Intraday Outlooks For EUR/USD, Sterling, AUD/USD, EUR/JPY & SP500 - SEB

By eFXnews.com

  The following are the intraday outlooks for EUR/USD, Sterling, AUD/USD, EUR/JPY, and S&P500 as provided by the technical strategy team at SEB Group:
EUR/USD: Glued at 21day equilibrium. The high end of “the Cloud” and the 21day "Base line" keeps capping. Over 1.3299 is needed to start seeing the Aug-Sep decline as either a more complex trend lower (which could end up really powerful) or as a mere correction. Until then the picture remains cautiously tilted to the downside from here.

GBP: Must be monitored closely. The sterling index is close to its correction target (with GBP/USD & EUR/GBP having their respective key points at 1.5753 and 0.8350-0.8400) so the near term development must be monitored very closely. Sterling should given the stretched conditions be very sensitive to any kind of negative surprises.

AUD/USD: Testing resistance. Another winner added yesterday brought the pair into a test of short-term resistance at 0.9320-45. Some selling has emerged there this morning, but near-term players shortening up here now face support at yesterday's midbody point of 0.9270 and at 0.9234. Above 0.9350 would be a short-term stretch, but if spending a little time up here this stretch would soon fade and in a bigger picture a potential "Double-bottom" would set a fair extended target near 0.96.

EUR/JPY: Headed into the May peak (133.82). A solid winner was added yesterday as the move through prior peaks at 132.42 & 132.75 drew above average volumes. The high session close shows demand and all the short-term "Ichimoku tools” are in positive positions. This puts the May high of 133.82 in harm’s way (but it should also be noted that immediate extension beyond this level would also bring a short-term stretch to consider). Support likely around those prior peaks that were violated yesterday.

S&P 500: Extended correction. No signs of the outlined sellers yesterday as the market steamed on past the estimated correction target, 1667. The behaviour is annoying (arguing for a second corrective leg lower that is) but not unusual after a possible peak/bottom. The first reaction (wave b or 2) often moves deep into the preceding wave’s territory commonly reaching the 78,6% Fibo correction point so let’s see whether we can attract a few offers toward 1688.

Copyright © 2013 eFXnews  

Barclays' Trades Of The Week: Sell GBP/USD & Buy AUD/USD

08 SEP 2013 15:26 EDT By eFXnews.com


Investors following short-term macro strategies should consider selling GBP/USD, and buying AUD/USD this week, advises Barclays Capital in its weekly FX pick to clients.
On the GBP/USD trade, Barclays' rationale is as follows:
"Our surprise index is in extreme positive territory, so the positive momentum which has driven GBP strength is likely to slow. Given crowded positioning in short-sterling contracts and recent price action, we would tactically look for some downside versus the USD," Barclays says.
"UK labour market data will be the most important event for GBP next week (Weds). The BoE has directed the market to look through the recent improvements in data, since they expect the unemployment rate to be sticky (as do we, beyond this month).  Governor Mark Carney will also speak in front of the Treasury Select Committee on Friday," Barclays adds.
On the long AUD/USD trade, Barclays' rationale is as follows:
"Our economists expect the recent rebound in Chinese data on trade, industrial production and investment activity to have rolled into August, supporting the AUD." Barclays projects.

