How do we trade price action? Generally, with great difficulty. There is much written about candlestick patterns and how to read them. However is there any guarantee that after a Doji appears, price will change direction? What about ‘three white soldiers’? Will they march in the direction you want them to? Not necessarily. Sometimes candlesticks can be useful as a reversal signal, but like everything, they need to be considered along with quite a few other things.
There’s a lot to be said for support and resistance areas, but these are just that, areas. There’s no guarantee price will turn at a given level just because it has stopped there before. Granted, we have a higher possibility of price reversing if there are several factors in our favor, but again, no guarantee.
Looking back at the way a pair has played out, it’s easy to see whether candlestick reversal patterns worked, or whether price turned at support or resistance. However in real time trading, we do not have the benefit of hindsight. We are at the mercy of a fickle market, with it moving and shaking like a belly dancer on steroids. And that’s a hard act to follow.
The best thing we can do is consider harmonic patterns, and couple them with Fibonacci ratios. The harmonic patterns are based on proven, repetitive human behavior. The measurements generally show that there are a lot of traders out in the marketplace who use Fib levels to enter trades and to exit trades.
Couple harmonic patterns with Fib levels, support and resistance and price action, and the probability of taking a trade that works in our favor is much higher than trading one or two of these methods only. With a higher probability of our trades succeeding, suddenly our chances of becoming a thriving trader increase dramatically.
Remember, we’re not trying to make the market fit our needs. We’re trying to adapt to its moods and its fluctuations. The market can be brutal and once we learn that, we also learn how to manage risk and how to maximise profits; then we have the secret to being a successful self-employed trader.
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great comments. if we could get it out Friday that would be greatly appreciated.
i think the eurusd will float for a while at this time and the low teens might be hard. but i would agree if we got a bullish harmonic pattern down there that it would be a price trade.
i started looking back at my trades that would get stopped out and most of the time i am very happy with getting out early. great tip.
Price action is my favorite thing to look for when it comes to the harmonic patterns. statistics are the only way to go, thanks for the article. maybe we can get a part 2 and further explore the price pattern points with price action?
JUN
Good article. I like to watch candlesticks so thanks for the tips