According to my analysis over time, the most important thing to know in price action trading is the price target level. If you know where the market is going and what its target is, then it will become very easy for you to trade and find high-probability trade setups in the direction of the market.
Today, I will also explain an important price action pattern that you should learn to get success in price action trading. So don’t skip any step and read the full article to understand this trading strategy.
Identify price target before applying a strategy
Before applying a trading strategy, the most important thing to do is to do a simple analysis and check where the price is heading. Mark the key levels on the price chart and predict the price direction.
For example, in the chart below, I predicted that the price is currently at a support zone and it’s going in a bullish direction to break the above high-probability Resistance zone. Once I know the starting and ending point, then we will have to apply the trading strategy.
It’s not the correct way if we just make strategy rules and apply the trading strategy blindly without knowing the price’s future direction.
Price moves by breaking strong zones
In price action trading, market makers always make strong zones and then break those zones to get liquidity.
Actually, big players need liquidity so they can execute their orders. For example, if a big institution wants to sell millions, then they can’t do that instantly if there is not enough buying power in the market. Also, placing orders instantly will not offer them a fair price. They always need a fair price to sell; that’s why they place orders in chunks to get a fair market price. However, on the price action chart, you will see this phenomenon in the form of price making strong zones and breaking those zones.
Most retail traders tend to buy or sell from strong zones, but actually, the market progresses by breaking those zones or high/low values in the form of a broadening pattern.
If you want to learn the market pattern in more detail, then you should learn the broadening pattern.
Use flag limits to find the price target
As we know, before applying a trading strategy, we should predict the price target. We also need a technical pattern to determine the price target easily. For this purpose, I use the flag limit technical pattern.
According to my experience, the flag limit is the best price action pattern to determine the future price target. You can also use a flag limit in the trading strategy, but according to my experience, the best use of a flag limit is to use it in predicting the price target.
Predict the target
Now I will show you how I determine the price target before applying a trading strategy.
As I also told you previously, the price always breaks strong zones. So we will find a flag limit that has many price touches, and the price was not able to break that flag limit zone even after multiple attempts.
The more flag limit touches, the higher the probability that the price will break that flag limit zone.
So once I find a strong flag limit zone, I just zoom out and find the trend, or just do a normal broadening pattern analysis, or just do higher highs and lower lows analysis, and you will come to know whether the price is trying to break this flag limit zone or not.
Once I predict that, then I will find the best trade setups in the direction of the break and will hold my trades until the price breaks that flag limit zone.
Believe me, this process will also give you the confidence that you have to keep holding your trade until the breakout.
Most traders fail because they don’t know properly where to exit, and this price action pattern will give you the confidence to keep holding your profitable trade and extract as much profit as possible from the trading market. This will also ultimately improve your risk management.
The bottom line
The conclusion is that predicting the price target level is the most important thing. If you are trading with a strategy blindly without properly knowing the future direction, then ultimately you will end up losing your account.
So trade with a complete process:
- First, predict the price target and find the high-probability zones from where the price can bounce and then can ultimately hit the price target.
- Next, apply the trading strategy with a set of rules and confluences in the direction of the price target.
- Keep holding most of the trades until the price hits the target.
This is just the simple thing you will have to follow to become a consistent trader.
