How to Read Price Action (For Dummies)

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How to Read Price Action (For Dummies)


A Simple Price Action Trading Strategy That Works in Any Market Conditions

Many traders think that it’s a “strategy” if it tells you how to enter the markets.

However, that couldn’t be further from the truth…

Because not only do you need to know how to enter the markets, you also need to know when you’ll exit when you’re right and when you’ll exit when you’re wrong!

That’s why in this strategy, we will use a simple yet effective framework called the T.A.E.E. framework.

Which stands for:

  • Trend
  • Area of value
  • Entries
  • Exits

Maybe you’ve already heard of this framework before, but I’ll put this in context with everything you’ve learned so far on how to read price action.

Trend

Looking at the example below, you can see that CADJPY on the daily timeframe is in a valid uptrend as it makes its 2nd higher-high:

how to read price action

It means that you want to look for long setups to take advantage of this market.

Now that you have confirmed which type of trend it is, where exactly do you enter?

Area of value

Since we are looking for the “area of value,” you’d want to wait for the price to go down and retest the previous higher high

CADJPY Daily Timeframe:

how to read price action

In this case, we’d be looking to buy low and attempt to sell high in an existing uptrend.

Pretty cool, right?

But we’re not done yet.

The next question would be:

“How can I enter this trade?”

Entries

Of course, you do have the option to place an automatic buy limit order.

However, you’d want to see a strong candlestick rejection to avoid this from happening…

CADJPY Daily timeframe:

how to read price action

I’m sure there are many candlesticks to learn, but the truth is you only need to focus on how large the body of a candle is relative to previous candlesticks.

Here’s an example…

how to read price action

You’re waiting for a candlestick with a large body as a confirmation to enter the trade.

So going back to our example, your entry trigger would be here…

CADJPY Daily Timeframe:

how to read price action

Finally…

Where would you take profits if things go right and cut your losses when things go wrong?

Exits

The most reasonable place to set your take profits is before selling pressure kicks in, which is usually before the previous high

CADJPY Daily Timeframe:

how to read price action

Because if you set your targets too high, there’s a high chance the market will smell your take profit and start going against you.

At the same time, you’ll want to give room when setting your stop loss to avoid being stopped out prematurely…

CADJPY Daily Timeframe:

how to read price action

That’s pretty much it!

But of course, I’m not going to leave you hanging.

So I’m going to share how to apply this strategy both in ranging and downtrend markets…

Downtrend: NZDJPY daily timeframe

how to read price action

As you can see…

The market is currently in a valid downtrend, this means that you’ll want to look for shorting opportunities.

The market eventually made a retest from the previous lower low and made a valid entry trigger with a strong bearish rejection candle.

Finally, the take profit is set just above the nearest lower low before potential buying pressure kicks in, and stop loss just above the nearest high.

Range: USDJPY 8-hour timeframe

how to read price action

The market is currently in a valid range as the price is contained between the highs and lows.

So, you enter the trade at the retest of the lows with a confirmation of a bullish candlestick.

Finally, you must set your take profits below the previous high and your stop loss below the lows.

Awesome?

With that said, let’s do a quick recap…





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