How to trade
Price Action

Harshit Sanghvi
Edited by - Amit Ghosh

 
 

Harshit Sanghavi
E: ​harshitsanghavi@gmail.com

Edited by -
Amit Ghosh
E: dexter@aeron7.com
W: ​www.amitghosh.net

Special thanks to Syed Aleemuddin Noor, Biren Patel, Sunil Dhanerwal, Ramesh Nadar,
Venkatraman B and numerous members from Unofficed Community for their valuable time and
support!

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system,
or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher and the copyright holder.
Copyright © 2018, Aeron7 Inc.

First eBook edition: 24th March 2018

Second eBook edition: 11th August 2018

1 
 

Dedication

“​This Book is dedicated to my parents who have supported me in every situation and helped
me during my time of struggle. I would also like to thank some of my dearest friends who
believed in me and encouraged me to succeed in the finance domain without any financial
background.”

2 
 

Preface
Dear Readers,

My name is Harshit Sanghvi, an engineer by profession, loved and always got fascinated by
Finance because of its complexities.

I started to learn about Stock market about two years ago my affair went deeper and deeper by
various resources available online either free or paid..

After doing all research and brainstorming, I discovered Zerodha and started my journey of
learning. I was motivated by Amit Ghosh who is the founder of Unofficed.com community.

There are many books and articles available on the internet to learn about stock market but
they can provide only theoretical knowledge and are far from reality. So I thought of sharing my
wisdom and came up with the idea of writing my own book with real practical examples of my
trades detailing each and every action that has helped me to grow as a Trader.

After wiping out my entire Trading Capital in the initial stages because of the half-gained
knowledge and blindly following the so-called Trade Gurus on TV channels, I was frustrated and
lost my confidence. I had almost decided to quit Stock Trading. And then I came in contact with
Amit and after learning more about his way of Trading, I got determined to learn and gain more
knowledge of the Stock Markets.

People want to learn everything and they do succeed in learning them but they seldom try to
Master it. Here I would like to quote Bruce Lee, "I fear not the man who has practiced 10,000
kicks once, but I fear the man who has practiced one kick 10,000 times."

And this is what I believe in and urge all my readers to do. Trading is an art and if you master it
there's nothing that can stop you from achieving success and allowing you to live the life that
you want.

Harshit Sanghvi

24th March 2018

3 
 

Table of Contents

Dedication 2

Preface 3

Table Content 4

What is Price Action? 6

Trading with realistic psychology 7

Risk and Reward 8

Gap Up and Gap Down 9

Trading with Gap up and Gap down 10

Gap at the Bottom 10
Gap at the Top 12

Support and Resistance 17

Support 17
Resistance 18

Trading with Support and Resistance. 21

San-Ku Three Gaps up 22

Dumpling Top and Fry Pan Bottoms 24

Dumpling Top 24
Fry Pan Bottom 25

Timeframes and Trends 27

Timeframe 27
Trend 27

Moving Averages 29
Mean Reversion 31
Simple trades using 50 EMA 31
Trade using Moving Average Crossover 32

Price Action within trend 34

Pin Bar 34

4 
 

Aggressive 35
Conservative 35
Trade with Pin Bar in the direction of trend 36
Inside Bar 37

Winning Edge 40

Conclusion 41

5 
 

What is Price Action?

 
Price action in Layman’s term is, the happenings in the market that affect the price of
particular equity or a commodity. It is nothing but a visual representation of Greed & Fear of
the people who are Trading at that moment and this culminates into the Price Value of that
particular equity or commodity.

If one masters the technique of Price Action trading then it will be easier to read and grasp the
stock movement and to take trading positions with conviction and confidence. This will help
you to 'Cut the Losses short' and to 'Ride the Profits' like a professional trader.

Price action is the only thing which will show you what is happening in and around the market
at any point of time with an extremely high degree of clarity and to ascertain where the price is
headed. This is based on the fact, "The Market rises or falls, based on people's Greed and Fear."

