Price action is a powerful indicator that provides traders with exact entry points or possible future market price zones. Price action observant traders can get a vital clue to what's to come.

As shown below, price reacts to a certain region and we can define that zone:
In fact, we can completely rely on some basic principles of liquidity dynamics from a certain price range to trade strategy.

10 pips distance per price range

Prices work differently at certain price zones and times of the day. The notable pivot points and historic highs or lows are crucial to determining a market's potential up or down and it is also used as a stop loss and take profit point. But when price approaches these zones, there are many different reactions before it shows a more clear price action.

However, many traders make the mistake of identifying a level as resistance support. Ideally, we should define it as a certain price range. And here, the author shares the 10 pip gap which is the least amount to determine if the price will respect or break this resistance zone. As shown below:

High and low volume stages

During the day, most of the volume is traded during the London session. Sometimes, the Asian or North American session also has sharp moves in price. The timing of the session, especially after the North American session closes and the Asian one opens, is the time when the market has the lowest volatility.

Low volume phases will often provide clues about the real intentions of the market makers. If there is indecisive price action at a specific price zone, it looks like it is about to turn around, but it does not actually happen until the session ends.

The lower volume market phase can be used to distinguish whether a breakout is real or fake. At this time, market makers also often create price traps for traders to enter the trade.

The figure below shows, selling points 1, 2, and 5 are high volume entry points, demonstrating the real intent of the market maker. Periods with lower volume represent a correction to the price range they need or stop loss hunting.
In the US session, the major US banks have a fairly accurate grasp of data on how much trading volume is located in a particular price range. And they rely on that to move the market. In most cases, they don't even move the volume to the interbank but remain as market makers. When the European session closes, they are almost the only ones who trade and move prices in the market.

For example, if there is some bullish reversal pattern formed and the market maker can make a profit from this pattern, it will drive the price away from the rejection of the model. But this profit, instead of pushing it into the interbank, they sell at the bottom (on a bullish reversal pattern) half of that profit.

This trade breaks the pattern, activates the stops, and exits the sell order with some profit (if any). Because the exit can push the price back to the entry point and fill with the spread they have just made. But now the market maker has been reaping the profits from the retail traders' losses, and the previous huge profits will also belong to them.

Price dynamics and action inside and outside of a sideways price zone

The dynamics of liquidity inside the price range went sideways

In the sideways price zone, long positions at the upper limit of the zone and long positions at the lower limit of the bottom are low-risk positions. So, according to this logic, the area in the middle of the sideways price zone is the area to swap the buy and sell risk conditions of the market. This leads to a change in price action.

Entry points under such market conditions often have tight target profit-risk limits.

Supply/demand imbalance between the crowd and market makers provided the risk/return ratio is the main principle for driving liquidity. That is why the direction of the next pivot point is usually determined in the middle of the sideways price range rather than at the boundary outside of the range. If the price approaches the boundaries of the range, it usually means a sign of an oncoming breakout (could be a false breakout or a continuation signal in the direction of the breakout)...

The figure below shows the swapping of risk conditions within a sideways price range that put pressure on the price volatility:
The next figure below shows that bottom tops (entry points for market makers) are usually formed at a safe distance, which is between 25% -75%. This is the area that determines which direction the break will take for either of the two price ranges:
Price dynamics outside of a sideways price range

This dynamic can basically be understood as the term - stop hunting.

It's a very natural part of the market dynamics, prices are always looking for new, deeper, or higher levels before turning around. The search for liquidity to motivate mobility is a never-ending process. The proof is that these can be found on price charts, which mark such liquid price ranges in the past.

As shown in the image below, a major reversal occurred after the price found a liquidity zone:

In technical analysis teaching materials, an ideal uptrend is usually structured with a high back high above the previous low and in contrast to a downtrend, a lower high is lower than the previous low. But this type of movement is often unsustainable, given the fact that each higher low made during an uptrend or a lower high during a downtrend will indicate significantly weaker price action than before. Basically, if a trader does not enter the trend at first, trading at these price action points can potentially be riskier. The ideal entry point is right after the trend is created.

The following figure shows that trends in theory and practice are often far from different. In fact, major market movements often happen after the breakout. Volume outside of a sideways price zone is what the market maker wants to push in and reverse the current direction of price movement.

To understand the dynamics of liquidity, imagine yourself as a market maker with the goal of finding as many ranges as possible, at the best price, they can add flavor. that gets more people involved and pushes the price in the direction they want.

It can be seen that the dynamics of liquidity is a very important factor affecting the direction of price action. If you understand them deeply, traders can completely grasp the price action to come up with a better trading strategy.

Price action of a corrective wave in a trend

Market sentiment

Oftentimes, technical sentiment and fundamental sentiment are different, as is the case with a technical correction, it is possible to see price move against the underlying sentiment. The market sentiment from a technical standpoint represents the main trend and it is one of the main aspects to consider when reading price action.

Basically, when the price makes a higher high or the long-term accumulation is broken up, the sentiment turns to the upside and vice versa. It is important to understand the current market sentiment correctly. Price action needs to be read in different ways.

When psychology changes or is about to change - that's when it becomes more difficult to analyze. It also means that a newly created vertex doesn't necessarily continue. Now the trader needs to search for both scenarios. It is bullish (in the main sentiment) and against the trend (down). Price movements against the main trend are often more volatile and stronger because out-of-trend bulls often wait for a pullback to become attractive before entering a trade. Additionally, this pullback was accelerated by the top buyers exiting their positions.

The story of the market

Next up is the important part. That is the context of the market. Traders need to understand the market context from the start, where the momentum ultimately is, and where it leads. Traders need to minimize the chart to see the general context and what are the current main trends? And look for opportunities to stay in the main trend and not follow your mentality.

