How To Start Profiting With Price Action Trading Strategies

One thing I have realized over years of helping people learn how to trade, is that most traders tend to try and tackle too many variables at one time, especially traders in the beginning stages of learning how to trade. They often want to trade 10 or 20 different setups with numerous indicators on their charts whilst looking at every time frame available on their trading platform in 30 different markets. This is in a word, ineffective. Traders often come into the markets with good intentions but their focus is too broad, this causes over-analysis, confusion and usually frustration.

The concept I am going to introduce in today’s lesson that will help you become a profitable price action trader is “specializing”. Your new goal is to think of yourself as a “specialist” trader, and to actually become one. If you look around at most professions, it’s the most specialized people that make the most money. For example, a family doctor makes a good income, but a neurosurgeon most certainly commands more money because he or she is a specialized doctor who has “mastered” the skill of performing complicated brain surgeries, amongst other things.

There’s an old saying that you may have heard: “Jack of all trades, master of none” and according to Wikipedia it is “…used in reference to a person that is competent with many skills but is not necessarily outstanding in any particular one.” As specialist price action traders, we want to take the opposite approach, our aim is to become “outstanding” at one particular price action setup at a time; this is perhaps the most powerful thing you can do to start profiting as a price action trader. What I am going to share with you guys today is something that’s as close to a “secret” to trading success as you will find, and I hope after reading today’s lesson you guys have a sense of confidence and direction about how best to proceed in becoming a “master price action trader”…

The “secret” to profiting as a price action trader

As price action traders, we have a distinct advantage over traders who might use indicators or trading software, that advantage lies in the simplicity of price action trading strategies. The fact that we can simply focus on a market’s raw price action and its support and resistance is something that easily allows us to specialize in mastering one setup at a time. This is in direct contrast to many other trading strategies or systems out there that might require a trader to trade with numerous different indicators while trying to trade the news at the same time…it’s pretty hard to become a “specialist” of such a messy and haphazard trading style.

Basically, what I want to really drive-home today is the point that focusing on one price action setup on one time frame and in one market, will allow you to become a master of that “strategy”. For example, if we choose to trade the pin bar strategy from key levels on the 4 hour chart and in the EURUSD market…that would be considered “one strategy”…the goal is to really MASTER that strategy…trade only that strategy until you feel like you are ‘Jedi master’ of it…(yes I made a cheesy Star Wars reference there).

However, I want you to go even further, I want you to master one setup at a time, on one time frame, and in one market and with one very specific set of entry parameters. For example, you might decide you want to look only for inside bars on the daily chart time frame of the GBPUSD that occur in the context of a trend….that would be one strategy and you would stick with it until you are successful with it, which could take 1 month, 3 months or even more…the point of this exercise is that if you really stick with this method of trading, after a year goes by you will be one potent “badass” of a price action trader. Those feelings of looking at a chart and being afraid to pull the trigger will be completely gone, and with mastery of such a sniper-like trading approach, your success in the markets will only be a matter of time.

An example of “specialist” price action trading:

Now let’s go over an example of what would be considered one specific price action trading strategy that you could focus on until you’ve mastered it. Keep in mind, this is just an example and you can come up with your own strategy if you want, this is to get you thinking and to get you on the track to becoming a “specialist” price action trader…

Find your market first: The first thing to do is pick the market you want to trade. I suggest sticking with one of the major currency pairs or one of the more popular crosses as they are the most liquid, have the tightest spreads and will generally behave more “predictably” than the more exotic pairs. We are picking the EURJPY for today’s lesson.

Next, zoom out on your chart to get an overall view of longer-term trend and draw the levels on the daily chart, you can also do this on the weekly chart too if you want. Below we see a zoomed out daily EURJPY chart and we can clearly see that an uptrend was in place as marked by the higher highs and higher lows which we can see by the red circles. So, the first two parts of our “specialist” trading strategy are in place: we are looking at the daily chart EURJPY and we are looking for an obvious directional bias to be in place, in this case the bias is up:

After determining trend and overall market condition, we draw in the key “obvious” levels:

You will then pick the particular price action setup you want to trade. You can learn all my setups in my trading course, but for today’s lesson we are going to focus on just one, the fakey setup. This is also what you will do when you try this approach for yourself; stick with ONE setup at a time…you have to ignore the temptations to add setups right now, you can add setups to your toolbox later on as you master one at a time. Now, after about 4 days went by, a very obvious fakey / pin bar combo setup formed showing rejection of the 8 day EMA support level and implying that price might continue pushing higher in-line with the uptrend. We now have the next two parts of our “specialist” trading strategy: we are looking for a fakey setup which creates a false-break of either a dynamic EMA support or resistance level or a horizontal support or resistance level within a trending market:

The specific factors of confluence supporting our price action setup are actually part of the setup itself and are necessary for us to consider the setup as being valid. Many traders make the mistake of trading any old fakey or pin bar, etc, when in reality the location and placement of the price bar within the broader market structure is just as important as the price bar itself.

Now, the next part of our specialist trading strategy is how we will enter and exit it. Let’s say we choose to stick to an entry above or below the inside bar high or low after the false-break of the mother bar has occurred. Let’s also say for this strategy we will place our stop at or near the high or low of the false-break bar. So, we will enter on a buy-stop entry 1 pip above the inside bar high and our stop loss is a sell-stop placed 1 pip below the false-break low, now let’s see what that looks like:

Next, you will decide your risk reward and money management scenarios. We aren’t going to get into money management very much in this article but I have discussed it extensively in other articles, specifically my risk reward ‘Holy Grail’ article and risk reward and money managementarticle, so be sure to check those out.

For this particular “specialist” strategy we are simply aiming for a risk reward of 1:2 on every trade with little to no interference. Let’s take a look at our trade now and see what that 1:2 risk reward looks like:

Note: When first implementing this “specialist” trading approach it might be best to just aim for a strict 1:1 risk reward ratio just to build a little confidence and build your trading account up a little. Then, after you’ve gained some confidence trading your strategy and beefed up your account a bit, you can start to aim for 1:1.5 and then 1:2. Doing this will give you ample time to gain screen time and over time you will get better at managing your exits, eventually you can try trailing stop methods in trending markets and looking for larger risk rewards like 1:3, 1:4 etc.

Now it’s time to tie this all together and make a visual “check list” out of the above elements that you will use to check for your trading strategy each day and to help keep you on track. It’s one thing to have your trading strategy in your head, but it’s best to have it tangible and visible so that you are reminded of what you are trying to do…

Here is an example of the above “specialist” trading strategy summed up very concisely in a visual check list:

In closing:

You have to have the patience and discipline to make this work. I can almost promise you this “specialist” approach will improve your trading results, but you have to give it time and you have to learn to be OK with not trading. If you’re only trading one market at a time and one time frame / one setup…you aren’t going to have a lot of setups each week. But that’s part of the point of this, it’s to show you that if you just really learn when to trade and when not to trade, you can be a profitable trader. Remember, as you master one particular strategy you can then move on to another, then after a while you might have 3 or 4 different but very specific trading strategies that you can quickly look for on the charts each day. In my opinion, this is the fastest route to profitable price action trading.