6 
 

Trading with realistic psychology

A popular saying goes, “Professional traders miss more than half of the great moves in the
market” to which they agree as well.

Don’t go behind every trade that are generating false signals. Develop your own strict rules to
enter and exit the trades even if that results in missing 5-10 trades per month or 5-10 points of
profit.

“Don’t let your emotions take over your Rules.”

If you are lucky enough, your strategies might work for a month or more, but the model might
end up failing in future and wipe out your gains.

In the market, there are educators and bloggers, seldomly a trader that blogs theory and skips
the foundation of market analysis, fails to teach the dynamics of the market, along with price
action.

When you see any trader or mentor, don’t seek a fixed rule of trading because there is a high
possibility that the same profitable trade wouldn’t repeat. Each day the market is different and
two trade setups would be different as well.

There is no shortcut for developing a constant trading strategy, which is profitable every time,
that a retail trader can use. The larger player always has the upper hand. Our aim is to learn
how to ride a price action movement that large players create.

A solid trading judgement is the sum of years of screen time and trading experience.

Remember the core of the Trading activity remains the same, but the traders and markets do
change. Be a student of the Market and always be ready to learn every day. Accept your losses
with dignity, get up, dust yourself and move on. Never bog down. That's the secret to be in this
game forever. There's always a new day waiting to be conquered. A single win can offset all
your losses if you follow proper risk management.

7 
 

Risk and Reward

 
Let’s assume you have a strategy with a risk and reward ratio of 1:5. This means you are risking
10​₹​ to make 50​₹​. Assuming you win once and lose four times, what will your profit or loss be?

If we make losses first. We are constantly losing four times and winning once. We’re not using
trailing stop loss or cutting in on the profit during the trade. Therefore, you are in loss of 40​₹
and profit of 50​₹​. Net gain +10​₹.

Hence, you are in profit despite having a loss ratio of 80%. Now with a risk: reward of 1:5 you
need a winning ratio of 20% to be a profitable trader as seen in the above example.

For a risk: reward of 1:4 what is the win ratio for being a profitable trader? If you have 1
winning trade and 4 losing trades then you are neither in profit or loss which means, if 1 in 4
trades are profitable, its break-even. So we need to make more than 20% winnings to be a
profitable trader!

Here is the chart of risk: reward and win ratio needed to be a profitable trader with the
specified risk: reward -

1:1 = 50 1:6 = 14.28 2:1 = 66.67 7:1 = 87.5

1:2 = 33 1:7 = 12.5 3:1 = 75 8:1 = 88.88

1:3 = 25 1:8 = 11.11 4:1 = 80 9:1 = 90

1:4 = 20 1:9 = 10 5:1 = 83.33 10:1 = 90.9

1:5 = 16.67 1:10 = 9.09 6:1 = 85.71

So win ratio is not important alone! Being a profitable trader needs a system like mentioned
above. In fact, most of the profitable traders has win ratio less than 50%.

You need patience, persistence, and trust in your system. It’s the trade psychology that makes
people succeed.

8 
 

Gap Up and Gap Down

 
Witnessing a gap or window at the beginning of a new trend produces profitable trade
opportunities.

Gap Up

Gap up is an opening of stock price higher than

the previous day’s trading range.It shows buyer’s
enthusiasm to buy that stock at a price higher
than the previous day’s closing price. It can occur
because of some positive news overnight or some
fundamental event occurred within the company.

Gap Down

Gap down is an opening of stock price

lower than the previous day’s trading
range. It shows sellers are in power to
sell that particular stock at a price
lower than the previous day’s closing
price. It can occur because of negative
sentiment or news overnight.

A Simple representation of Gap down is

shown below.