Identifying corrections in a trend can be a difficult and psychological task. Usually, corrections of a trend have many ways of moving, which is the period performed by positions against the trend. If trading in these positions properly, large profits can be made.

Looking at the figure below, it can be seen that sometimes over half of the trend time is dominated by trend counter-movements. These cases appear when the fundamentals clash with technology or when every factor is in favor of a trend that pushes market sentiment to the limit.

Continue, see the picture below, When the trend reaches the overbought/oversold condition, positive profit-taking can lead to deep and prolonged corrections. This can cause the sentiment of the trend-following crowd to fluctuate and challenge the previous trend.

Adjustment in trend

Trend corrections can be very shallow or very deep corrections. Determining the end of a correction is difficult.

Shallow adjustment

A shallow correction or a minor correction is characteristic after a long breakout accumulation. Trading in such corrections is also very complex unless they meet the following conditions:
  • The price target is far enough away that the RR ratio is attractive enough.
  • Before that, there must be a push in the price nearby, in order to be able to place a tight stop loss (20 pips or less). Usually, such waves usually appear near or at the top of the breakout trough of the session (the most common is the European session and the US session). See the picture below:

Deep tuning shots

Deep corrections are more common after new highs are formed and a new official trend emerges, which indicates a strong correction when it goes against the main sentiment of the trend. Alternatively, it could be a sign that price targets are nearby.

Trends nested in trends and how to read top price action

Trends are interlocking

Depending on the timeframe traders trade, there is always a bigger trend making the current trend just a correction on a large timeframe. That is to say when the price moves over a long period of time, and when you shrink the tracking timeframe you can see that there are many nested trends within each other.

The first trend is the general trend. The other trends are technically just a major correction of the second trend, also known as the correcting trend. When this correction is held, the smaller internal trends can create distinct stories that can last for months with a thousand pips range. When these corrective trends are filtered down to look for the third and fourth trend (like the D1 or H4 bracket), a keen watcher may discover that the trend begins to lose its consistency. . So, the third and fourth trends must be used to reverse the trend in order to target that either the continuation of the correcting trend (second trend) or the first trend. See the pictures below:

Picture 1: As we can see the main trend is up, trend 2 is a major correction but does not change the main trend. Likewise in trends 3 and 4.

Picture 2: Here we see, trend 3 pushed the price lower than the previous correcting trend (downtrend), so they are not considered trends 3 and 4, but they will be in correcting trend. 2nd.

Picture 3: We see that trend 4 turned up and back to break with the start of trend 2 and the second correcting trend made the main trend continue, so in fact, these minor trends will be in the trend. main direction.

This four-trend counting rule is a bit complicated, but one thing we note is that we don't confuse a trend with a single wave of oscillation and with conventional wave-counting methods (like Elliot wave counting. , harmonic patterns, etc.), since each trend can contain a few or dozens of waves.

Above is the W1 EUR / USD bracket, which can see four different trends inside the big correction.

The range of adjustment and the range of the trend

During trending or accumulating periods, it is useful to reduce the ratio between the correction range and the total amount of the trend range.

Usually, when the distance from the trend reversal begins to cross the 50% mark of the previous wave, the chances of continuing the previous direction increase. On the other hand, under trending market conditions, when the trend is above 50% of the total number of pullbacks, the probability of initiating a correction increases. Comparing up and down ranges is especially useful during extended periods of accumulation, where it is difficult to determine in advance whether a correction is enough for the trend to continue.

In Pictures 1 and 2 we see them falling into a case of a high trend continuation and a higher probability of a reversal in the final shape.

Our understanding of trends and psychology, along with patience for tight-risk opportunities often pays off.

Brain hack a little, right bro. But try hard to read. Because there are very small price action trading tips but sometimes it is a very effective analytical element to help us avoid many risks, even bring us profits.

It can be said that reading Price Action is an art.

Fibonacci and price action at retracement levels that traders don't know yet

The levels above Fibonacci have an interesting point in that most of them play an important role in reversing price movement.

If you look backward you will see that the price reacted to most of the levels above the Fibonacci. Even more interesting is that the most notable rejection occurred at one or more levels above the Fibonacci, which makes one wonder if something in between the Fibonacci numbers reversed the price?

Also, when it comes to large price ranges on timeframes like MN and W1 it can go thousands of pips. Several other levels on the Fibonacci need to be applied on the chart for opportunities to trade more frequently.

The picture below is the EUR / USD H1 frame with a fairly clear price target:

If the gap between 0% and 61.8% and 38.2% is divided into smaller retracement levels on the Fibonacci there will be a few more notable levels between these two main levels. See the picture below:

The levels are in between the main Fibonacci levels

These levels have a role of their own. It can be said that they show a variety of risks from one fibrous level to another.

For example, if the price goes past 38.2% more than half of the distance remaining until the next major level - the 50% average then it could be seen that it has been broken. This makes the 44.1% average (50 + 38.2 / 2 = 44.1) technically important. The two averages between 38.2%, 61.8%, and the 50% level of 44.1% and 55.9% are two levels that are commonly targeted for major reversals on charts.

The figure below shows that the midpoint of the 38.2% and 61.8% fibo are the very important points, often acting as the levels for a trend continuation.

Last words

It can be seen that the price points between the major Fibonacci levels play a rather important role in price action analysis. Before now we only pay attention to the important levels of the fibo but often ignore these minor levels. Hopefully, through this article, you will have a little more knowledge about how price action moves.

Summarizing all 6 parts, it can be seen that price action is often repetitive in all timeframes. And it is the trader's job to understand those price actions and confirm them to find trading opportunities. In all 6 sections we have seen, how price action behaves with trend, rebound, inside and outside the range, high and low liquidity zones and this last is with Fibonacci. Hope this article's knowledge will complement you in the process of approaching price action.