**Example of Price Action Trader in Practice**
Price action trading is a trading strategy that relies on historical price movement analysis (via charts) without using technical indicators such as RSI, MACD, or moving averages. Price action traders focus on candlestick patterns, support/resistance levels, and price formations to make decisions. Here are examples of price action scenarios and strategies:
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### **1. Pola Pin Bar (Reversal)**
**Situation**:
- The EUR/USD price is in a downtrend.
- A **pin bar** candlestick appears (long tail down, small body at the top), indicating price rejection at a low level.
**Trader Action**:
- **Entry**: Buy after the pin bar closes, with confirmation that the next candle is moving up.
- **Stop Loss**: Below the tail of the pin bar.
- **Target**: Towards the nearest resistance level or risk-reward ratio of 1:2.
**Logic**: Pin bar indicates price rejection at support level, potential trend reversal.
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### **2. Inside Bar (Consolidation & Trend Continuation)**
**Situation**:
- AAPL stock price is in a strong uptrend.
- An **inside bar** is formed (a small candle whose entire body is within the range of the previous candle).
**Trader Action**:
- **Entry**: Buy if price breaks above the high of the inside bar.
- **Stop Loss**: Below the low of the inside bar.
- **Target**: Following the trend, for example to the previous high.
**Logic**: Inside bar indicates consolidation before the trend continues. Breakout to the upside strengthens the signal for the continuation of the uptrend.
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### **3. Bullish Engulfing (Reversal)**
**Situation**:
- Gold price (XAU/USD) fell to long-term support level.
- A **bullish engulfing** pattern appears (a large green candle "swallows" the entire body of the previous red candle).
**Trader Action**:
- **Entry**: Buy after the engulfing candle closes.
- **Stop Loss**: Below the low of the engulfing candle.
- **Target**: Nearest resistance or risk-reward ratio 1:3.
**Logic**: Bullish engulfing indicates buyer dominance after a downtrend, a strong reversal signal.
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### **4. Breakout Support/Resistance**
**Situation**:
- Bitcoin (BTC/USD) price has repeatedly failed to break through resistance at $30,000.
- Price finally broke above $30,000 with a strong closing candle (closed above resistance).
**Trader Action**:
- **Entry**: Buy after breakout confirmation (e.g., second candle closes above $30,000).
- **Stop Loss**: Below the resistance level that has become support.
- **Target**: Next resistance area (e.g., $35,000).
**Logic**: Breakout from resistance indicates new bullish momentum.
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### **5. Trendline Bounce**
**Situation**:
- The USD/JPY price is moving in an uptrend, forming higher highs (HH) and higher lows (HL).
- Traders draw **trend lines** connecting HL.
- Price touched the trendline and bounced up.
**Trader Action**:
- **Entry**: Buy when price bounces off the trendline with a green candle.
- **Stop Loss**: Below the trendline or last HL.
- **Target**: Towards previous HH.
**Logic**: Price respects trend line as dynamic support, trend continues.
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### **6. Double Top (Reversal Bearish)**
**Situation**:
- TSLA stock price formed two peaks (double top) at the $300 level.
- After the second peak, the price falls below the **neckline** (the lowest level between the two peaks).
**Trader Action**:
- **Entry**: Sell when price closes below the neckline.
- **Stop Loss**: Above the second peak.
- **Target**: Distance from the peak to the neckline, measured downwards.
**Logic**: Double top is a reversal pattern, a bearish signal after an uptrend.
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### **Keys to Price Action Success:**
1. **Confirmation**: Always wait for the candle to close before entering.
2. **Risk Management**: Use stop loss and adhere to a risk-reward ratio of at least 1:2.
3. **Context**: Combine the pattern with support/resistance levels or long-term trends.
4. **Market Psychology**: Understand market sentiment (e.g., panic selling or FOMO).
The above examples are the basics of price action. Experienced traders often combine it with volume, analysis time frames (eg H4/D1), and fundamental factors.