Copyright © 2013 eFXnews

Introduction To Price Action Forex Trading

How to Trade Forex with Price Action Trading Strategies

So how exactly do we trade Forex with price action? It really boils down to learning to trade P.A. setups or patterns from confluent levels in the market. Now, if that sounds new or confusing to you right now, sit tight and I will clarify it soon. First we need to cover a couple more things:
Due to the repetitive nature of market participants and the way they react to global economic variables, the P.A. of a market tends to repeat itself in various patterns. These patterns are also called price action trading strategies, and there are many different price action strategies traded many different ways. These reoccurring price patterns or price action setups reflect changes or continuation in market sentiment. In layman’s terms, that just means by learning to spot price action patterns you can get “clues” as to where the price of a market will go next.
The first thing you should to begin P.A. trading is to take off all the “crap” on your charts. Get rid of the indicators, expert advisors; take off EVERYTHING but the raw price bars of the chart. I prefer to use candlestick charts because I feel they convey the price data of the market more dynamically and “forcefully”, if you are still using classic bar charts and want more info on candlesticks then checkout this candlestick trading tutorial.
I like simple black and white charts the best, as you can see below. In metatrader4 you simply right click on the chart and adjust the “properties” of the chart to get it looking like mine below. If you want more info on how to setup your MT4 trading platform checkout this metatrader 4 tutorial.
After you’ve removed all the indicators and other unnecessary variables from your charts, you can begin drawing in the key chart levels and looking for price action setups to trade from.
The image example below shows examples of some of the trading strategies I teach in my forex trading course. Note the key support / resistance levels have been drawn in:

How to trade price action from confluent points in the market:

The next major step in trading Forex P.A. is to draw in the key chart levels and look for confluent levels to trade from. In the chart below we can see that a very obvious and confluent pin bar setup formed in the USDJPY that kicked off a huge uptrend higher. Note that the pin bar trade setup showed rejection of a key horizontal support level as well as the 50% retrace of the last major move, thus the pin bar had “confluence” with the surrounding market structure…
In the image example below, we can see a pin bar setup that formed at a confluent point in the market:
All economic variables create price movement which can be easily seen on a market’s price chart. Whether an economic variable is filtered down through a human trader or a computer trader, the movement that it creates in the market will be easily visible on a price chart. Therefore, instead of trying to analyze a million economic variables each day (this is impossible obviously, although many traders try), you can simply learn to trade price action, because this style of trading allows you to easily analyze and make use of all market variables by simply reading and trading from the P.A. trail they leave behind in a market.

In closing…

I hope today’s introduction to Price Action Forex Trading has been a helpful and enlightening lesson for you.  No matter what strategy or system you end up trading with, having a solid understanding of P.A. will only make you a better trader. If you’re like me, and you love simplicity and minimalism, you’ll want to become a “pure” P.A  trader and remove all unnecessary variables from your charts. If you’re interested in learning how I trade with simple price action strategies, checkout my Price Action Forex Trading Course for more info.
Good trading, Nial Fuller

Forex Pin Bar Method – Trading Pin Bars From Key Levels

By Nial Fuller   Posted in Forex Trading Strategies

Trading Pin Bar Signals with Support and Resistance Confirmation, is perhaps one of the most effective ways to trade forex, if not thee most effective way to trade. This article will show some examples of trading pin bars from key levels. Follow along closely because this is likely to be one of the most powerful Forex trading strategies you will ever learn.

Pin bars are one of the most valuable tools that price action traders have in their Forex trading arsenal. They often form at major market turning points, correction levels, or within a trend as continuation signals. When combined with a strong support or resistance level, pin bars can be one of the most accurate trading signals available. The best pin bar setups occur near confluent levels of previous price action as the market moves in one direction and then regresses back to re-test a previous support or resistance level. We can see in this daily chart of EUR/USD two successive pin bars testing a previous support and resistance level and then resuming downward movement

Pin bars occur in all market conditions; up trends, down trends, and range bound. The beauty of price action analysis is that it teaches you how to analyze market movement based on inherently generated data; namely price data. Reversal bars taken at confluent levels can act as a map to long-term profits in the forex market. Trader’s can design a highly profitable trading method entirely around pin bars if they so desire. The more confluence added to a pin bar formation the more accurate it becomes. We can see in this daily chart of GBP/USD below a beautiful pin far formed at a previous support/resistance level with the up trend and also at a Fibonacci 61.8 retrace level. The more confluence you can combine with a pin bar signal the higher its accuracy becomes.

