THE MARKET STRUCTURE, ORDER BLOCK and PRICE ACTION simplified: HOW TO BECOME A

PROFITABLE FOREX TRADER USING PRICE

Elliot Baker

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any
means, including photocopying, recording, or other electronic or mechanical methods, without the prior written
permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses
permitted by copyright law.

Copyright ©Elliot
Baker, 2023
TABLE OF CONTENT

CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5

CHAPTER 1
WHAT IS MARKET STRUCTURE!?

Market structure definition: The framework or structure that any particular market is presently trading in. A market
structure may assist you to comprehend the behavior, state, and present flow of the market. It indicates support and
resistance levels, swing highs, and swing lows
Market structure, as a concept, is nothing new and has been around for as long as financial markets themselves.
However, the essential ideas continue to be incredibly important, particularly when it comes to assessing price
movement and recognizing trading opportunities.

Market structure functions as a reference for comprehending upward, downward, and sideways patterns. The same
ideas may be utilized in every sort of market, from stocks, futures, FX, and commodities, to digital assets like
cryptocurrencies or even physical assets like real estate.

Also, the Market structure is simply support and resistance on your charts, swing highs, and lows, These are levels
on your chart that gets the most attention, Because traders all over the globe can see them!
And this is where they base all of their trading positions, Like looking to enter the breakout, and looking to place
their stop loss at this obvious level, And how you can combine candlestick patterns with market structure is that you
are looking to enter your trades after strong price rejection.

Market structure as another definition is the simplest type of price movement in the market and is being interpreted
it. It is fundamental support and resistance levels on the charts, swing highs, and swing lows. These are levels,
which are readily spotted and hold until they don’t. Market structure is a trend-tracking technique that traders read
and follow depending on how an asset moves. From bullish swings, to bearish and in between ranges.

Market Structure is commonly referred to as Price Action. We refer to this research as market structure since it’s
how the complete market moves. Understand the pattern and the predicted movements and then you may add more
factors to your trade qualifications. Like volume, pivot points, moving averages, and more. Which we shall speak
about somewhat at the conclusion of this conversation.

TYPES OF MARKET STRUCTURE Market structure is simple and a fundamental way of understanding, how
markets operate. It’s made easy with only 3 distinct forms of market structure. The market structure may be roughly
categorized into three major categories: Bullish Market Structure: A bullish structure is characterized by a
succession of higher highs (HH) and higher lows (HL) (HL). The trend continues in the same direction until the
asset price records a lower low (LL) (LL). The bull trend is illustrated by higher highs and higher lows. The trend
will continue in that way until a lower low is produced by the asset price. The trend starts to show indications of
weakening when it fails to print and higher high.

Bearish Market Structure: A bearish structure is characterized by lower lows (LL) and lower highs (LH) (LH). The
price trend continues as long as lower highs (LH) are being printed and until a higher high (HH) is produced. The
bear trend is the price action of lower lows and lower highs. The bear trend will continue to fall as long as lower
highs continue to print, once a higher high comes into the price, the trend will end. The sign that the trend may be
reversing is price beginning to print higher lows or equal lows

Sideways Market Structure : The horizontal movement of price shown by equal highs (EH) and equal lows (EL) is
called a sideways trend or sometimes referred to as chop.
Sideways Market Structure: The horizontal movement of price illustrated by equal highs (EH) and equal lows (EL)
is termed a sideways trend or often referred to as chop. The sideways trend is a trend that has equal highs and equal
lows. Price moves in a range throughout this stage of the market and is in consolidation. Markets may move in a
phase of consolidation for a long time. This trend is disrupted if the price breaks out from the top or bottom of the
range. This might be the beginning of one of the first two trends.
CHAPTER 2
WHY IS MARKET STRUCTURE SO RELEVANT IN TRADING

Understanding market structure is one of the most critical aspect of becoming a consistent, lucrative and a successful
trader.

Really understanding market structure and how you place yourself in any order flow.

Some traders continue to trade using a basic rule based “system” with a “good risk/reward ratio” which keeps them
in the market long enough for the Smart Money algorithms to detect their stops and pull them out. Market structure
is the key to avoiding continuous stop outs coupled with knowing how the contemporary algorithms operate. You
don’t have a chance against the tremendous whipsaws of the contemporary algos unless you have a comprehensive
knowledge of how they operate

Market structure is significant for both novice and expert traders as it may impact the liquidity and price activity of a
market. It’s also one of the most often utilized tools to evaluate trends, detect probable reversal points, and gain a
sense for current market circumstances,
Because market structure is a reflection of the two-way auction process and psychological fluctuations of market
mood, it gives tremendous insight into how the market is functioning. It might give significant signals about where
the price movement is moving next.