9 
 

Trading with Gap up and Gap down

 
Gap at the Bottom

As we know, gaps represent the enthusiasm of buyers or sellers for getting into or getting out
of a stock position which creates a new trend.
Seeing a potential candlestick BUY signal at the bottom of an extended downtrend is a great
place to buy.
Gap up at bottom of a downtrend is the best place to buy that particular stock.

Let’s take an example of Reliance -

In the above example of RELIANCE, the gap up at the end of downtrend happened as shown
with the Arrow.

There might be some downward movements as traders start booking profits at this juicy gap
ups, but after that, you can see straight upward rally giving whooping 20% return in a month.

Let’s take another example of Auropharma -

10 
 

AUROPHARMA was in downtrend, and it opened with a gap up as shown with the red arrow.
After which a big rally of sweet 15% followed..

Recently Axis Bank had fallen significantly, it was followed by some bad news and after that gap
up formed at the bottom of the downtrend as shown with an arrow. Evening star signal at the
end is an obvious trend reversal signal which is followed by a huge gap up.

Entry after gap up has given nearly 20% return in a month.

One can add other indicators like Stochastic to get a precise decision. Like, buy when stochastic
shows the stock is in oversold condition.

11 
 

Many investors are afraid of buying after a gap up because they don’t want to pay for a stock
that has moved significantly 2%, 3% or 5% in a single move although this 2%, 3% or 5% can be
the starting of 30% or 40%.

So, one can have a technical stop loss to exit the position if it’s a false signal. The stop loss
would be at previous day’s low.

Sometimes you will witness a gap up opening at the bottom of a downtrend. The next candle
creates doji which represent indecision of the direction. When the stock price gaps up again
after indecision day, with strong volume, it indicates that bulls have taken control over bears
and the indecision.This shows that the sellers are now finished.

Upon witnessing a gap up, an individual signal such as dark candle or doji after gap up has less
relevance. When a large gap occurs, it is not unusual to see immediate selling as the traders
take their quick profit. The overall message is that the bulls are in command. The next few days
demonstrate that the price was not going to back, the new trend had started.

Gap at the Top

The gap that appears at the top of a trend provides ominous information. Remembering the
mental state of most investors, the enthusiasm builds as the trend continues over a period of
time. Each day the price continues to go up, the more investors become convinced that the
price is going to go through the roof. The “talking heads” on the financial stations start to show
their prowess. They come up with a multitude of reasons why the price had already moved and
will continue to move into the rosy future.

With all this enthusiasm around, the stock price gaps up. Unfortunately, this is usually the top.
Fortunately, Candlestick investors recognize this. They can put on exit strategies that will
capture a good portion of the price movement at the top. Consider the different possibilities
that can happen when witnessing the gap up at the top of a sustained uptrend. Most of the
time the gap will represent the exhaustion of the trend, thus called an Exhaustion Gap. Or it
could be the start of a Three Rising Windows formation. Or big news, a buyout or a huge
contract is about to be announced.

What are the best ways to participate in the new potential, if any, at the same time knowing
that the probabilities are that the top is in?

12 
 

A few simple stop-loss procedures can allow you to comfortably let the price move and benefit
from the maximum potential. Hopefully, in the description of the gaps occurring at the
exuberance of an extended trend, you have already experienced a substantial gain in the
position. Any gap up is adding to an already big gain. Probabilities dictate that this is the top.
Possibilities could include more upside gains.

Upon a slight to medium gap up, the Candlestick investor should put their stop at the close of
the previous day. The logic being that if the price gapped up, indicating that the top is in, and
the price came back down through the close of the previous day, the buying was not sustained.
If so, the stop closed the position at the level of the highest close in that trend.

Gap down at the top of an uptrend is the best way to exit from the trade or take a new short
position.

As we have seen in case of gap up, that it is the best place to buy the stock. Same in case of gap
downs at the top. This setup is the best place to sell the stock.

As shown in below image, HDFC was in uptrend and then a big red candle formed followed by
gap down, which is our sweet spot.