Pin bars are adaptable to ever-changing forex market conditions and can be very profitable even in ranging markets. They can be very accurate if the formation is clear and obvious and combined with solid support or resistance confirmation. We can see in the daily chart of EUR/JPY below two very well formed counter-trend pin bars that formed off support in a range bound market that netted some serious gains for traders with a keen eye for price action analysis. Pin bars of this clarity and magnitude can be entered after the close on a market order. We suggest specific entry, stop, and target levels for quality pin bar setups in our member’s trading forum.

Pin bars can be taken at major market turning points counter-trend if they are very well formed. Often times long-term trend changes are set off by large pin bars that can result in some serious gains for traders aware of the potential. The daily USD/JPY chart below demonstrates how a large, well formed pin bar can tip off traders to longer-term changes in trend direction. Often times trend changes will occur rapidly and form what is called a “V” bottom with the bottom bar being a pin bar.

When pin bars form at the top or bottom of a consolidating market that is taking a breather after a large directional movement they can often signal trend resumption is near. In the daily chart of USD/CAD below we can see multiple pin bars formed at the top of a range bound market that was most recently in a large down trend. The last pin bar on the right side of the chart set off a very powerful move that resulted in a breakout of the range and subsequent downward trend resumption.

In conclusion, pin bar reversals are a great price action tool that forex traders can use in all market conditions. They are best played at confluent levels with strong support and resistance confirmation. Pin bars taken with the dominant daily trend are generally more accurate than counter trend pins. However, counter trend pins can set off long-term directional bias changes that can mean serious cash for traders with a trained eye. Pin bars work great at the tops and bottoms of range-bound markets and provide very accurate setups in these conditions.

Pin Bar Forex Trading Strategy – Pin Bar Definition

By Nial Fuller   Posted in Forex Trading Strategies

An Introduction To The Pin Bar Forex Trading Strategy and How to Trade It Effectively…
The pin bar formation is a price action reversal pattern that shows that a certain level or price point in the market was rejected. Once familiarized with the pin bar formation, it is apparent from looking at any price chart just how profitable this pattern can be. Let’s go over exactly what a pin bar formation is and how you can take advantage of the pin bar strategy in the context of varying market conditions.
What is a Pin Bar?
The actual pin bar itself is a bar with a long upper or lower “tail”, “wick” or “shadow” and a much smaller “body” or “real body”, you can find pin bars on any stripped-down, “naked” bar chart or candlestick chart. We use candlestick charts because they show the price action the clearest and are the most popular charts amongst professional traders. Many traders prefer the candlestick version over standard bar charts because it is generally regarded as a better visual representation of price action.

Characteristics of the Pin Bar Formation

• The pin bar should have a long upper or lower tail…the tail is also sometimes called the “wick” or the “shadow”…they all mean the same thing. It’s the “pointy” part of the pin bar that literally looks like a “tail” and that shows rejection or false break of a level.
• The area between the open and close of the pin bar is called the “body” or “real body”. It is typically colored white or another light color when the close was higher than than the open and black or another dark color when the close was lower than the open.
• The open and close of the pin bar should be very close together or equal (same price), the closer the better.
• The open and close of the pin bar are near one end of the bar, the closer to the end the better.
• The shadow or tail of the pin bar sticks out (protrudes) from the surrounding price bars, the longer the tail of the pin bar the better.
• A general “rule of thumb” is that you want to see the pin bar tail be two/thirds the total pin bar length or more and the rest of the pin bar should be one/third the total pin bar length or less.
• The end opposite the tail is sometimes referred to as the “nose”
Bullish Reversal Pin Bar Formation
In a bullish pin bar reversal setup, the pin bar’s tail points down because it shows rejection of lower prices or a level of support. This setup very often leads to a rise in price.
Bearish Reversal Pin Bar Formation
In a bearish pin bar reversal setup, the pin bar’s tail points up because it shows rejection of higher prices or a level of resistance. This setup very often leads to a drop in price.
Examples of the Pin Bar Formation in Action
Here is a daily chart of CAD/JPY, we can see numerous pin bar formations that were very well defined and worked out very nicely. Note how all the pin bar’s tails clearly protruded from the surrounding price action, showing a defined “rejection” of lower prices. All of the pin bars below have something in common that we just discussed, can you guess what it is?
If you said that all the pin bars in the above chart are “bullish pin bar setups”, then you answered the question right. Good job!
In the following daily USD/JPY chart we can see an ideal pin bar formation that resulted in a serious move and trend reversal. Sometimes pin bars like this form at significant market turning points and change the trend very quickly, like we see below. The example in the chart below is also sometimes called a “V bottom reversal”, because the reversal is so sharp it literally looks a V…
Here is an example of a trending market that formed numerous profitable pin bar setups. The following daily chart of GBP/JPY shows that pin bars taken with the dominant trend can be very accurate. Note the two pin bars on the far left of the chart that marked the start of the uptrend and then as the trend progressed we had numerous high-probability opportunities to buy into it from the bullish pin bars shown below that were in-line with the uptrend.