While utilizing market structure to determine the movement of price on a chart, it relies on the time period chosen.

Using multi-timeframe analysis to discover the trading opportunities and the flow of the market is extensively
utilized and extremely successful. Going from a longer time period to identify the significant peaks and troughs of
an asset will offer you places of critical support and resistance. From then lowering down to the time window you
are really intending to trade on will make it a lot simpler. On the time period, you trade on you will discover
different market structure. The microstructure of the present assets motion.

Market structure may also assist to produce efficient markets (asset prices reflect all available information) (asset
prices reflect all available information). Market makers are a significant element of this and provide liquidity to
enable smooth transactions

Support and Resistance in Market Structure

Price movement is typically constrained within the limitations of support and resistance levels. Price may pass these
levels and migrate to different places of support and resistance.

Support: A price level that may arrest a downturn owing to a concentration of demand or purchasing interest.
Support levels frequently include a substantial number of purchase orders in the order book from prominent market
players.

Resistance: A price level that repels an upswing owing to the presence of an increasing number of sellers. Resistance
levels include a significant amount of sell orders in the order book.
MARKET STRUCTURE IN DIFFERENT MARKETS

Traders may utilize market structure to trade any market! In fact, it is strongly suggested that they do so while day
trading. Market structure is the cornerstone of all technical analysis trading. Understand how to trade market
structure and you can trade any market. Market structure is significantly employed in Forex trading.

Market structure in Forex trading or price action is how many individuals take advantage of the markets. No
indications, and no loudness. Because the market does not have a centralized exchange. Forex traders frequently
swing trade the market depending on the structure to take advantage of the opportunity. Day trading on Forex is
doable and not infrequent and again, done with market structure.
When it comes to other markets, like the futures market, there are a number of different instruments to employ. Not
indicators! Rather order flow techniques to read the broader institutional mood. A proven tool that all prop traders
utilize. However, the cornerstone of day trading or even swing trading the futures market is again market structure.
Understanding how one item changes dependent on pricing can open your eyes to a whole new universe. You cannot
unsee it after that and you will be able to understand any assets chart.

Just as you would when trading or investing in stocks! It’s not just about basic research when investing in equities.
Using technical analysis for entry ideas is excellent. It enhances your analysis when integrating the two together.
Moral of the tale, study market structure to trade markets more effectively. Any market, any assets at any time.
Market Structure Charts
When utilizing market structure to determine the movement of price on a chart, it relies on the time period chosen.

Using multi-timeframe analysis to discover the trading opportunities and the flow of the market is extensively
utilized and extremely successful. Going from a longer time period to identify the significant peaks and troughs of
an asset will offer you places of critical support and resistance. From then lowering down to the time window you
are really intending to trade on will make it a lot simpler. On the time period, you trade on you will discover
different market structure. The microstructure of the present assets motion.

Let’s give an example, of a 4-hour (macro-structure view) and a 10-minute (micro-structure view) (micro-structure
view). We’ll be looking at the S&P 500 futures market. That’s because the asset trades throughout the night and
there are no gaps in pricing.

Below is a chart of the 10-minute on the S&P 500 which is a micro-structure perspective of the above. You can see
the 4-hour levels holding nicely and confirming the bullish structure. From here we determine the level for the
lengthy continuance based on the bull trend. Remember higher highs and higher lows. Where does price pullback
to? The prior broken top or the impetus that propelled the price to a new high.
Market structure exists across all time frames and various time periods typically reveal diverse market structures.
For example, although the overall market structure on the higher time frame may be heading up, the lower time
frame structure may be in a present downtrend as the market pulls back, expecting the flood of buyers to continue
the higher time frame advance
.

Higher volume is exhibited on higher time

frames, which suggests more market
participants and more trustworthy
sentiment. This often results in a more
consistent market structure.
On smaller time periods, the market
structure may frequently be less predictable
and chop from highs to lows.
The ideal way is to have a thorough grasp of the market as a whole. This comprises short time frame, medium time
frame, and high time frame structure. Think carefully how each time period works together
CHAPTER 3
HOW DO YOU ANALYZE MARKET STRUCTURE?

The most basic kind of analysis is to identify higher highs, higher lows, lower highs, and lower lows. Within these
four fundamental structures, you may find other pricing patterns including head and shoulders, double tops,
triangles, flags, and pennants.

