Combining horizontal lines at support or resistance levels with price action is one of the simple yet effective forex trading strategies. Price action involves trading by observing and analyzing the formations of pin bars that occur on candlestick charts. Below is the implementation of this strategy:
The Importance of Horizontal Lines
Professional traders always pay attention to significant levels on horizontal lines because they know these levels have a significant impact on price movements. Horizontal lines can be used as references for setting stop-loss levels and are effective when combined with price action.
Application of Horizontal Lines and Price Action in Trending Markets
In trending markets, we can observe the formation of pin bars at each swing point. For example, in an uptrend, pin bars at swing points indicate a reversal of the downtrend correction, thus maintaining the overall upward trend.
Application of Horizontal Lines and Price Action in Sideways Markets (Range Bound)
For sideways markets, we simply observe the formation of pin bars at support and resistance levels. Entry timing can be determined after the pin bar signals confirm that the market is still sideways.
"Event Area" on Horizontal Lines
The event area is the area around horizontal lines that indicate strong entry signals based on price action. From the formed pin bar formations, we can identify breakouts or retests at specific price levels that indicate the significance of those levels.
Example of Trading with Horizontal Lines and Price Action
For instance, in the EUR/USD currency pair initially in a sideways condition at the 1.4100-1.4000 level (event area), then a breakdown occurred after the formation of pin bars and inside bars. A sell entry can be made after a retest at that level.
By combining support/resistance levels with formed pin bar formations around them, we can identify signals for the right time to enter the market. This strategy is simple yet effective in making forex trading decisions.
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