Entering after gap down shown by red arrow had given 18% return in 2 months time.

Let’s take an example of BAJAJFIN. It has created a very huge gap down on 12/09/2016.

13 
 

We can enter at the closing of same candle end keep the stop loss as previous day’s high for our
safety.

That was a smooth down move, and it moved 31% in a span of just 2 months.

Recently same pattern occurred in BANK NIFTY index.

As shown with red arrow in above image, it created huge gap down followed by a smooth
downtrend and still BANKNIFTY is in downtrend falling with huge volume.

Some of the observations that Candlestick analysis reveals, as found in “Profitable Candlestick
Trading”, the Japanese could not only identify when a reversal was occurring, they could
describe the trading environment that would anticipate the reversal.

14 
 

For example, using candlestick formations, it was clearly obvious that after an extended
downtrend, the fear and panic would start to exaggerate. The daily trading range would expand
as more investors panicked and liquidated their positions. This series of events would forewarn
the Candlestick investor that the bottom was getting near, and to be vigilant for a buy signal.
The most informative signal at the bottom of one of these declines is the gap.

For example, a stock has been in a downtrend for weeks. The talking heads on the financial
stations are all expressing their opinions about how this company/industry is in the trash can.
There is no reason to own this stock. Finally the last holdouts cannot stand the pain of owning
that stock anymore. They get out at any cost. The price gaps down the next morning. Once this
gap is spotted, a variety of profitable trading procedures can be put in place.

What can happen from this point?

The price has gapped down after weeks of a lengthy decline. If it is a mild gap down, the price
may keep declining. You may start seeing a dramatic increase in volume. The price is showing
another big down day. However, the aggressive Candlestick investor realizes that the gap down
was a blow-off signal.

Upon seeing the price decline finally hit bottom and appear to stabilize, the aggressive investor
can start to accumulate stock. Knowing that the gap was part of the panic selling gives the
candlestick investor the confidence to step in when there is still panic in the air.

If the gap down is severe, the panic may all be built into the opening price. A severe gap down
open after an extended down trend may be a good opportunity time to buy.

Watch how the stock price reacts after the open. If it appears to be stabilizing at the open level,
with a little downside move that seems to be immediately bought up, it is time to start
establishing a position.

At the end of that day, you want to see a green candle, a close much higher than the open. This
illustrates that all the sellers have been washed out. The buyers have taken over. This is the
advantage that Candlesticks have over other charting techniques. It is much easier to see what
is happening in a stock price when the color of the bodies can be viewed.

A stock price that opens down and continues to go lower has a completely different strategy.
The purchase of that position may be a few days or weeks down the road.

15 
 

Traditional portfolio strategies and many financial models like, Harry Markowitz's modern
portfolio theory, The Black-Scholes Merton option pricing model. Typically follow the idea
that market returns, follow normal distribution.

Under this assumption, the probability that returns will move between the mean and three
standard deviations, either positive or negative, is approximately 99.97%. This means that the
probability of returns moving more than three standard deviations beyond the mean is
0.03%.

Tail risk is a form of portfolio risk that arises when the possibility that an investment will
move more than three standard deviations.

But Stock market returns tend to follow a normal distribution that has excess kurtosis. So tail
risk happens certainly more or less than 0.03%.

Although rare, it may generate huge negative returns. Tail risk may happen on major
fundamental news like Brexit. That’s why, we always hedge properly and it’s called hedging
against the tail risk.

Huge Gap downs and gap ups also fall under tail risk. If one has position on BANK NIFTY
(assuming), it is always good to have hedged against respective CEs and PEs or other hedging
methods.

16 
 

Support and Resistance

Support and resistance are points on the chart where maximum amount of buying and selling is
expected.

Support

As the name suggests, support is something that prevents the price of security to fall further. It
is the level in the chart where maximum buying pressure is present.