The first principle is the most apparent one, and it says that for a market to be in an active cycle, it’s most recent
structure must be one where price prints a high that breaks the prior high (in the case of a bullish cycle) (in the case
of a bullish cycle). On the other hand, a down-cycle will be created if the newest swinging low in price breaks below
the most recent low. To demonstrate that a negative trend or down-cycle is developing in a healthy way, not only we
need to see the low printed being lower than its previous low, but we also need anticipate at least two closes beyond
that low or support region as additional indication that the market is accepting and creating value.
In this hourly chart above, you can plainly see the EUR/USD in a down-cycle phase on lower lows and lower highs,
Failure to print at least two closes may be a harbinger to what’s frequently known as head-fake or false breakout,
and although the move still has its value to qualify as a new bottom in the cycle, the quality of the leg is poor in
form.
Never Lose Sight Of The BIGGER Pictures (the OUTER VIEWS ) (the OUTER VIEWS )

You must, by all measures, avoid the trap of being short-sighted by merely adhering to one chart analysis. When
completing your market structure investigations, it’s all about creating a thesis regarding a specific direction by
discovering congruence from higher time frames down to your trading time frame.

Personally, I wouldn’t advocate utilizing more than 3 charts as your reference because you may suffer from so-
called “analysis paralysis”. What this implies is that if you are going to identify an entry trigger off the hourly, you
need then understand what sort of circumstances are prevalent in the immediately higher time frames. The most
common in this instance would be the 4h and daily charts.

As I demonstrate here, observe how all periods in the EUR/USD correlate with the down-cycle? Wouldn’t you
suppose that trading in an environment encouraged by traders from higher time frames contributes to your
probability of choosing the direction the market is most likely to go to in your trading timeframe?

A mechanical guideline to employ is the following: If the price in the timeframe immediately above your trading
timeframe (the H4 or Daily if trading H1) hits the 50% Fibonacci retracement of the previous legitimate swing, the
position should not be in conflict with the direction of the higher timeframe

HOW DO YOU READ MARKET STRUCTURE \shighlight the higher highs, these are fairly simple to detect.
Simply look at the most recent high and look left. If the most recent high is higher than the preceding, the most
recent high becomes the higher high.

Higher Lows - This is when the market produces a low that is higher than the preceding low. These are incredibly
simple to distinguish.
Higher High - This is when the market has generated a new higher, that has traded higher than the prior higher high.

Lower Highs - This is when the market falls to a low then trades back higher but never creates a new high that is
higher than the prior high.
Lower Lows - This is when the market falls to a low that is lower than the prior low. Now you know what they are,
next you will learn how to recognize them.

This strategy is really basic yet effective to learn at first. Eventually, you’ll be observing these market arrangements
without thinking about them.
You determine the forex market structure in two phases.

Firstly, load up any chart.

Once the chart is loaded, it’s time to determine the structure.

Step 1: Find where the market is headed towards. Is it moving uphill or downwards? Plot a line displaying the
direction. This offers you a broad notion of what you are searching for.
Upwards = higher highs and higher lows

Downwards = lower lows and lower highs.

Step 2: Identify the major higher highs. This is done by only mapping a new higher high after the market has pulled
down and made a lower high.
You may achieve this by simply sketching a zig-zag pattern between the lower highs and the higher highs to validate
this.

Step 3: Identify the important higher lows. The trick to this is to only count the upper low as part of the structure if
there are two or more bear candles marking this. If it is only one, then we see this as not noteworthy and wait till
another higher lower is produced.
HOW DO YOU USE MARKET STRUCTURE Market structure may help you construct if-then situations. For
example, if a structural break happens then seek to go short on a pullback.

The Trend Is Your Friend

One of the most used statements in the trading industry, and with good reason. If you can utilize market structure to
detect a trend, more often than not, the price will continue in the same way moving ahead. Momentum
This is due to the simple fact that buyers (in a bullish trend) are already present. To reverse the trend, aggressive
sellers must join the market. Significant volume is necessary to not only put a halt to the present momentum but to
then reverse the direction.
Much with reversing the direction of a speeding vehicle, energy is first necessary to bring the car to a halt (breaking)
(breaking). Then, additional energy is required to start going in the other direction (reversing) (reversing).

Patterns

Popular trading patterns like head and shoulders, inverse head and shoulders, double bottoms, and double tops are
just various sorts of market structures. They might signify trend breaks or trend continuance.

Examples and Trade Setups Using Market Structure

Market structure is not a trading method or specialized setup. It’s more of a high-level idea that helps you to
recognize and grasp general market situations.
It may be used to aid with trade entry or more significantly, establish invalidation thresholds and know when you’re
incorrect. You may also manage trades and monitor positions using market structure concepts.

