Monday, 19 August 2019

Increase the Profit Probability of Trading

Price action is a way of trading by observing and analyzing the forms of pin bar formation that occur on candlestick charts. When our equity in trading is limited, choosing the right and careful price action strategy may be effective enough to save our "bullet" equity.

However, even though trading using a price action strategy correctly and accurately will result in a fairly high profit probability, there are other points to consider. The point is our discipline and patience in observing the formation of pin bars that are formed to match the market conditions that we expect and we have learned in the rules of trading with price action. Here are tips for being able to do it.

Avoid frequent market entry without the right target market conditions.

If we lift a weight that is heavy enough, the more energy we release the faster the load is lifted. But this is not the case in forex trading. The more we often enter the market with great strength, our equity may be increasingly shrinking. That is because we often enter market conditions that are not right, or the strategies we employ are less effective in dealing with market price movements.

In the rules of the price action strategy, we are recommended to trade on a daily time frame basis, and only if the formation of the pin bar that is formed has met the rules for the new entry we do. To examine the formation of pin bars consisting of 3 consecutive bars, it means that for a minimum of 3 consecutive days we observe if at the beginning of the new week the signs of formation begin to appear. Maybe only once or twice a week we trade, but with the price action strategy that we apply it may be our probability to earn huge profits. In this case we are required to be patient and disciplined.

Setup price action and the importance of confluence factors.

Confluence or call it confluence in this case is a meeting of several factors that support each other in strengthening the rules of price action that have been formed. There are many factors, but the dominant ones are support and resistance, both horizontal and exponential moving average (ema), usually ema 8 daily and ema 21 daily. In the following illustration we find 3 setup price actions, each of which is supported by 3 confluent factors, namely: momentum trends namely uptrend, dynamic support layers of ema 8 and ema 21 daily, and horizontal support lines. Note that these three factors strengthen us for entry.

In the next case we notice that there are 2 pin bars which are quite good, but not supported by confluent factors. The pin bar that indicates the reversal of the direction of the trend turns out to be immediately reversed (our prediction will continue to go up apparently down). That was caused by the absence of confluent factors such as momentum trends, support / resistance lines, moving averages, or even the 50% Fibo retracement.

In conclusion, besides paying attention to the formation of pin bars, in trading with price action it is highly recommended to confirm it with its confluent factors so that our probability of profit is high.

Significant confluent factors are support / resistance levels, both horizontal and dynamic lines (moving average) and Fibonacci retracement levels. Of course the price movement trend is also important and of course we have anticipated it before looking at other confluent actors.

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