Expect strong price movement in the direction of the new trend after the breakout.

Closing Price Reversal — A Price Action Reversal Pattern

The Closing Price Reversal is one of the frequently encountered Price Action reversal patterns. It works particularly well if it forms at strong support and resistance levels since its effectiveness diminishes between levels.

The pattern consists of a combination of two candles. There are bearish Closing Price Reversals and bullish Closing Price Reversals:

• A bearish pattern includes a first bullish candle, followed by a bearish candle whose wick breaks the high of the first candle.
• A bullish pattern begins with a bearish candle, followed by a bullish candle whose wick breaks the low of the previous one.

For the Closing Price Reversal pattern to work, it’s important that it forms at strong support or resistance levels. Entry into the trade is made after the pattern is completed on the next candle. Typically, the expiration time is 1 to 3 candles.

This pattern can be used in both trending and sideways markets, but it’s best to look for entry points in the direction of the main trend.

Price Consolidation — A Price Action Strategy

Price consolidation is not a standalone Price Action pattern, but sideways movement can be effectively used in clean chart trading. Price consolidation has several important features:

• After a prolonged and narrow consolidation, strong trend movement often follows.
• Consolidation can serve as a zone of support or resistance.

You can trade consolidation on the breakout of the level or wait for the price to return to the broken level and open a trade in the direction of the breakout. The second option is considered more reliable as it allows you to trade in the direction of the current trend.

1-2-3 Pattern or “False Peak or Bottom” — A Trend Continuation Price Action Pattern

The 1-2-3 pattern, also known as the False Peak or Bottom, is used to identify trend continuation points. This Price Action pattern allows traders to "catch" the end of pullbacks and continue the movement with the trend.

The pattern consists of three key points:

1. The first point is the start of the trend impulse.
2. The second point is the high or low where the pullback begins.
3. The third point is the end of the pullback.

A horizontal line is drawn through point "2". When a breakout of this line occurs in the direction of the trend, a trade can be opened, as the trend will likely continue. The expiration time is usually 3–5 candles.

For a downtrend, the 1-2-3 pattern looks similar, but the key points are the lows.

Important! For the 1-2-3 pattern to work, a trend with new highs and lows must be present. Otherwise, the pattern may not work, so be cautious!

Why Price Action Works — Analysis and Forecasting

One of the most common questions from traders is: "Why does Price Action work?" The main reason is that Price Action teaches us to analyze charts and interpret price movements correctly. This enables traders to predict price action and find optimal entry points.

Every day, five days a week, countless trades occur in the market, reflected in price movements. But the price chart is not just a visual representation of these movements; it is also a valuable source of information. By analyzing candlesticks, levels, and trends, traders can highlight key zones of buyer and seller interest, allowing them to find reversal points or trend continuation points.

What makes Price Action particularly useful? It is a universal method of analysis that is suitable for any market at any time. Indicator-based strategies can be profitable, but their effectiveness is limited by certain market conditions, whereas Price Action works consistently—day after day, regardless of specific indicators.

When working with Price Action patterns, a trader moves with the market and the masses of participants. This makes Price Action highly effective, as many traders interpret the same patterns in the same way. This is why Price Action continues to be a popular strategy among market professionals.

How to Trade Using Price Action — Profit from Trends

The old but true saying goes: "The trend is your friend!" This means that price movement along the trend offers more opportunities for profit. One of the main tasks of Price Action is to identify the trend in the early stages of its formation. Typically, the beginning of a trend can be determined by the updating of peaks and troughs—if new highs are higher than previous ones, and lows are lower, then we are dealing with a trend.

Peaks and troughs on the chart are key reversal points that indicate a change in price direction. The price moves in waves, and the alternation of trend impulses and pullbacks is a natural part of market movement. During pullbacks, price consolidation may occur—this is a sideways movement that signals that the price is gaining strength for the next trend impulse.

It's important to correctly mark support and resistance levels on the chart. These levels are the foundation of Price Action, and their strength lies in their ability to predict reversals and trend continuations. Strong levels always leave traces—these are places where the price has previously reversed.

Once you have identified the key levels and the trend, you can begin analyzing patterns. Use Price Action patterns to find entry points in the direction of the trend, such as bearish Closing Price Reversal in a downtrend or bullish reversal at the support level.

Not all patterns work the same—it is important to use those that correspond to the market conditions. For example, using a bullish pattern in a downtrend is a mistake, whereas the correct choice of pattern increases the chances of a successful trade. It's also important to remember that reversal patterns work best at strong support and resistance levels.

Price Action Trading Algorithm

For successful Price Action trading, every strategy must be clearly structured. Here are the main requirements for trading strategies:

• Clear sequence of actions—each step of the trading algorithm must be known in advance.
• Strategy testing—the strategy must be tested on historical data to confirm its effectiveness.
• Positive results—the strategy must be profitable over the long term.
• Identifying recurring patterns—successful strategies are based on identifying recurring formations on the chart.