Here are some market structure examples: Pullback or Retracement: When the market is in an up or downtrend, this
pattern suggests that the price will push back and collect orders (creating a candle in the opposite direction) before
continuing the trend

..
Continuation: This is a bullish or bearish pattern where price develops a brief consolidation or base before pushing
higher. During the base phase, traders reaccumulate or shift their position iContinuation: This is a bullish or bearish
structure where price forms a short consolidation or base before pushing higher. During the base period, traders
reaccumulate or redistribute their position in anticipation of the next rally or drop. This can form a triangle or
pennant pattern.
n preparation of the next rally or decline. This may make a triangular or pennant design.

Structure Hold: This is simply a return to a prior downturn, then the continuation of the existing trend. It might
result in trapped traders that anticipate the market to reverse yet observe how the trend stays intact. No lower lows
(in the bullish case) or higher highs (in the bearish example) are established
Combine Order Flow With Market Structure to Increase Your Edge

Basic candlestick charts can only tell you so much about market structure. To properly comprehend the ebb and flow
of the market you need to understand the order flow. Without it, you’re trading in the dark. This is where the
Bookmap comes in. Our cutting-edge tool allows you see the past order book enabling you to spot significant market
players, discover stuck traders,and make wiser real-time choices.

Advantages

Not only does market structure give you with a clear perspective of current market conditions and trends, but it may
also assist you discover support and resistance levels.

When utilizing market structure to determine support and resistance, look left and attempt to identify places that
have been consistently respected throughout time. If several tests have been completed at the same level there is a
larger probability the level will be respected again.
Another advantage of adopting market structure in trading is that the market gathers together the aggregate expertise
of different players, weights it according to the magnitude of the transactions they make, and enables analysts to
grasp the collective opinion.
Market structure provides the advantage of specifying when and at what price to buy and sell via trendlines and
price objective goals, which has a big benefit. After deciding on and laying out the limits of a prospective formation,
these boundaries correlate to a given price and time coordinates that may be utilized to develop unique trading and
risk management techniques.

Disadvantages

Remember that the market may do anything at any given time. Uncertainty of the market must be welcomed and
understood. While market structure might give signals, there are absolutely no assurances and it only takes one
major aggressive buyer or seller to disrupt the trend.
Market structure fundamentals may look very basic, but the complicated subtleties might take many years to grasp.
CHAPTER 4

What Is Price Action Trading?

Price action is the study of a forex pair's price movement. To really understand price action means you need to study
what happened in the past. You must then observe what is happening in the present and then predict where the
market will go next.

All price movement in Forex comes from bulls (buyers) and bears (sellers). The Forex market is ultimately in a
constant state of struggle between bulls and bears. Price action trading is about analyzing who currently controls
price, bulls or bears and if they are likely to stay in control.Price action trading uses tools like charts patterns,
candlestick patterns, trendlines, price bands, market swing structure like upswings and downswings, support and
resistance levels, consolidations, Fibonacci retracement levels, pivots etc.

Generally, price action traders tend to ignore the fundamental analysis-the underlying factor that moves the markets.
Why? Because they believe everything is already discounted for in the market price.Price action trading uses a clean
chart without indicators. Take a look and compare the two charts below.

Price action is a trading strategy used to analyze the market behavior and identify the ideal entry, exit opportunities.
At its core, price action reflects the imbalances between supply and demand in a market. In another way, a price
action trader only believes the price and its movements with little to no use of technical indicators.
Analyzing from a price action’s trader perspective, when buyers have more interest in any given asset, they will be
psychologically willing to pay whatever the sellers are offering. Eventually, if the buying interest continues, the
prices will tend to go higher, and therefore, creating an uptrend on the chart. In a simpler explanation, the price is
parallel to the market’s demand. Ultimately, the analysis of price charts helps traders to define two things:

1. Objective levels to enter a position,

2. And, it also provides clear areas to manage risk appropriately.

Additionally, the main purpose of price action trading is to describe the state of the market (trending or sideways
markets). Based on this information, the investors can develop a trading strategy to time the market.
The main components of price action are divided into:

●Trending markets (Uptrends and

Downtrends)
●Flat markets
●Candlesticks
What Makes Up The Price Action?

Price action comprises four main pillars: candlesticks, bullish trend, bearish trend, and flat market.

Below, we’re going to break down these four concepts and how to use price action effectively.
Price action applies to all kinds of trading styles, mainly because it can be analyzed in the same way across all time
frames. Therefore, long-term or short-term traders can get benefit from this approach.

