What is price action trading?
Price action is the movement of price itself: where each candle opened, how far it traveled, where it was rejected and where it closed. Price action trading decides from that raw record and a few horizontal levels, not from indicators calculated from it after the fact.
It is not a secret system: two traders can read the same chart differently, the rules below are common conventions, and a bare chart never removes the need for a stop. It gives you a fixed order of questions. New to candles? Start with how to read candlestick charts; for the bigger picture, see technical analysis for beginners.
- Structure: is price trending up, trending down or ranging?
- Level: is price at a support or resistance zone others watch?
- Signal: has a pin bar, inside bar breakout or engulfing candle closed there?
- Plan: the entry, the stop (where the idea is proven wrong), the target (the next level) and the size the stop allows.
What does each candle say?
Every candle records four prices, labeled in the drawing below: open, high, low and close. The body runs from the open to the close and shows who won the period, green for buyers and red for sellers. The wicks mark prices that traded but did not hold.
Three readings cover most of price action. A big body that closes near its extreme shows one side in control. A long wick shows a rejection: a long lower wick means lower prices were tried and refused. A small body with wicks on both sides shows a stalemate. Where a candle closes within its own range matters more than its color.
One candle is a small sample. The same long lower wick means something at support after a decline and almost nothing in the middle of a range, which is why structure and location come first.
Step 1: read the market structure
Structure is the pattern of swing highs and swing lows. Higher highs and higher lows make an uptrend, lower highs and lower lows a downtrend, and swings at roughly the same prices a range. In an uptrend, look for longs at support after a pullback; trade a range only at its edges.
The drawing below shows an uptrend with a trend line under three higher lows, the touches numbered 1, 2 and 3. Hypothetical: a stock makes swing lows at $95.20, $96.10 and $97.00. A fourth pullback to the line, near $97.90, that prints a bullish signal candle is a trade with the structure.
The failure is drawn too: the last candle closes below the line. If price then makes a lower low, under $97.00 here, the uptrend is broken and long signals lose their backing; a range often comes before any downtrend. The trend lines guide covers drawing them and reading breaks.
Step 2: why location comes before the signal
A level is a zone where price has turned before: a prior swing high or low, the prior day's high or low, a range edge, a round number. Mark levels before the session, as zones rather than thin lines, on a 15-minute chart or higher, as the support and resistance strategy guide shows. Supply and demand zones work the same way.
Location does two jobs: it tells you whether a signal deserves attention, and it hands you the plan, since the rejected level sets the stop and the next level sets the target. The drawing below shows the ideal case: price dips into support, rejects it and a buy signal prints, with resistance overhead.
Then check the room. Hypothetical: support at $48.00–$48.30, resistance at $50.80. A long at $48.80 with a stop at $47.80 risks $1.00 for $2.00 of room, a 1:2 risk-reward ratio. With resistance at $49.30, the same signal offers $0.50 for $1.00 of risk: skip it, however good the candle looks.
How to trade a pin bar
A pin bar is one candle with a long wick, a small body at the other end and little or no wick on the body side. A bullish pin bar shows sellers pushing through a level and buyers driving price back before the close. The name is short for "Pinocchio bar", technical analyst Martin Pring's label: the long wick marks a false move, a lie told by the market.
The left panel of the drawing at the top of the page shows the textbook case: the lower wick pierces support and the candle closes back above it. The common conventions are listed below.
A hypothetical that works: in an hourly uptrend, support sits at $60.00–$60.20, the prior day's low. A 15-minute candle drops to $59.70 and closes at $60.45, near its $60.55 high. A buy stop at $60.60 fills when the next candle trades higher. Stop at $59.60, under the wick: $1.00 of risk. Target: resistance at $62.60, $2.00 away.
A hypothetical that fails: same zone, another day. The order fills at $60.60, then sellers push through $59.60 and the stop fills, a little lower in a fast market: about $1.00 a share lost, or $100 on 100 shares sized for that risk. Had the next candle never traded above the high, nothing would have filled, which is the point of entering above it.
- Shape: the wick is at least about two-thirds of the candle's range; the body sits in the remaining third.
- Location: the wick pokes through a marked level or beyond nearby candles, and the close is back on the right side.
- Entry: a buy stop just above the high, so the next candle must confirm. A limit order near mid-wick gives a tighter stop but often never fills.
- Stop: below the tip of the wick, plus a small buffer.
- Target: the next level, only if it is clearly farther than the stop.
