Price action trading is more than just trading pinbars or engulfing patterns.

Instead, it's about reading market sentiment, identifying areas of value, and trading along the path of least resistance.

Yes, price action trading can be supplemented with indicators. It's about knowing your trading tool and knowing how to apply it effectively.

So, in today's lesson...

You'll learn 10 price action trading tips that will instantly improve your trading performance.

get ready?

So let's get started.

1. Avoid trading when the market moves away from the moving average

When the market is trending, it often means a reversion to the moving average.

Depending on the type of trend you're in:

In a strong trend, the market average tends to revert to the 20 SMA.

In a normal trend, the market tends to revert back to the 100 MA

In a weak trend, the market tends to revert to the 200 MA

So the last thing you want to do is take a trade when the market is moving away from the moving average.

That's what I mean.

Price is moving away from the 100 MA on the EURJPY daily time frame:

EUR/GBP price is far from the 20 MA on the daily time frame:

Pro tip:

You need to determine which moving average the current market "respects".

In a strong trending market, the moving average is low and in a weak trending market, the moving average is high.

If you want to learn how to trade using moving averages, I recommend reading Moving Averages 101 by Steve Burns .

2. Support and resistance can help you identify areas of value to trade

You want to buy low and sell high, right?

But the problem is:

How do you define what is low and what is high?

Allow me to introduce you to...

Horizontal Support and Resistance

This is useful because it helps you identify areas of value on the chart.

Support - the area on the chart that you want to buy "low"

Resistance level - the area on the chart where you want to sell "high"

Here are some examples.

NZD/USD market volatility on the daily time frame:

GBP/CAD market ranging on the 4-hour time frame:

Additionally, moving averages can help you identify areas of value in the form of:

Dynamic Support and Resistance

These are support and resistance levels that move with the price.

Dynamic support occurs during an uptrend and dynamic resistance occurs during a downtrend.

They can be identified using moving averages. (I use 20 and 50 EMA).

Here's what I mean...

USD ZAR dynamic support on the weekly time frame:

Dynamic support for NZDUSD on the 4-hour time frame:

Pro tip:

In a strongly trending market, the price may not pull back to horizontal support and resistance levels (which causes many traders to miss the trend).

Instead, they tend to pull back into dynamic support and resistance, which is an area of value that you must watch.

3. Trading at support and resistance levels can give you a favorable risk reward

Here's the thing...

If you trade in the middle of a range, it will never give you a favorable risk reward (1 to 1 at most).

one example…

The AUD/USD risk-reward ratio is lower on the daily time frame:

but…

If you trade at support and resistance levels, it will greatly improve your risk reward ratio.

Here's what I mean ...

Good risk-reward ratio for AUD/USD on the daily time frame:

Pro tip:

The risk-reward ratio is only one side of the equation. Another thing you need to consider is the probability of your trade being successful.

4. The longer the range, the more difficult the trend

If a market trading in a narrow range suddenly sees a widening range, it is human nature to try to smooth out this price volatility. When your range expands, the market is sending you a very loud and clear signal that the market is preparing to move in the direction of expansion. —Paul Tudor Jones

If you've seen long-term price fluctuations, you're not alone.

Traders around the world will see the same charts as you.

Some will line up to short resistance levels, and some will trade on breakouts.

If the price does rise above the resistance, the bears will be squeezed and breakout traders will jump on the bandwagon.

This is why the price trend persists for a while because the buying/selling pressure is unbalanced.

Here are some examples...

Strong trending market in USD/MXN weekly time frame:

Strong trending market on USDJPY weekly time frame:

You may be wondering:

I don't have the patience to wait so long. I now want to capture the big moves in the market.

That's what I'm going to cover next...

5. Narrow candlesticks often lead to explosive moves

You have learned that the longer the price range, the harder it is to trend. Now you can take this concept a step further and apply it to the range of candles (rather than time).