How to Trade a Pin Bar Formation

The pin bar formation is a reversal setup, and we have a few different entry possibilities for it:
“At market entry” – This means you place a “market” order which gets filled immediately after you place it, at the best “market price”. A bullish pin would get a “buy market” order and a bearish pin a “sell market” order.
“On stop entry” – This means you place a stop entry at the level you want to enter the market. The market needs to move up into your buy stop or down into your sell stop to trigger it. It’s important to note that a sell stop order must be under the current market price, including the spread, and a buy stop order must be above the current market price, including the spread. If you need more help on these “jargon” words checkout my free beginners forex course for more. On a bullish pin bar formation, we will typically buy on a break of the high of the pin bar and set our stop loss 1 pip below the low of the tail of the pin bar. On a bearish pin bar formation, we will typically sell on a break of the low of the pin bar and place a stop loss 1 pip above the tail of the pin bar. There are other stop loss placements for my various setups taught in my advanced price action course.
“Limit entry” – This entry must be placed above the current market price for a sell and below the current market price for a buy. The basic idea is that some pin bars will retrace to around 50% of the tail, so we can look to enter there with a limit order. This provides a tight stop loss with our stop loss just above or below the pin bar high or low and a large potential risk reward on the trade as a result.
To effectively trade the pin bar formation you need to first make sure it is well-defined, (see pin bar characteristics listed at the top of this tutorial). Not all pin bar formations are created equal; it pays to only take the pin bar formations that meet the above characteristics.
Next, try to only take take pin bars that are displaying confluence with another factor. Generally, pin bars taken with the dominant daily chart trend are the most accurate. However, there are many profitable pin bars that often occur in range-bound markets or at major market turning points as well. Examples of “factors of confluence” include but are not limited to: strong support and resistance levels, Fibonacci 50% retracement levels, or moving averages.
Pin bar in range-bound market and at important market turning point (trend change):
In the chart example below, we can see a bearish pin bar sell signal that formed at a key level of resistance in the EURUSD. This was a good pin bar because it’s tail was clearly protruding up through the key resistance and from the surrounding price action, indicating that a strong rejection as well as false-break of an important resistance had taken place. Thus, there was a high probability of a move lower after that pin bar. Note the 50% limit sell entry that presented itself as the next bar retraced to about 50% of the pin bar’s length before the market fell significantly lower…
Pin bar in-line with trend with multiple factors of confluence:
In the chart example below, we are looking at a bearish pin bar sell signal that formed in the context of a down-trending market and from a confluent area in the market. The confluence between the 8 / 21 dynamic EMA resistance layer, the horizontal resistance at 1.3200 and the downtrend, gave a lot of “weight” to the pin bar signal. When we get a well-defined pin bar like this, that has formed at a confluent area or level in the market like this, it’s a very high-probability setup…

