Understanding advanced price action trading is crucial to trading successfully in gold forex. Most experienced Forex traders concede that price action trading is extremely helpful in predicting currency price trends. Technical indicators like ADX, moving averages, and others are lagging indicators. Traders who rely mostly in these lagging indicators and ignore price trends lower the chance of successfully predicting future prices.
Trading gold in Forex using price action trend is the single most important tool for Forex traders. There are numerous variations of price action trading strategies. These strategies range from simple to advanced strategies that allow investors to utilize leading indicators in making predictions in Forex. Here we will discuss three of the most common price action trading strategies – Fakeys, Pin bar, and Inside bar. With patience and discipline, you can master these advanced price action strategies to have a very potent edge in Forex trading.
Fakey trading strategy is an advanced price action setup that indicates important levels such as support, resistance, fibs, pivots etc. The fakey setup can allow traders to know when the gold market prices are fluctuating to set off fairly big moves in the Forex market.
The fakey chart pattern consists of three parts.
- An inside bar
- Support Level
- False Breakout
As the gold prices moves back up past the high of the inside bar, fakey price action setup is triggered. In the chart above you can view that the market was trending higher when the fakey formed. The fakey setup occurred as amateur traders tried to pick up the market when professional traders stepped in and flushed out all the amateurs through a flurry of buying gold currency pair.
The following buy strategy is recommended for trading in gold forex using Fakey price action setup.
- Entry Point: False Break out Level
- Stop Order: 3 – 5 PIPS above the high of false break out candle stick
- Stop Loss Order: 3 – 5 PIPS below the low of false break out candle stick
- Take Profit/Exit value: Previous Swing High
Note: The sell strategy using Fakey price action setup is exactly opposite to the buy rules.
You should take note that Fakey price action strategy does not always provides the best result when prices are consolidating (moving sideways). The Fakey strategy is recommended only in strong trending markets.
Pin Bar Setup
Pin Bar Price action strategy is another trading pattern that you can observe on Forex candlestick charts. A pin bar tells us how the market is currently behaving to identify the price trend of Forex currencies. You can easily identify the pin action bar as it has a long protruding tail or wick with a very small body.
The chart above shows how to determine entry and exit points using price action bar. You can view the bullish chart action bar that is indicated in the form of a short body with a long wick or tail. The pin bar essential indicates that the market had tried to move higher (or lower) but rejected the higher (or lower) prices. It closed in the same level at which it had started.
The following buy strategy is recommended for trading in Forex using pin bar setup.
- Entry Point: Closing price of the bullish pin action bar
- Stop Order: High point of the longest bullish pin bar wick
- Stop Loss Order: Low point of the longest bullish pin bar wick
- Take Profit/Exit Value: First Support Level
Note: The sell strategy using pin bar setup is exactly opposite to the buy rules.
Inside Bar Setup
Inside bar is a trading signal that indicates continuation or reversal of a trend. Typically it occurs after the market consolidates making a large directional move. Inside bar indicate both continuation and reversal of a trend. This Forex trading strategy offer good risk/reward ratio since it requires smaller stop losses. Inside bar setup is especially helpful in strong trending markets.
The chart above shows the inside bar set up. It consists of a short candlestick that is covered from the price action the day before. Inside bar represents a pause in price movement before a reversal or continuation of a trend. It indicates that traders are waiting for the market signal before making the next move.
The goal in inside bar strategy is to hold the trade for ten bars and gain from the trade. This strategy entails looking at the breakout point of the inside bar to find optimum entry and exit points.
The following strategy is recommended for trading in Forex using inside bar setup.
- Entry Point: Place entry to buy if the high of the inside bar is broken. Alternatively, place entry to sell if the low is broker.
- Stop Loss Order: 1 Pips below the closing bar to the left of inside bar in case of buy while 1 Pips above the closing bar to the left of inside bar in case of sell decision.
- Take Profit/Exit Value: When price shows signs of reversing trend