There can be some instances that price of a stock fall till a support level, consolidate for some
time and again start a fresh move up. It is an important level in the chart which traders and
investors look upon to take a new position.

Let’s take an example of HDFCBANK.

As shown in above figure, HDFC BANK started a downtrend and then downtrend stopped at the
first line which is drawn from the top. This is know as support level 1.

Another support level is below line 1(a.k.a Support 1) Lower support is a major support called
Support 2.

17 
 

One can enter the trade at support 1 taking the stop loss slight below the support 2 and ride
the sweet upmove.

Sometimes there are instances like stock moves up straight and consolidates for some time and
then start a fresh up move and this consolidation becomes support range of price and then
stock may open gap up and start a new trend.

As shown in below example of TCS.

After creating an upward rally, stock price consolidated for some time in a particular range of
2440-2540 and after breaking that it gaped up and again started a fresh up move. This is also
known as breakout and this consolidation zone now act as a support zone.

One can take a new position after gap up and put stop loss at the low of consolidation zone and
ride the steady upward move.

Resistance

As the name suggest, resistance is something that prevents the price of security to rise further.
It is the level in the chart where maximum selling pressure is present..

There can be instances where price of a stock rise at particular level but after that it
consolidates. Once there, it won’t be able to rise further, this level is known as resistance point
of that stock. Resistance can be a zone of price as well,in which stock price get consolidated.

Let’s understand with example of PCJEWELLER.

18 
 

As shown in above chart of PCJEWELLER, red line act as a resistance zone. Stock price went up
to that level and has reversed after touching the resistance line.

One can exit from current position or can create a new sell position to ride this movement.

Let’s take another example of ITC.

As shown in above figure, red box shows resistance zone. Price test this zone repeatedly and
reverse from that resistance zone.

19 
 

One can trade in this consolidating zone or can initiate a new short position with stop loss as
high of the consolidation zone.

Point to remember : Once the support is broken it will act as resistance and once the
resistance is broken it will act as a support.

As shown above image of SRTRANSFIN the red line was acting as a resistance, after breaching it,
the stock gaped up.The same line becomes the new support for the stock.

Now that price level will act as a support level.

20 
 

Trading with Support and Resistance

1. First find support and resistance.
2. Mark price action points at which trend triggers.
3. Trade in the direction of trend.

As shown in above image of SRTRANSFIN let’s understand the trade using support and
resistance.

The red lines act as a support, blue lines act as a resistance and black rectangles are various
price action points from where the trends can be traded.

● As shown in the image, long can be initiated from first black rectangle as it is near
support line with stoploss slight below support line.
● Again long can be initiated from second black rectangle as it is again near support line.
● Third square rectangle is slight above the support line so risk averse trader can avoid the
trade and risk taker trader will take a new long position with stop loss.
● Now from the image, it can be said that stock price tested resistance level too many
times but it is not able to breach it. So a short position can be initiated near fourth black
rectangle and can be exited near support line.
● Another short can be initiated at weaker resistance near last black rectangle with stop
loss.

This is how Support and Resistance can be used as deciding entry and exit of the trades.

21 
 

San-Ku Three Gaps up

As mentioned in candlestick analysis number 3 plays an important role. Many signals contain of
a group of 3 individual signals. So it has become a deeply rooted number for a trader and
investor community.

San-Ku provides the best opportunity for buying and selling signals. As name suggests it is the
combination of three gap up.

After observing the bottom signals, the first gap up shows the buyers have entered the long
position. The second gap up shows further enthusiasm of fresh buyers but, this could be
combination of fresh buy as well as short covering. The third gap up shows the shorters finally
realized that this is too forceful for them to keep holding short positions.

The japanese candlestick analyser recommends that the position should be closed as stock
reached into overbought area and reversal can happen at any time.

Let’s understand with the example of LT.

As shown in above figure, after first gap up price is getting consolidated and not going down
which creates 2nd gap up and probably shorters decided that the trend is now finally changed
and they exited their short position and that created 3rd gap up.