Candlesticks

Candlesticks are a graphical representation that provides information about the open, the high, the low, and the close
of any given period. Usually, when the closing price is higher than the open price, the bar is green (bullish). When
the close price is lower than the open price, the bar is red (bearish). However, the color depends on the platform
configuration.
Generally, a bullish candle is upward while it’s vice versa for the bearish candle’s direction, which is downwards.
The image below indicates two candlesticks, one green where the close is higher than the open and the red one
where the close is lower than its open. Usually, big fat candles, in one direction or another, represent significant
momentum.
Bullish Trends

Bullish trends relate to uptrends, when the price is establishing successive higher lows and higher highs. Below
illustrates an example of the BTCUSD one-hour time period where a definite uptrend can be noticed.
Bearish Trends
Bearish trends relate to downtrends, when the price is establishing successive lower lows and lower highs. Below is
an example of the BTCUSD 30-minute time period where a decline is depicted.

Flat Market
Unlike bullish or bearish, a flat market is
when the market structure doesn’t follow a
route. In other words, a flat market develops
when there is no consistency in the position
of the lows and highs, and the activity tends
to be sideways. Usually, this movement is
framed between a support and a resistance
level. This 10-minute chart of BTCUSD is an
example of a flat market because, as you can
see, there is no discernible direction.
Instead, the movement is sideways and is
framed beneath the support and resistance
level.

Popular tools when trading price action

Although indicators are not often employed in the context of a price action trading strategy, price action traders do
depend on certain chart patterns.

Trendlines

Trend lines work the same manner as horizontal support or resistance lines. The distinction is that a trend line is
sloped. In order to validate a trend, we need to link at least two peaks or bottoms on the chart with a single line.

The continuance of this line represents the trend’s potential. Every following price movement toward this trend line
has a significant possibility to rebound from this established trendline. Traders may use trendlines to join into the
market whenever the price bounces off of it or use it to pull out of an existing position when price nears the
trendline.

This is an H1 chart of the USD/CHF for Dec 8-10, 2015 indicating a negative trend. The blue points represent the
time that the trend line is being challenged. As you see, this is a 10-times tested bearish trend, which is deemed
credible.

Channels

Price channels function the same manner as a trend line. The distinction, however, is that channels have another
level, which creates a corridor with the trend.

When we confirm a channel on the chart, we anticipate the price to bounce like a ping pong ball from the higher to
the lower level of the channel. This offers the price action trader a clear perspective of when the price will change
direction and for how long it will move in this manner. Also, the more experienced traders may employ channels to
trade trend corrections in addition to the main trend movement

This is the H4 chart of the USD/JPY for May 8-23, 2015, illustrating the movement of the Yen in a bearish channel.
The higher level is tested 6 times while the lower level is examined 4 times. At the same time, the bullish break
through the top level of the channel presents a fresh bullish chance.
Candlestick Patterns

The usage of candle patterns is a highly prevalent approach for price action traders. Candlestick patterns are distinct
candle formations on the charts, which might foreshadow varied price possibilities. Let’s take a look at some of the
most prevalent candle designs.

Doji

The Doji candle is quite simple to detect on the chart. We get a Doji on the chart when the price begins a candle at a
given level and then closes that candle at the same level. Thus, the Doji appears like a dash with a wick. The Doji
candle shows hesitation in the market, and many times it provides us hints of an exhaustion point following a trend.
Have a look at the picture below:

This is the M30 chart of USD/JPY for Dec 14-15, 2015. We have an upswing, a Doji and a reversal following.
Going short following the Doji puts us in a successful short position during a fall of roughly 50 pips.

Hammer and Hanging Man

These two candles seem completely the same. They feature a lengthy bearish wick and a head. The difference
between these two candles, however, is that the Hammer is at the end of a negative trend suggesting a prospective
reversal, while the Hanging Man is normally seen towards the conclusion of a positive trend, predicting an
approaching reversal. The image below illustrates a bearish candle followed by a hammer and a quick price increase:
Inverted Hammer and Shooting Star

The Inverted Hammer and the Shooting Star look completely the same same. Furthermore, they are the exact mirror
image of the Hammer and the Hanging man. They feature a lower body and a lengthy bullish candle wick.

The Inverted Hammer has the same purpose as the Hammer. When you acquire it near the conclusion of a negative
trend, you anticipate the price to climb. Near the same time, if you obtain a Shooting Star at the conclusion of a
bullish trend, you will likely witness a reduction of the price. Refer to the graphic below to show how this works:

This is the H1 chart of USD/CHF for Nov 18-20, 2015. After a rise of the Swissy a bearish Shooting Star emerges
on the chart. The next thing we notice is a steep fall of roughly 67 pips lasting 8 hours. Note that in order to detect
candlestick patterns on your chart, you need really utilize a Japanese candlestick chart setup. If you are using a line
chart or bar chart you will simply have no candles to evaluate.
Chart Patterns
Chart patterns are particular shapes and figures on the chart which provide hints to possible trend continuations and
reversals. One of the unique qualities of chart patterns, is that by evaluating the pattern itself, we are able to
determine probable goals for the trade. In many circumstances, chart patterns have the capacity to move a forex pair
with an amount equivalent to the size of the formation. This is often referred to as a measured move. Depending on
the chart pattern, and how it is traded, it is not unusual to see success rates of the chart patterns exceeding 60% –
65%. Now I am going to cover some of the most trustworthy chart patterns:
Double Top and Double Bottom