How to trade an inside bar
An inside bar has a lower high and a higher low than the candle before it, the mother bar, so its whole range fits inside. It shows a pause after a bigger move and has no direction of its own; the breakout decides.
The right panel of the drawing at the top of the page shows the bullish case: a large mother bar, a smaller inside bar, then a close above the mother bar's high. The cleanest setups form at a level, with the trend.
A hypothetical that works: in an uptrend, a stock pulls back to support at $25.00. A 15-minute mother bar spans $24.90–$25.60; the next candle trades only $25.10–$25.45. A candle then closes at $25.70, above the mother bar's high. Buy there, with a stop at $24.85 under the mother bar's low: $0.85 of risk. Resistance at $27.40 is $1.70 away, a 1:2 plan.
A hypothetical that fails, the false break: after the buy at $25.70, the next two candles fall back through the mother bar's low. The stop fills at $24.85, about $0.85 a share lost, more if price gaps.
- Inside bar: high below the mother bar's high, low above its low. Some accept equal highs or lows; stricter traders want it within the mother bar's body.
- Entry: a buy stop just above the mother bar's high or, stricter and as drawn, a close above it. Below the low is the short.
- Stop: below the mother bar's low. With a very large mother bar, some use its midpoint and accept more stop-outs.
- Skip: inside bars mid-range and the endless tiny ones on a quiet 5-minute chart.
Engulfing candles at a level
A bullish engulfing pattern is a small red candle followed by a green candle whose body covers the whole red body; wicks do not count. Buyers erased the previous period's selling and more. The drawing below shows it second from the left, beside the hammer (a close cousin of the bullish pin bar), the morning star and the piercing line. The bearish engulfing is the mirror after a rise.
It counts only at a level after a move into it. Hypothetical: an uptrend pulls back to the prior day's high at $112.00, now support. A small red 15-minute candle is followed by a green one that closes at $112.90 and engulfs its body; the low of the two is $112.00. A buy stop at $113.00, just above the green high, fills on the next candle. Stop at $111.90: $1.10 of risk. Target: the swing high at $115.20, $2.20 away.
The failures look identical: a green candle swallowing a tiny red one mid-session is routine on 5-minute charts, and one that closes just under resistance has no room left. The candlestick patterns guide covers the whole family.
Why context beats the candle: where price action fails
The same candle can be a trade or nothing. Hypothetical: a stock ranges between support at $60.00 and resistance at $62.60. At $61.30, mid-range, a perfect-looking pin bar prints. It rejected no level, so its stop protects nothing and a buyer there is betting on a wiggle. The identical candle at $60.00, after a drop into support, is a setup.
Most losing price action trades come from the mistakes below, not from a misread wick. Even a setup that passes every check fails often, so the stop and the size matter more than the signal.
- A signal mid-range, away from any level.
- No room: the next level is closer than the stop.
- Fighting the structure: a bullish pin bar in a downtrend, against the higher timeframe.
- Acting before the close: an unfinished pin bar can become a breakout candle in its last minute.
- Chasing far beyond the trigger, or a stop tighter than the signal candle's own wick.
- Trading around scheduled news or right after the open, when long wicks are everywhere.
Timeframes and a price action trading plan
The timeframe changes the weight of a candle. The regular US session, 9:30 a.m. to 4:00 p.m. ET, prints 78 five-minute candles, so pin bars and inside bars appear all day and most mean nothing. Signals on 15-minute, 1-hour or daily charts sum up more trading, with wider stops. A common split for day traders: structure and levels from the 1-hour or daily chart, signals on the 5- or 15-minute chart; see multi-timeframe analysis.
Size comes from the stop: shares = dollar risk ÷ stop distance. Hypothetical: risking $100 with the pin bar stop $1.00 away allows 100 shares; with the inside bar stop $0.85 away, 117 shares. A stop-out then costs about $100 plus costs, more if price gaps. The position size calculator does the math; stop loss and take profit covers buffers.
UpTickFlow, our invite-only TradingView indicator, follows the same order but does not detect pin bars, inside bars or engulfing candles. It waits for a candle to close at a level, draws the entry, stop and target before the trade, scores the setup from 0 to 100 and stays quiet in chop: a second check on your own read, not a scanner. The routine below works on any free chart.
- Before the session, note the structure and mark the levels on the 1-hour or daily chart.
- Wait for price to reach a level after a move, with the structure.
- Wait for the signal candle to close.
- Entry at the trigger, stop where the signal is proven wrong, target before the next level; skip the trade if the reward is not clearly bigger than the risk.
- Size from the stop, and log every result in R, losses included.