Other names you might find pin bars described by:

There are several different names used in ‘classic’ Japanese candlestick patterns that refer to what are basically all pin bars, the terminology is just a little different. The following all qualify as pin bars and can be traded as I’ve described above:
• A bearish reversal or top reversal pin bar formation can be called a “long wicked inverted hammer”, “long wicked doji”, “long wicked gravestone”, or “shooting star”.
• A bullish reversal or bottom reversal pin bar formation can be called a “long wicked hammer”, “long wicked doji”, or “long wicked dragonfly”.

In Summary

The pin bar formation is a very valuable tool in your arsenal of Forex price action trading strategies. The best pin bar strategies occur with a confluence of signals such as support and resistance levels, dominant trend confirmation, or other ‘confirming’ factors. Look for well formed pin bar setups that meet all the characteristics listed in this tutorial and don’t take any that you don’t feel particularly confident about.
Pin bars work on all time frames but are especially powerful on the 1 hour, 4hour and daily chart time frames. It is possible to make consistent profits by only trading the pin bar formation, and you can learn more about it in my price action trading course. Upon adding this powerful setup as one of your main Forex trading strategies, you will wonder how you ever traded without it.
 

How To Trade Trends In Forex – A Complete Guide

By Nial Fuller   Posted in Forex Trading Strategies

 We’ve all heard the saying “The trend is your friend”, and while it sounds nice it doesn’t really teach us anything about trading a trending market or how to identify one. In today’s lesson, I am going to give you guys some solid information on trend trading that you can begin using immediately. Today’s lesson is all about trading trending markets with price action, and we are going to talk about how to tell when a market is trending and how to take advantage of these trends.
I hope you guys pay close attention to today’s article and refer back to it when you have any questions about how to trade or identify a trending market. In fact, if you email me asking about trends…I will probably refer you to this article!
Let’s get started…

The first step: Learn to identify a trend with nothing but raw price action

As you probably already know, there are tons of different indicators that you can put on your charts to ‘help’ you identify a trending market and trade with it. Many traders spend countless hours and dollars on trend-following trading systems or on indicators that just end up confusing them and making the process of trend discovery a lot more difficult than it needs to be.
I have always been a strong proponent of visual observation of the raw price action of a market, as you probably know. I also believe that simply observing a market’s raw price action, from left to right, is the easiest and most effective way to identify a trend and to spot high-probability entries within it.
Let me make a quick note before we proceed: A trend is not actually a strategy by itself; it’s just an added point of confluence that increases the probability of a trade. However, just randomly jumping in with a trending market is not an edge or a strategy.
As a market moves higher or lower, its previous turning points, or swing points as I like to call them, become reference points that we can use to help us determine the trend of a market. The most basic way to identify a trend is to check and see if a market is making a pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. This is just plain old visual observation of a market’s naturally occurring price action…no mumbo-jumbo trading systems or magic-bullets here. I’d like you guys to take a look at this simple diagram that I drew below; it shows us the basic idea of looking for higher highs (HH) and higher lows (HL) for uptrends and lower highs (LH) and lower lows (LL) for downtrends:
Note: each colored circle is highlighting what we would consider a ‘swing point’ in the market:
Thus, general observation of a market’s swing points is the first point of call in determining if a market is trending. If you do not see a pattern of HH HL or LH LL, but instead you see sideways price movement with no obvious general up or down direction to it, then you are probably looking at a range-bound market or one that is simply chopping back and forth.
Tip: You shouldn’t have to think too hard about whether a market is trending or not. Most traders make trend discovery WAY too difficult. If you take a common sense and patient approach, it’s usually fairly obvious if a market is trending or not just by looking at the raw price action of its chart, from left to right. Make sure you mark the swing points on your chart, as it will draw your attention to them and help you see if there’s a pattern of HH and HL or LH and LL, as discussed above.