The double top and the double bottom are reversal chart patterns, when near the conclusion of a trend, the price
generates two peaks (or bottoms) almost on the same level. The bottom between the two peaks is the signal level.
When the price breaks through the signal level, we regard the formation as confirmed and we initiate a trade
accordingly. Then we follow the market until we achieve a goal equivalent to the size of the formation. Take a look
at the picture below:

This is the M30 chart of the USD/CHF for Dec 14-15, 2015. The blue lines depict the double top configuration. The
orange horizontal line is the signal line, which initiates our short position. The black lines represent the size of the
formation, which is the amount of decline we seek. Notice that the signal line serves the job of a support as the price
adheres to that level a little before the development of the double top. Also, when the price breaks the signal line as
a support, it tests it immediately as a resistance following. This offers extra reliability to our short position.

The double bottom pattern looks the same, but upside down. It might come at the conclusion of a negative trend and
could reverse the price movement the same manner as the double top. Thus, it should be traded the exact same
manner as a double top formation, but in the opposite direction. Head and Shoulders and Inverted Head and
Shoulders

The head and shoulders is a reversal chart pattern, and is one of the most dependable chart patterns to trade. We get
a head and shoulders formation when the price makes three spikes in this sequence - one lower, one higher and
another lower on the approximate same level as the previous one. Traders name this formation head and shoulders
because, you got it, it truly looks like a head and shoulders. Head and shoulders often occur near the conclusion of a
bullish run. Near the same time, inverted head and shoulders often show at the conclusion of a negative trend. The
two formations seem the same, but inverted In the same manner as with the double top and the double bottom
formations.

When you obtain a head and shoulders formation, you should set up your signal line, which is also called the neck
line. The neck line is the straight line, which joins the two bottoms forming the head between the two shoulders.
When the price breaches the neck line, you would open a trade, and aim a price movement equal to the magnitude of
the formation. Please refer to the following example for a head and shoulders example:
This is the H4 chart of the Cable (GBP/USD). The blue lines on the chart depict a head and shoulders configuration.
The orange line is the signal line of the formation – the neck line. The black lines reflect the size of the formation
and at the same time, the prospective target we are chasing. We go short anytime the price breaches the neck line
and we strive for the target level. The inverted head and shoulder pattern operates the same manner, but might come
at the conclusion of a negative trend, inverting it into a positive direction.

Rising Wedge and Falling Wedge

We have a rising wedge when the price is closing with higher peaks and even higher bottoms. And we get a falling
wedge when the price closes with lower bottoms and even lower tops. The rising wedge has the same potential as
the falling wedge, but in the other direction. Also the two structures are a mirror image to each other. The rising and
the falling wedge may represent trend reversals or trend confirmations depending on where they occur in respect to
the broader trend.
When you have a rising wedge in a bullish trend, this often signals that price could change its direction. At the same
time, if you observe a rising wedge during a decline, it has a trend confirmation aspect.

If you notice a collapsing wedge on a negative trend, this implies the trend might change its direction. At the same
time, if you detect a falling wedge during a bullish trend, then the formation has a trend confirmation aspect. If this
seems unclear to you, just remember that the rising wedge normally speaks for an imminent bearish action, while the
descending wedge implies eventual price growth. Similar to the other chart patterns we covered, the wedge has the
ability to drive the price toward a movement equivalent to the size of the wedge. The illustration below will teach
you how to trade a wedge.
This is the H4 chart of the AUD/USD forex pair where we see a falling wedge reversal pattern following a price
reduction. Since it occurs following a decline, we know that the price can climb after the wedge. Thus, we purchase
once the price breaks the wedge in a positive direction. Note that in a wedge, the signal line is the level, where the
price is projected to break through. Now assume that we obtain this wedge after a price rise. In this situation, the
identical falling wedge will operate as a trend continuation pattern. The same method applies for rising wedges. If a
rising wedge is created after a price gain, then we have a reversal pattern and we anticipate to see a price decline. If
a rising wedge comes after a price reduction, then the wedge functions as a corrective and the projected drop has a
continuation character. The trade patterns we mentioned above are fractal in nature, which means that they might
emerge on any period on any chart. As with any form of analysis, you should constantly be prepared for various
trading conditions. Also, several of the patterns might emerge at the same moment. You can always validate a trend
with a continuation chart pattern and an extra candle pattern, which may provide you further confirmation before
entering the market.
CHAPTER 5
What Is A Price Action Indicator?
While price action is interpreted as a trading strategy, price action indicator, on the other hand, refers to the study of market movement. You can use this
indicator to assess the imbalances between supply and demand. In technical analysis, the candlestick on your price chart is the most powerful price action
indicator.
That also referred to as naked trading, which is trading without technical indicators like moving averages, relative strength index, stochastic but mainly
relies exclusively on price action. In this case, candlesticks are studied together to provide accurate entry signals.
A good note here is price action analysis needs to be used with other trading concepts like:

