As a price action trader, we basically have two ways to trade; with or without a ‘confirmation’ signal. Now, I put the word ‘confirmation’ in single quotes because it has come to my attention that there has recently been some overly-literal interpretation of my usage of the phrase “price action confirmation signal” by certain individuals.
To clarify, when I say “confirmation signal”, that does NOT mean that it’s ‘confirmed’ that price will 100% for sure move in the direction the signal implicates. As I have stated many times in numerous articles, trading is a game of probabilities, not certainties. Thus, a price action ‘confirmation’ signal is simply an extra factor of confluence that supports a trade idea.
I do not suggest or say that “every trade” needs a price action confirmation signal either. In fact, I have a whole lesson on what I call “blind entries”, something else that has apparently and unfortunately been misinterpreted and misrepresented on other trading sites in recent times. A ‘blind entry’ does not mean you are just entering blindly with no consideration for market context or condition. In fact, in my article on trading event areas, it’s clear that a blind entry should typically only be taken from a key chart level of support or resistance, and ideally in-line with the dominant daily chart trend.
So, in today’s lesson, we are going to cover the two main ways a price action trader has to trade; with a confirmation signal or without one.
How should you decide to trade with or without a price action confirmation signal?
It’s important to understand that each trade and each chart situation is unique. There will never be two trading situations that are exactly the same in the market. Therefore, how a trader enters is at their discretion and is based on their perception of the chart at the time.
So, whether or not you enter on a price action signal or without one is going to be determined on a case by case basis. You might choose to wait for a signal at a key chart level in-line with the trend, or you might just enter ‘blindly’ at a key level. It’s ultimately up to you.
You may choose to wait for the ‘perfect storm’ of confluence by having as many supporting factors line up in your favour as possible, or you might just decide there’s a very well-defined pin bar signal with a long tail and that is enough for you to enter on. As long as you are entering on one strong component (ideally two or more) of the T.L.S. ‘system’ (Trend, Level or Signal), and it makes logical sense to you, it’s fine.
There are many variables in play and there’s no systematic way to look at trading. Anyone who tries selling you on a mechanical trading system has not yet developed their sense of trading gut feel and is still searching for that non-existent ‘Holy Grail’ of trading. Indeed, if you read the bio’s behind any of the traders, you will soon discover that they all use gut feel to some degree in their own trading, doing so is the mark of a skilled and seasoned trader.
Trading with price action confirmation signals
Trading with a price action signal simply means you wait for an obvious price action signal or setup to form in the market, ideally from a key chart level of support or resistance or within a trending market. Let’s take a look at some examples of this…
In the chart below, we see an example of waiting for a price action confirmation buy signal at a key chart level of support. Especially for a trade like this that would be considered against the previous downtrend leading up to it, I like to see a confirmation signal before entering. We can see a nice up move followed this pin bar buy signal in the GBPJPY at key support near 175.75…
In the next chart, we are looking at the GBPUSD where we have a recent example of entering both with a price action confirmation signal and without. We can see the support zone in the chart below, between about 1.5165 – 1.5055 area, this support area was a logical place to look to be a buyer following the previous strong breakout above it. Thus, when price came back down and re-tested it, we could have either entered ‘blindly’ within that support zone with a stop loss below it, or we could have waited for a price action buy signal.
Note that both options would have worked here but the ‘blind entry’ would have gotten you in at a better price with a larger potential risk reward. Blind entries can do this, but it’s at the sacrifice of that extra piece of confluence that a confirmation signal provides, thus it’s a bit more aggressive of an entry…
Trading without a price action confirmation signal
Sometimes you will have a nice price action signal like in the examples above, sometimes you won’t. There’s no reason to not enter a trade for long periods of time just because you don’t have a price action signal. We can enter a trade without a confirmation signal in a number of different ways, and this can still be considered ‘sniper trading’ since we are waiting to enter from levels or from value points within trends, despite what you may have read elsewhere.
In the chart below, we see an example of entering a trade without a price action confirmation signal. As price retraced back up to the key resistance in the EURUSD near 1.1035, we could have been looking to sell anywhere from about 1.1000 to 1.1035. This trade had confluence but without a signal, so whilst it didn’t have a price action signal, it has the weight of the downtrend and a key resistance level behind it…
In the next example, we see an entry without a confirmation signal on the 4 hour chart of the EURUSD. Note that sometimes you will not be able to find a good entry on the daily chart in a strong-trending market. Thus, it’s OK to drop down to the 4 hour and 1 hour and look for pullbacks within a trend, to enter at an intraday level. In this case, we had a nice little 4 hour chart level and multiple tests of that level before the trend resumed by the market falling lower. This is another example of having confluence without a confirmation signal; in this case it was the overall daily chart trend and an intraday resistance level that was the confluence, we could have then entered short at or close to the level in anticipation of the downtrend resuming…
I hope that from this lesson you can see there is more than one way to trade price action. You do not always need a ‘confirmation’ signal, and often times you won’t see one for a while, so it’s best to learn how to trade both with and without them.
Despite what you may have read on other trading sites, there is always going to be some gut feel and individual discretion required with trading, and the most successful traders in the world know this and they embrace and rely on it. Each trade has to be taken on a case-by-case basis and it’s up to you to decide when and how to pull the trigger on a trade. Once you’ve begun to develop this, you will feel in-tune and almost ‘connected’ to the charts, and when you combine this ability with self-discipline and strong money management skills, you have what it takes to succeed as a trader.