Characteristics of trending markets

Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. Typically, what happens to many traders is that they will make some money during the periods of strong directional trend movement, but then they continue to trade as the market takes a breather from the trend and consolidates. It’s these periods when traders give up all of the gains they just made when the market was moving aggressively.
You need to learn to identify the different parts of a trend, this will help you avoid over-trading during the choppy / consolidation periods and will give you a better chance at profiting when the trend makes a strong move.
Here is an example of what I’m talking about:
In the diagram above, we can see that a trending market tends to move in spurts, moving in the direction of the trend and then stalling to take a breath before another leg in the direction of the trend. Now, all trends are obviously not exactly the same, but we do typically see the general pattern described above; a forceful move in the direction of the trend followed by a period of consolidation or a retracement in the opposite direction.
Now, these retraces are when we have the highest potential for a high probability entry within the trend. Often, a market will retrace to approximately the level of its previous swing point before the trend resumes. In an uptrend these swing points are support and in downtrends they are resistance. Look at the very first diagram in this article for a quick refresher on what I’m talking about. Also, let’s look at the chart we just looked at but this time with the support levels marked. These support levels resulted after the market began to retrace lower within the structure of the broader uptrend.
Note the ‘stepping’ pattern left behind by the swing points in this uptrend. As the market retraces back down to these ‘steps’ or support levels, we would focus our attention and watch for price action signals forming near these levels to rejoin the uptrend:
Note: These same principles apply in a down trending market but we would be looking for price action setups from resistance rather than support.
As we discussed previously, a trending market will tend to surge in one direction and then slow down and either consolidate in a sideways manner or retrace lower or higher, depending on what direction the dominant trend is. It is during these contraction or retrace moves that we can focus extra hard through our ‘sniper-scope’ and begin searching for high-probability price action trading strategies forming from previous swing points within the overall trend.

Trading from value in trends

My primary mission as a price action trader is to watch for obvious price action setups that form after a market retraces back to a confluent level in the market. This can be a swing point like we discussed above, a moving average level, or some other support or resistance level. Whatever the case, I am looking to trade from ‘value’ in a trending market. By value, I mean from an optimum point in the market that has proved significant before.
For example, in an uptrend I would consider ‘value’ to be support, since that is where the price of the market is likely to be seen as a good ‘value’ for the bulls, and thus they will tend to buy from that level and push the price higher. Whereas, in a downtrend, ‘value’ is seen at resistance, since the price has rotated higher within the broader downtrend; so it’s a good ‘value’ to sell from resistance in a downtrend. These rotations back to value points can also be called ‘trading from the mean’ or the ‘average’ price, this is why moving averages tend to act as dynamic support or resistance levels.
One tool we can use to find ‘value’ in a market is a moving average. I don’t use them all the time, but when I do I like to use the 8 and 21 day exponential moving averages. I use them as a general guide and a helper to find confluent points in a market. For example, often the 21 day EMA will align with a swing point in a trending market, this would be considered a confluent level since you have multiple factors lining up together. Then, if we see a price action signal there, we know we are seeing a setup form in a very high-probability area on the chart. See here:
Note: these moving averages should only be used as a ‘general guide’ and never as an actual signal (as in the old ‘moving average crossover signal’). We only use them as a helper to see dynamic support and resistance levels (to add confluence) and for trend direction. But just to be clear, our main focus is on visual observation of a market’s price action and levels, that is to say without any EMAs.

Don’t fall into the ‘breakout’ trap – Many amateur traders get stuck in a cycle of trying to trade breakouts all the time…this is not really an effective long-term strategy because the ‘big boys’ all know that amateurs are constantly trying to buy and sell breakouts. Instead, we want to enter closer to key market levels, swing points, EMA levels (confluent levels) in the market…always with confirmation from a price action signal. As a ‘regressive’ price action trader, we are looking to buy or sell from value within the trend…waiting for the inevitable pullback and then pouncing on an obvious price action signal if one forms.