● Trend direction
● Support and resistance levels
● Trendlines
● The price structure (swing high and swing

low)

Additionally, an inside down candlestick (bearish harami) is presented around a resistance level. Those two factors provide confluence for placing a short
entry because:

1. There is a trend in our favor,

2. There is a candlestick signal around a previous resistance,
3. And, there is room for a target area around the previous low.

While traders can rely on psychological factors or market sentiments to deduce a trading opportunity, the use of fundamental historical data is inevitable.
That’s when the chart patterns come in handy. To start, here is what you need to know.

1. HAMMER
2. INSIDE BAR
3. SHOOTING STAR
4. OUTSIDE BAR
5. SUPPORT AND RESISTANCE LEVEL IN SIDEWAY MARKETS

How to apply The Price Action Strategy in Swing Trading

While price action is understood as a trading method, price action indicator, on the other hand, relates to the study of
market movement. You may use this indicator to examine the imbalances between supply and demand. In technical
analysis, the candlestick on your price chart is the most effective price movement indicator.
That also referred to as naked trading, which is trading without technical indicators like moving averages, relative
strength index, stochastic but mostly focuses entirely on price movement. In this situation, candlesticks are
researched combined to produce reliable entry indications.
A useful remark here is price action analysis has to be combined alongside other trading principles like:
Trend direction
Support and resistance levels
Trendlines
The pricing structure (swing high and swing low) (swing high and swing low)
Additionally, an inner down candlestick (bearish harami) is displayed near a resistance level. Those two elements
create confluence for putting a short entry because: \sThere is a trend in our favor, \sThere is a candlestick signal
around a prior resistance, \sAnd, there is space for a target region around the previous low.
While traders might depend on psychological elements or market feelings to determine a trading opportunity, the
utilization of fundamental historical data is necessary. That’s where the chart patterns come in help.
To start, here is what you need to know.

HAMMER
INSIDE BAR
SHOOTING STAR
OUTSIDE BAR
SUPPORT AND RESISTANCE LEVEL IN SIDEWAY MARKETS
How to apply The Price Action Strategy in Swing Trading
Price action applies to swing trading as much as it’s pertinent to short-term trading like scalping and day trading.
Typically, the optimum time frames for swing trading are the 4-hour and daily charts.
A simple and successful technique to swing trade utilizing price action is to combine: \sSupply and demand,
\sCoupled with trading pullbacks inside a trend.
At the most basic, the number one reason behind all price swings derives from an imbalance between the supply and
demand equations. While there are various methods traders may validate a supply and demand zone however, the
best strategy is to double-check it using price activity.
In trading, a supply price zone is characterized by increasing selling pressure, which led the price to decline. At the
same time, a demand prize zone is characterized by a region of elevated purchasing pressure, which prompted the
price to surge.
In essence, swing trading with price action refers to waiting for the price to return to these supply and demand
zones. Plus validating your entrance using one of the chart patterns shown throughout this course..

How do you Spot False Setups?

One of the main issues with price action trading is the erroneous setups. Very frequently, the chart patterns will fail
to generate the desired conclusion and might lead to disappointments. In this sense, it’s necessary to understand and
accept false setups as a common occurrence.
The most prevalent fakeout indicator is the false break out of support and resistance levels. In typical conditions, a
breakout will cause the price to move in the same direction as the break
.

Above is an example of a false breakout of the support zone.

The breach of support didn’t produce additional follow-through to the downside, and what looked to be a clear move
to the negative turned out to be a false signal. Here’s another example of a failed chart pattern (bearish outer bar)
(bearish outside bar.) Usually, the bearish outer bar signifies a trend reversal, and it suggests that the bears are in
power. However, this time around, the bearish outer bar proved to be a false setup.
The simplest approach to determine between a fake setup and a straightforward setup is by analyzing the time it
takes for a setup to play out. Usually, the better quality trade ideas take a short time to play out and offer you a
profit.

Does Price Action Trading Really Work?