What you are looking for are... narrow range candles.

Why?

Because you can expect explosive moves to happen very quickly.

Here are some examples...

Explosive moves in USD/JPY on the weekly time frame:

Explosive moves in EUR/USD on the daily time frame:

So when you get a series of narrow candlesticks, be prepared for explosive moves.

be verified through the writings of Adam Grimes , Tony Crabel and Mark Minervini .

6. Wide candlesticks act as "hidden" support and resistance

Wide candlesticks are formed due to an imbalance in buying/selling pressure.

This represents the "hidden" support and resistance in the market (Sam Seiden calls it "supply and demand")

Here's what I mean...

Various candlesticks on the S&P500 daily time frame:

Wide range of candlesticks on EUR/USD daily time frame:

Some traders believe strongly in supply and demand, while others do a great job with support and resistance.

Here's the thing...

You don't want to trade them in isolation, but use them in conjunction with other technical tools, increasing the integration of your trading .

7. False breakouts are one of the best entry points to profit from "trapped" traders

First, let me explain what a false breakout is.

I define a false breakout as price breaking out of support or resistance, only to close back into the range.

Here's what I mean...

False breakout on EUR/USD daily time frame:

False breakout on XAGUSD daily time frame:

Why is this one of the best times to enter a trade?

Because you are taking advantage of traders who are "trapped".

imagine:

A trader named Michael was long when resistance levels were breached because he expected a rally.

A few candles later, the price turned against him and closed at resistance.

at this point…

Michael was "trapped". It is likely that there are many traders like Michael who took the same breakout trade and got "stuck".

Now, skilled traders can take advantage of this.

how?

By shorting the false breakout, "trapped" traders are expected to cut their trades and drive prices even lower.

That, my friends, is the power of false breakouts.

8. Trading with the trend gives you greater profit potential

A mistake many traders make is that they become so focused on capturing small market moves that they miss major price movements. — Jack Schwager

One of the best ways to improve your trading performance is to trade with the trend (rather than against it).

This greatly increases your odds of successful trading and gives you greater profit potential.

Here's what I mean...

Trending market on NZDUSD daily time frame:

Trending markets on the GBPJPY daily time frame:

Now…

If you want to learn how to define trends, watch the training video below:

https://www.youtube.com/watch?v=EbFUuSmuhVs

9. Continuation patterns work best in trending markets

You may be wondering:

What is the continuation pattern?

They are chart patterns such as flags, pennants, triangles, etc.

and…

A big mistake traders make is trading these patterns in range-bound markets.

one example…

AUD/USD continuation pattern on the daily time frame:

So, when is the best time to trade a continuation pattern?

...

...

...

You guessed it, in a trending market.

one example…

Continuation pattern of trending market on WTICOUSD daily time frame:

continue…

10. How to tell when a trend is over

I would pay attention to the following three things:

"Respected" moving averages are broken

structural damage

trendline breakout

one example…

GBP/JPY signs of a trend reversal on the weekly time frame:

Let's take a look at them one by one...

Price broke and closed below the 50 EMA, a dynamic support that the market "respects"

Price breaks out and closes below the trendline

A new low structure is formed in the market. Now you have a lower high and a lower low

When all three of these factors are met, the likelihood of a trend ending increases.

Here's another example...

Signs of a trend reversal on the XAUUSD weekly time frame:

To recap, these are the 10 price action trading tips you learned today …

Avoid trading when the market moves away from the moving average

Support and resistance help you identify areas of value where you can trade

Trading at support and resistance levels can give you a favorable risk reward

The longer the range, the harder it is to trend

Narrow candles often lead to explosive moves

Wide range candlesticks act as "hidden" support and resistance

False breakouts are one of the best entry points to profit from "trapped" traders

Trading with the trend brings you greater profit potential

Continuation patterns work best in trending markets

Breakouts of structures, trendlines, and moving averages often indicate that a trend is coming to an end