All Price Action trading strategies are based on the analysis of support and resistance levels combined with candlestick patterns. These levels can be static (horizontal) or dynamic, such as moving averages, which are used to identify trend support and resistance levels.

Structural Analysis of Price Action — How to Find the Best Entry Points

All trading comes down to finding the best entry points, where the price is likely to move according to the forecast. But how do you find such moments? Structural analysis of Price Action is a combination of several factors that confirm each other, increasing the chances of a successful trade.

An example of structural analysis might look like this:

• Price movement in an uptrend — meaning you should look for entry points to buy.
• A pin bar during a pullback, indicating continued growth.
• Round support and resistance levels, where the pin bar has formed.
• Dynamic levels of support and resistance (such as moving averages) also confirming the continuation of growth.

If all these factors point in the same direction — upward — this is a strong trading signal that is likely to result in profit. By combining various Price Action patterns and technical analysis figures, you can find the most accurate entry points:

In this chart, two "bullish Closing Price Reversal" patterns are shown, confirmed by dynamic and psychological levels. Such structural analysis allows traders to make confident decisions for opening buy trades. Remember, Price Action is not just about searching for individual patterns, but rather a comprehensive analysis of the chart. The more factors pointing in the same direction, the stronger the signal.

However, don’t forget about risk management — always open trades within acceptable risk limits to protect your capital.

How to Use Price Action in Practice

Trading based on Price Action requires patience and a thorough approach. Your task is to choose only the most reliable signals, rather than opening trades on every pattern you encounter on the chart. Here are some guidelines:

• In a trend, look for signals confirming the continuation of the movement.
• Avoid patterns against the trend unless they are strongly confirmed.

Price Action trading often implies long waiting periods. Sometimes it may seem like you’re missing out on profitable opportunities, but remember that the main goal is the quality of signals, not the number of trades. Price Action requires discipline and the ability to pass on less obvious signals.

The goal of Price Action is precise “sniper” trades. Unlike indicator strategies, where a signal means an automatic trade, Price Action forces you to analyze the chart and look for confirmations.

Advantages and Challenges of Price Action

• Simplicity lies in the trading system algorithms, which are clear and easily applicable in practice.
• Difficulty lies in analyzing the chart, finding the right entry points, and combining factors to create strong signals.

For beginners, Price Action might seem like a complex system that requires time and practice. Experienced traders also need time to adapt and learn how to find recurring patterns on charts.

It is essential to note that practice is the key to success in Price Action. The more you practice, the faster you will learn to find the right entry points. Start with analyzing support and resistance levels, observe price movements, and try to identify patterns on the chart. A demo account is ideal for improving your skills without risk.

Here’s an example of what your chart should look like after thorough analysis:

Continuous practice and analysis of each price movement will help you quickly learn to spot Price Action patterns and understand the market better. Keep practicing and analyzing charts until it becomes second nature!

One Week with Price Action: Practical Application

As a practical guide to Price Action, let’s look at a week on the H1 chart, with examples of the patterns I encountered. During the week, there was a downtrend, so I used patterns to enter trades with the trend, ignoring signals against it. Round support and resistance levels were marked on the chart, which helped me identify key entry points.

Here is the list of patterns I used during this week:

1. Inside Bar
2. Pin Bar
3. Bearish Closing Price Reversal
4. Upper Reversal Pivot
5. Pin Bar
6. Inside Bar
7. Pin Bar
8. Bearish Closing Price Reversal
9. Inside Bar
10. Bearish Closing Price Reversal
11. Inside Bar
12. Three-Candle Reversal
13. Inside Bar

These patterns represent key signals on the H1 chart that I used to open trades in line with the trend movement. Of course, these are not all the patterns that can be found on the chart, so it’s worth continuing to practice to learn how to spot the missing signals on your own. Analyzing trend patterns is an essential part of learning to trade using Price Action.

Results of Trading with Price Action

Trading based on Price Action is not just a set of rules; it is a comprehensive system that allows the trader to see the true picture of the market. The constant struggle between bulls and bears forms Price Action patterns on the chart, which help identify entry points. For maximum effectiveness, it is important to combine patterns with support and resistance levels, confirming signals using candlestick formations and technical analysis figures.

No matter which time frame you work on, Price Action suits any interval. On smaller time frames like M1, there may be more market noise, but even on turbo options, experienced traders can succeed. However, on smaller time frames, plotting support and resistance levels can become more challenging, as you will often need to rely on levels formed by the price itself. Nevertheless, key levels, such as round price levels, remain useful on any time frame.

Price Action trading teaches traders to see the market without the help of indicators or auxiliary tools. There are no “arrows” or “histograms” that can distract the trader’s attention. Instead, clean charts are analyzed, helping traders focus on price movements and make more informed trading decisions.

To trade successfully with Price Action, it is essential to consider all key factors: patterns, support and resistance levels, trends, and candlestick models. This allows the formation of strong signals that are highly likely to result in profit.