Yes, price action trading works because it depicts the market dynamics. In other words, it represents the emotion of
the market players. However, obtaining a competency level demands a lot of screen time to learn all the intricacies
of this technique

Can These Strategies Be Used in Crypto Market?

By this time, you’ve understood that price action trading is adaptable. But if you need a strong validation to execute
this method in crypto, here’s your answer.
Price action is suited for crypto trading since it is a liquid market and has enough volatility to apply price action
ideas. In fact!
Given the substantial involvement of institutions and the general public, the imbalances of supply and demand may
be readily monitored by this trading technique. To top things off, the huge range of cryptocurrencies and the option
to go long or short allows the crypto trader freedom to hunt for market circumstances (moving or sideways markets)
that may be examined and exploited under a price action trading strategy.
As excellent as price action is, however, we all need a backup strategy in case things go awry.]

Price Action in Derivatives Market

Price movement trading in the spot market is exceptional and that’s not all. It is in fact extensively employed in a
number of instruments including crypto derivatives contracts like futures and options to speculate and hedge risks.
As a price action trader, it’s customary to take a deep dive into market emotions and make a more reasonable trading
choice based on the previous price moves without excessively depending on technical indicators. In addition,
because trading options or futures implies you’re speculating the price and earning depending on the market
reflection, that means, price movement works wonderfully to assist you make smart selections.

How to Mitigate Risks of Price Action Trading?

Profits are nice, but do you truly know how to respond when things go against your favor? Just attempt to visualize
your money being liquidated, are you prepared to cut off our losses when there’s a major price dip? If your response
is yes, well, we’re delighted for you.
But, if you’re not, here’s exactly what you must know:
First, to limit the danger of price action trading, you must guarantee that the lost trades only represent a tiny amount
of your account value. Your position size and risk each trade will decide how much you will lose on each
transaction. Meanwhile, the successful trades should balance those losses and yield additional gains at the end.
Setting a stop-loss order is the most basic risk management technique. Try to seek for the profit zones that represent
multiple times the sum o

Putting A Stop Loss

The most common methods to place a stop-loss order include:

1. Above and below crucial support and resistance levels

2. Above and below pivot points
3. Above and below chart patterns
4. Moving averages
5. Supply and demand zones
6. Major swing points

Generally speaking, the area you conceal your protective stop-loss order should contain important levels, which, if
breached, signal that you were mistaken on the original trading idea. Think of it this way; if your entry point is at an
untested supply zone, you should set your defensive stop-loss order above the supply zone and consider collecting
profit at the \sDemand zone

As a general rule, your stop-loss order should also contain a buffer to protect yourself against dangerous whipsaws
and false breakouts.It is relatively reasonable to presume that the untested supply and demand zones have a better
possibility of holding the price and causing the predicted response.

One of the advantages of trading price action is that it gives the foundations of a strong risk management strategy.
Mainly because it helps detect well-defined entry, risk, and profit goal levels, which offers an advantage in front of
other trading strategies.

The Benefits and Drawbacks

This section will discuss why you should trade depending on price activity. We’ll bring you some of the positives
and downsides of price action trading.
The greatest benefits of price action trading include:
● The analysis is straightforward compared to analyzing the market based on indicators, which usually leads to analysis paralysis, given the multiple
signals from different indicators that sometimes show conflicting signals.

● The price action provides well-defined levels to the entry, the risk, and the profit target; therefore, the trader has objective information to act upon.

The primary drawbacks of price action trading include: \sSince price action trading analysis mostly rely on the price
movement rather than technical analysis, consequently, some risks are accumulated.

● Price action trading is a subjective art. For this reason, the same price action chart can tell a completely different
story, depending on the experience and skills of each trader.

For example, Bitcoin history data reveals a price pushed past the hovering region of $50,000 mark and has pushed
the price further higher in several instances. But, this circumstance may be a false breakthrough that hints for an
eventual reversal.

● Usually, the levels where the stop-loss orders must be placed are common areas (around previous highs and lows)
that are easily taken by the crypto whales. In other words, the stop-loss orders can be easily identified and executed
around significant swing highs and lows.

In Conclusion
All novice traders may profit from studying price action trading. Learning to read and comprehend price chart
movements becomes a trading method on its own. It might assist if you decide to use additional analytical methods,
such as statistics, indications, or seasonality.

●Price Action Trading is a method of trading, which puts an emphasis on price movement and behaviors rather than
on trading indicators.

● A few of the most important processes in price action trading are:

● Identifying Trends ● Spotting Reversals ● Analyzing Corrections

● The most important trading tools for price action trading are:
● Trend Lines
● Channels
● Candlestick Formations ● Chart Patterns

● Support and Resistance

● Price action trading patterns could appear at any time and could be combined with Candlestick patterns for extra
reliability.