• Christiaan du Plessis

FX Price Action Textbook Trade Example: GBPAUD (11.5R)

We can't control the market and we can't always know exactly what will happen next. It doesn't matter how much you learn. All we can do is work on our edge and trust it when we apply it in the market. If you stick to your edge in the long run, you will come out on top.

In our Advanced Price Action Trading Course, we teach traders how to approach the market using a structured trading plan using Price Action concepts.

We will be looking at some examples that we or our students took in our live trading room using these concepts. Hopefully, this will help developing traders learn to approach the market with a clear plan and to follow this plan.

The first example we will look at is that of GBPAUD taken by one of our students, late December 2019.

We will be breaking down the trade in the 6 Steps described in the FX Price Action Trading Plan. They are as follows.

1 - Identify your Bias

2 - Identify Potential Action Zone (PAZ)

3 - Wait for your Impulse

4 - Wait for one of your Entry Patterns.

5 - Execute

6 - Journal

1 - Identify your Bias

The first step before taking a trade is to identify your Bias. We use higher timeframe patterns and levels in formulating a directional bias going forward. This will ensure that if we do find a good trade entry on the lower timeframe, we can ride the higher timeframe direction to get maximum reward ratio from the risk you have taken on.

In this case we are looking at the Daily timeframe and we see a potential Running Flat forming on the trendline. If this market creates this higher timeframe corrective pattern, we can predict with a high probability that the market will make a new high. This is only an idea at this point and we need more steps before we can confidently pull the trigger.

2 - Identify Potential Action Zone (PAZ)

To increase our probability of finding a reversal in the market, we will be looking at specific higher probability areas, known as Potential Action Zone. We call them "potential" action zones because of course we cannot guarantee price reversal at these levels, but they are the areas where you want to be alert and start hunting for those entry patterns.

In this example, we move one timeframe lower (4H) and we identify the bullish order block (aka demand zone), marked in blue, that is sitting right on the 88.6% retrace of our last bullish wave. So we have enough confluence in this area to give us that additional boost in probability.

3 - Wait for the Impulse

Even though we have our higher timeframe directional bias and we are trading in a PAZ, we still need to be patient and wait for the market to give us a sign that the buyers are stepping in. For that, we wait for a clear impulsive move and a break of market structure, on one timeframe lower (1H)

You can note here on the chart that after the market took some liquidity (checkmark) we have our break in market structure (arrow). This is our indication that there are buyers at these levels and now we need to find a way to enter the market to give us the best return for our risk.

4 - Wait for one of your Entry Patterns

Having strict entry rules are very important in trading. You need to know exactly what you are looking for in the market before you pull the trigger. Your rules can be different from ours, but it is important that they are clearly defined so you have structure in your trading and to avoid trading on you "gut" or with a "feeling"

Reversal Pattern 05

In our training program, we identify 12 entry patterns to look for on the lower timeframe.

Not only do these patterns increase the probability of finding a reversal, it increases the reward ratio for your trades, allowing you to keep your losses small and your wins big.

One of those patterns is RP05 and we will be looking to enter on its formation.

5 - Execution

After identifying your entry pattern, it is time to place your trade. We always prefer to use Limit Orders because it allows you to enter a trade without being in front of your PC and also forces you to plan your trade in advance. removing the "gut-feel" trade.

We place our pending order below the last little low formed on the 1H TF, anticipating RP05. Our stop will be placed on the low while we target the highs identified in our higher timeframe bias. Note the excellent potential reward ratio on this setup.

6 - Journaling

In the final step in our trading plan, we always recommend journaling your trade. Note all the steps that you followed when executing the trade, including your bias, PAZ, entry pattern, and the result.

In this trade example we managed to get to our target easily, if you left the trade to play out. This was a reward ratio of 11.5, meaning if you risked 1% of your account, you would've banked 11.5%. This also means that this one trade can cover 11 loosing trades. So you don't have to always be right to make money. In fact, with setups like these, even if you are right 1/10 times you will still be profitable.

Of course not every trade works out exactly like a textbook example, but you only need a handful of these to make a good trading year :)