Forex trends vs. other markets

One aspect of trend trading that I want to touch on briefly is that trends in Forex tend to differ from those in other markets, especially equities.
In Forex, bearish and bullish trends are typically equally as violent and potent…whereas in equity markets we tend to see slower moving price action in a bull market, along with lower volatility. Down-trending markets tend to be fast and volatile in equity markets. Forex trends tend to be the same in their volatility and price action whether the trend is up or down. The main reason is because it’s one currency against another in any given currency pair and this results in more balanced price movement.
Thus, in Forex, your trading strategy and plan will generally be the same for both up and down markets. Here’s an example of the EURAUD daily chart recently that shows just how consistent both down trends and up trends can be in this market…note how the volatility and speed of these trends were about the same:
In the equity markets, traders typically need to adjust their strategies or systems as a market moves from bull to bear or vice versa. But in Forex, whether you’re trading long or short, bull or bear, the volatility of a currency pair tends to say about the same. That’s not to say that volatility never changes in Forex, it just means that the particular direction of a Forex pair doesn’t have a very big impact on that pair’s volatility or price action, as it does in the equity markets for example.

Final notes on trading with trends:

Take advantage of trends when they happen – There is never anything concrete with trends…meaning you never know how long they will last for, so try to take advantage of them when they do occur. Markets typically only trend about 25 to 35% of the time, and the rest of the time they are range-bound or chopping in a sideways fashion. The trick is to learn how to identify a trending market so that you can get the most out of it and get on board as early as possible.
Counter-trend trading – Overall, trend trading should make up about 70% of the trades you take, and the other 30% might consist of counter-trend trades or trades in range-bound markets. It’s best to learn how to trade with near-term trend before you try trading counter-trend, because trading with the trend is naturally higher-probability than trading against it.
In conclusion, trend trading is perhaps the ‘easiest’ way to make money in the forex markets. Unfortunately, markets don’t trend all the time, and it’s the time in between trends that traders do the most damage to themselves. This damage is a result of not having the discipline to wait for high-probability setups to appear, and not being able to properly read a market’s price action to determine whether or not it’s trending.
I trust that today’s lesson has helped you get an idea of how to determine whether a market is trending or not and how to trade a trending market. Remember, there’s no ‘Holy-Grail’ for trend trading, but if you’re in doubt, the best thing to do is to just relax and take some time to visually observe the last few weeks of price data in a market…without indicators. This no-nonsense approach is hard to beat and will work if you know what you’re looking for.
Finally, I leave you with this little formula:
The Best Trades = Trend + Confluent level + Price action signal
I’ve touched on some topics that traders can use for short-term trend analysis today, and I expand on these topics in the members’ article section of my price action traders’ community. Trend following is a large part of my Price Action Forex Trading Course and of my general trading strategy. I’d really love to hear your feedback today, so please remember to leave your comments below & click the ‘like button’.
Good trading, Nial Fuller

Trading 50% Retracements with Price Action Confirmation

By Nial Fuller   Posted in Forex Trading Strategies


In this price action trading lesson, I am going to explain how to use the 50% Fibonacci retrace in conjunction with a price action reversal ‘confirmation’ signal, ideally a pin bar setup or fakey bar reversal setup.

It is a widely accepted fact among chart technicians that most major moves, and many minor ones, will eventually retrace to around the 50% level of the move. There are many reasons why these 50% retracements are so prevalent in the market, but we aren’t going to speculate on those today, because in the end it doesn’t really matter, what matters is that the 50% retrace is a very real and very useful event to be aware in the market.
I am only a fan of trading the 50% retrace off a swing low or high as long as there is a price action signal to confirm its validity; meaning, I don’t “blindly” enter only because the market has retraced to a 50% level. My trading is all about confluence and finding evidence to support the price signals on the charts.

