Price action trading explained simply

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In short

Price action means reading the chart without indicators. Instead of moving averages or oscillators, the program looks at two things. Where are the key price levels? And what does the candle that forms there look like?

In the schematic that is a pin bar at support: price falls into the zone, bounces and closes near the top. The program buys and puts the stop just below the wick. If support does not hold, it was a trap.

Candle signals are easy to see and hard to test. How to check whether a price action EA is more than a good backtest is covered in What makes a good forex EA?.

The strategy as a schematic

A drawn price path, no market data. First the case where the rule works, then the same routine when it fails.

Closed: ±0 pips
Open: –
Open volume: –

Schematic, no market data: a drawn price path, results in pips weighted to 0.10 lots. Not a backtest and no statement about any real EA.

How the strategy trades

Mark key price levels: support, resistance, earlier highs and lows.
Wait until price reaches one of these levels. Nothing is traded before that.
Look for a signal candle, for example a pin bar: a long wick towards the level, a close far away from it.
Enter after the signal candle, stop just beyond its wick.
Target at a multiple of the distance to the stop, e.g. 2×, or at the next price level.

Where the risk sits

The risk per trade is clearly capped by the stop beyond the signal candle. Because a pin bar's wick is long, the stop is often further away than expected, and the lot has to be smaller accordingly.

Candle shapes are common, good signals are rare. A pin bar at support only says that price bounced there once. If the level breaks afterwards, the signal was a trap and the stop is hit.

Price action is hard to define precisely. What counts as a pin bar, where support lies and which level matters is set slightly differently by every trader and every EA. Two price action EAs can therefore trade completely differently.

When it works, when it fails

Tends to work when …

Clearly visible levels where the market has reacted several times.
Signal candles that stand out clearly from the candles before them.
A target that sits before the next opposing level.

Tends to fail when …

The level breaks shortly after the signal and price runs through the stop.
Choppy markets in which candles with long wicks appear all the time.
Too many marked levels, so that almost every candle is a signal somewhere.

How to recognise it in an EA

Traces in the trade log of a live account, whatever the vendor calls the EA.

Entries shortly after candles with long wicks or after engulfing bars.
Stops just beyond the high or low of the signal candle, so of varying distance.
Targets as a fixed multiple of the risk, e.g. 2R or 3R.
No indicator names in the description, but terms like pin bar, inside bar, support, resistance.

Typical settings

Setting	Typical	Effect
Signal candle	pin bar, engulfing, inside bar	Defines what counts as a signal.
Minimum wick	e.g. 2–3× the candle body	Stricter = fewer but clearer signals.
Price levels	highs/lows of the last X days	Without a level a candle shape is just noise.
Stop	1–3 pips beyond the wick	Sets risk and lot size.
Target	2–3× the risk	Higher = reached less often.

Common ranges from EA manuals and set files, not a recommendation.

EAs in our tests built this way

No EA in our tests is explicitly tagged with this design yet. Many EAs combine it with other mechanics; the trade log usually shows it sooner than the product description. All EA reviews →

All strategies →All designs compared: EA strategies explained →

Frequently asked questions

What is price action?

A trading approach that reads signals directly from the price, without indicators. Typical are candle shapes at key levels, for example a pin bar at support.

What is a pin bar?

A candle with a long wick and a small body. A long lower wick shows that price fell far and then closed near the top. At support this counts as a hint that buyers are active there, a hint, not proof.

Does price action work as an EA?

That depends on how precise the rules are. A program needs fixed definitions for candle shapes and levels. The tighter these rules, the less often it trades; the looser, the more false signals. Like any EA, a price action EA needs a long live record.

Video: the strategy in under a minute

The same animation as a video with subtitles, for those who prefer to watch.

Price action explained simply