Simple price patterns

Hello, dear colleagues. Today I bring to your attention the third lesson of the series "Price Action Trading Methods". And today I'm going to start a story about simple price patterns Price Action. Why do I begin? Because I can't cover them all in one lesson.

But before we go directly to patterns, let's define the basic concepts.

Из-за применения его в различных западных дисциплинах и технологиях в русскоязычную среду оно проникло как специфический термин сразу в нескольких сферах деятельности. Таким образом, можно сказать, что Рrice Аction – это торговля по шаблонам.

Conventionally, patterns can be divided into complex and simple:
–   Простые – шаблоны состоящие из 1-3 баров.
–   Сложные – шаблоны, состоящие из 4 и более баров.

Пин – бар

So, here we go. The first and best-known pattern in the Рріce Асtiоn system is Pin BarIt is also called Pinocchio, the Tail. Actually Pin Bar is an abbreviation of Pinocchio. In classical candlestick analysis this pattern is known as "Shooting Star".

Fig. 1. Example of the "Pin Bar" pattern.

A three-bar candlestick formation in which the central candle has a very small body (the distance between the closing price and the opening price), which should be located in the lower (for a down-trend) or upper (for an up-trend) thirds of the candle. The candlesticks, which are on the sides of the central one, are called "eyes". The right eye should be larger than the left. A conservative entry is made when the price breaks the minimum (for a down-trend) or maximum (for an up-trend) of the right eye. Stop is placed on the top of the central candle. The breakout must take place on the second or third candle from the central one. Otherwise the order is removed. This pattern has a clear counter-trend character. Shown below are examples for both ascending and downtrend.

Fig. 2. Examples of "Pin bars" for an uptrend and a downtrend.

A conservative method of entering the market on this pattern was described above. There are two other entry options, more risky. Now let's consider them.

a) Without waiting for the formation of the right eye, the order is placed immediately after the formation of the nose at the minimum level, adding a filter (5-10 points). The stop is placed at the maximum of the nose (see Fig. 3, left side).

Figure 3. More risky trading on "Pin bars".

b) Again, without waiting for the formation of the right eye, an entry order is placed at 50% of the nose, in the expectation that the price, forming the right eye, will catch our order. We place the stop at the minimum (maximum for an up-trend) of the nose (see Fig. 3, right side).

There are certain rules governing the use of the Pin Bar as an entry signal:
–   При down-trend we use a signal from a "pin bar" located at a swinging high, i.e. at the top of the market, to enter.
–   При up-trend we use a signal from a "pin bar" located on a swing low, i.e. at the bottom of the market, to enter.
–   При up-trend we ignore the signal from the "pin bar" located at the swing-high (at the top).
–   При down-trend we ignore the signal from the "pin bar" located at the swing low.

Examples of Various Pin Bar Situations

Figure 4. Example of "Pin Bars" to pay attention to.

Fig. 5. Example of Pin Bar operation.

The above examples show the safest methods of applying such a Price Action pattern as "Pin Bar.". It should be noted that all these were examples of working in the main (dominating) trend. However, there are some rules for application of Pin bars against the trend, because, as I wrote above, the character of this pattern is strongly counter-trend: first, the trend must be present, and second, a counter-trend Pin bar must be formed at a significant level. support/resistanceor as a confirmation of an emerging pivot formation.

Fig. 6. Example of a counter-trend Pin Bar.

As we can see from the example, the price, having beaten off the level for the first time, tries to pass it again. However, after the second unsuccessful attempt, a "Pin Bar" was formed, creating excellent conditions for entering the trade.

And finally, one last example. The first "Pin Bar." not only formed at a significant price level, but also confirmed the possibility of formation of a small double bottom within the framework of the forming big one. It was from this Pin bar that the development of these figures of technical analysis began. Further, as seen in the example, the price once again pushed away from the presented level, forming another Pin bar.

Fig. 7. Working off "Pin bars" at significant levels.

And in conclusion, I want to say that the technique of working with the "Pin Bars" is a powerful weapon in the hands of a trader, but it is necessary to follow the rules for working with them, presented in this article. And of course, strict compliance with the rules Money Management и Risk Management.