One of the simplest yet effective forex trading strategies involves combining horizontal lines at support or resistance levels with price action. Price action is an analytical method that observes and analyzes pin bar formations occurring on candlestick charts. By identifying dominant horizontal lines as support and resistance levels and observing pin bar formations around these levels, we can make more precise trading decisions.
The Importance of Horizontal Lines:
Professional traders always pay attention to important levels on horizontal lines because they understand that these levels have a significant impact on price movement direction. Horizontal lines can be used as references to set stop-loss levels, especially when combined with price action through observing pin bar formations.
Application of Horizontal Lines and Price Action in Trending Markets:
In trending market conditions, we can observe pin bar formations formed at each swing point. For example, in an uptrend, pin bars formed at swing points indicate a reversal of the downtrend correction, confirming that the overall trend remains upward. Conversely, in a downtrend market, the process would be reversed.
Application of Horizontal Lines and Price Action in Sideways Markets:
For sideways or range-bound market conditions, we can focus on pin bar formations formed at support and resistance levels. Entry timing can be determined after the appearance of a pin bar signal that confirms the market is still in a trading range. Stop-loss and profit target levels can be placed near support or resistance levels depending on the direction of the entry position.
"Event Area" on Horizontal Lines:
An event area is the area around a horizontal line that shows strong signals for entry based on price action. Pin bar formations formed in the event area can indicate breakthroughs or retests at specific significant price levels. Entry confirmation can be made with the formation of a pin bar.
Trading Example with Horizontal Lines and Price Action:
For example, on the EUR/USD pair initially in a sideways condition at the 1.4100-1.4000 level (event area), there was a breakthrough downwards after the formation of a pin bar and an inside bar. After the retest, the price moved back down. By observing pin bar and inside bar formations as well as support/resistance levels, we can identify the right entry signals.
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By combining support/resistance levels and price action through pin bar formations, we can identify the right time to enter the market. This strategy is simple yet effective because it relies on strong technical analysis without using too many additional indicators on the trading chart.
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