How to find the 50% level of a move

Before we talk about trading price action signals from 50% retrace levels, we need to be clear on how exactly to draw in the 50% levels because I know from some of the emails that come in on the support line that some traders don’t really understand how to properly draw use the Fibonacci drawing tool on their Meta Trader 4 trading platform.
Quick note: I don’t use all the other Fibonacci extension levels because there are just too many of them and I don’t see the point of having so many different levels all over your charts. The 50% phenomenon has been proven across hundreds of years of technical analysis whilst the other Fib levels are much more haphazard and self-fulfilling in the sense that if you put enough lines all over your charts, some of them are going to get hit regardless of whether or not there is any significance behind them or not. I primarily only use the 50% level, but for me it is an ‘approximate’ 50% retrace and that means if a valid signal forms near the 50% level, say anywhere from a 45% retrace to a 60% retrace, I will also count that as a valid retrace and treat it the same I would as a signal exactly at the 50% level.
It really is quite simple to draw in the 50% levels, but it’s important that you understand where a move begins and where it ends, because I know some traders get confused about that. Where the move started should be an exact high or low of the move, or very close to it, this is where you first place the Fib tool, then you click and drag the other end of the Fib tool to the other end of the move; where the move terminated. Where the move started you should see the “100.0″ in the top right of the Fib tool and you should see the “0.0″ in the bottom right of the Fib tool. This might seem confusing at first to have the 100 % level at the start of the move, but it makes perfect sense if you think about it like this: You are looking for a retracement of a move, so by the time the move is finished and the market starts retracing, it is moving back toward the origin of the move and if it were to retrace back up or down on the whole move, it would then have retraced 100% of the move. See the chart below for more help:
In the example below, we are looking how to properly apply the Fibonacci tool to find the 50% retrace level of a major down move in the EURUSD pair:

How to trade price action signals from 50% retrace levels

When you have a price action signal present on the daily chart, you then match up the fib 50% retracement level if there is one present (see chart example below), if the price action candlestick signal matches up with the 50% swing retracement level then you’re good to go and potentially have a valid trade. If you can also find a relevant horizontal level to match up here, its a ‘double whammy’ of confluence (a reason to get excited).
The process of trading the 50% retrace is simple, below is one example of a recent trade on the AUDUSD pair:

After finding the potential trade signal, decide to enter at market prices, or wait for a pull back to get your stop loss tighter to reduce overall risk. In the chart example above, given the ‘perfection’ of the setup, as prices started to move up in the correct direction, a long entry could have been taken, momentum in the correct direction is always a good sign.
These obvious and ‘perfect’ price action setups at a 50% retrace level can lead to huge moves on daily chart time frames and learning how to identify and trade them can give you a very potent trading tool for your price action trading toolbox.
I personally feel that when a trader looks for the price action signal first, then matches up the supporting factors (confluence) they tend to make better trades. What I am saying here is this…if you see a giant signal on the daily chart, find out what other factors are backing it up and showing supportive evidence; we won’t always be able to trade a signal, mainly because we prefer not to fight the natural trend of the market, and many times we see signals forming against the trend.
In the next chart example below, the 50% swing retrace line and price action signal both came together at one common point and showed us a nice setup here, but what you should really take away from this example is that it was in line with the general thrust of the market, notice that prior to the pull back, we saw a nice rally up, and the pull back did not exceed the 50% area , rather it rejected it strongly and has now bounced aggressively higher to the new recent highs.
In this example we can see a 50% retrace in the EURJPY and a price action buy signal that formed showing rejection of it:

I hope this article clears some confusion about Fibonacci levels. Personally, I only get a handful of these setups every month on the daily charts, but when you see these swing retracements inside a general trend movement, its wise to mark them on your charts and then look for a price action confirmation entry signal. These setups typically lead to some very significant, and potentially very profitable moves, for more information on trading price action signals from 50% retracements levels, checkout my price action course and members area.