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Practical analysis of GBPUSD, Understanding the Price Action

In the forex world, complex technical indicators and numerous analysis tools often confuse traders. The Price Action trading strategy, with its simple yet powerful features, has become a valuable tool for many traders. This time, Ultima Markets will deeply interpret how to apply the Price Action trading strategy from the trend of GBP/USD.

Basics of the Price Action

Price Action is a trading method that analyzes the market only by observing price charts (candle bars) without relying on any technical indicators. It focuses on the price itself and can provide a more direct market reaction.

In the forex market, each bar contains four key price points:

the opening price, the closing price, the highest price, and the lowest price.

A bullish candle represents the bulls, meaning the closing price is higher than the opening price and the price is rising;

A bearish candle represents the bears, that is, the closing price is lower than the opening price and the price is falling.

(1-hour Chart of GBP/USD, Source: Ultima Markets MT4)

Three Common Price Action Trading Methods

1、Pin Bar

Pin Bar is a bar pattern with a long line sticking to a bar, usually appearing near key support or resistance levels, indicating that the price is blocked during operation. However, not all pin bars are worthy of attention. The following is a 1-hour chart of GBP/USD. Which of the circles from 1 to 7 belongs to the pin bar worthy of attention?

hour Chart of GBP/USD, Source: Ultima Markets MT4)

For beginners, it is recommended to focus on the pin bars numbered 1, 2, 4, 6 and 7 first.

Their common feature is that if there is a long upper line, the closing price is lower than the opening price; if there is a long lower shadow, the closing price is higher than the opening price.

When observing and looking for pin bars, beginners need to remember that the shadow is as important as the body part.

￮      Falling Pin Bar: Long upper shadow, bearish candlesticks (closing price lower than opening price), indicating a strong downward trend.

￮      Rising Pin Bar: Long lower shadow, bullish candlesticks (closing price higher than opening price), suggesting that the bulls are far in the ascendant.

Engulfing Pattern

The engulfing pattern consists of two adjacent bars, and the body of the second bar completely covers the body of the first bar.

￮      Bullish Engulfing: The body of the second bullish candlestick covers the body of the first bearish candlestick.

￮      Bearish Engulfing: The body of the second bearish candlestick covers the body of the first bullish candlestick.

hour Chart of GBP/USD, Source: Ultima Markets MT4)

It is worth noting that the engulfing pattern is worthy of key attention when it appears near key support and resistance levels.

For example, in the above chart:

￮      The bullish engulfing in circle 3 appears near the support level of 1.2509. Pay attention to the long entry opportunity with the trend break.

￮      The bearish engulfing in circle 4 appears near the lower edge of the flag oscillation at 1.2555. Pay attention to the short entry opportunity with the downward break.

Only these two engulfing patterns are really worthy of attention to see if there is a subsequent trading entry opportunity. 

Support and Resistance Lines

The main idea of Price Action trading is not to add any additional technical indicators, but to judge the direction and strength of the trend only through the running trend of the market price and the Price Action pattern.

As mentioned above, some key pin bars or engulfing patterns often require the prior identification of key support and resistance levels. For beginners, it is always difficult to mark the daily levels worthy of attention.

Often, a support level that seems very critical fails to effectively stop the exchange rate from falling further. Obviously, there is a strong resistance level in the 1-hour chart, but an unappealing pin bar appears.

Don't worry!

The Ultima Markets APP helps you trade.

As the official APP of the professional forex broker Ultima Markets, in addition to the convenient basic operations of fund deposit/withdrawal and trading, investors can directly click on the relevant consultation of trading varieties to view the key daily support and resistance levels.

(Ultima Markets APP Interface)

In addition, Ultima Markets offers a rich range of trading products: providing more than 60 mainstream and rare currency pairs, covering major, minor and cross-currency pairs, and also including various contracts for difference (CFDs) such as gold, silver, crude oil, stock indexes, and cryptocurrencies, meeting the diverse trading needs of investors.

Through the high-quality services and powerful functions of Ultima Markets, you can use the Price Action trading strategy in forex trading with more confidence and achieve stable profit goals. Whether you are a novice or a senior trader, Ultima Markets is your reliable trading partner.