22 
 

As the rule suggests exit after the third gap up. There can be situation that you might have
gained more if you hadn’t exited but why to risk more for a very small gain? Go and find
another trade opportunity.

23 
 

Dumpling Top and Fry Pan Bottoms

Dumpling Top

Sometimes a Gap is required for confirmation of a trend or direction of price movement.

Otherwise, a move doesn’t create any sign for direction of a trend.
Dumpling Top is a perfect example.

As shown in above figure the slow curvature of candles don’t create any signal for particular
direction, but the gap down at right side candle suggests downward move.

24 
 

Let’s take an example of HDFC.

As shown in above example of HDFC dumpling top created followed by huge GAP down which
created a downtrend for short term. In this pattern gap is the alert for starting of a trend.

Fry Pan Bottom

Fry Pan Bottom is reversal of Dumpling Top only. In this case, a slow curvature of candles
followed by a Gap up which clears the direction of trend.

Let’s understand this with an example of TORNTPHARM.

25 
 

As shown in above figure Fry Pan Bottom created in the stock and it is followed by a huge Gap
which triggered a massive uptrend.

In this both pattern Gap triggers the direction of the trend from an undecided direction.

26 
 

Timeframes and Trends

Timeframe

Timeframe of a chart can be from 1 Min to 1 Hr in day trading and 1 Day to 1 Year is positional
trading. Larger time frames gives more reliable price signals that means a trend formation in
daily or weekly chart is more reliable and perfect than 1 Hr or 30 Min time frame charts.
Smaller time frames can give false signal and false breakout sometimes which lead to wrong
trade entry.

Trend

Market direction is generally known as Trend. The perfect trend is seen in Daily chart if it is
heading towards upside then upward trend, if it is heading towards downside then downtrend
otherwise sideway trend.

All type of trend is shown below.

In above image uptrend is shown that creates continuous higher highs and higher lows that
creates an upward trend.

27 
 

In above image downtrend is shown that creates continuous lower highs and lower lows that
creates a downward trend.

In the above image sideway trend is shown. The price is consolidating in the given range which
creates a sideway trend. In a sideway trend, breakout can occur on both sides i.e. upward or
downtrend.

It is said that Trend is the friend of the trader ; it is always recommended to trade in the
direction of trend.

28 
 

Moving Averages
Moving average is most used price indicator in stock market. It is known as lagging indicator
because it depends upon past prices.Simple Moving Average (SMA) and Exponential Moving
Average (EMA) are two mostly used Moving Averages in the market. There are other types of
moving average also like Double Exponential Moving Average (DEMA) but they are not widely
used. Let’s calculate Moving average of Tata Consultancy Services. SMA (10) is an average
counted taking last 10 prices. Let’s calculate SMA (10) on 17/11/2017.

Date Closing Price

1/11/2017 2602.85

2/11/2017 2626.15

3/11/2017 2620.10

6/11/2017 2665.55

7/11/2017 2710.05

8/11/2017 2735

9/11/2017 2736.4

10/11/2017 2708.75

13/11/2017 2758.95

14/11/2017 2714.60

15/11/2017 2705.30

16/11/2017 2746.65

17/11/2017 2707.30

20/11/2017 2703.45

21/11/2017 2672.95

22/11/2017 2680.65

29 
 

For Calculating SMA (10) on 17/11/2017 we have to take 10 closing prices starting from
6/11/2017.

6/11/2017 2665.55

7/11/2017 2710.05

8/11/2017 2735

9/11/2017 2736.4

10/11/2017 2708.75

13/11/2017 2758.95

14/11/2017 2714.60

15/11/2017 2705.30

16/11/2017 2746.65

17/11/2017 2707.30

So the average of (2665.55, 2710.05, 2735, 2736.4, 2708.75, 2758, 2714.60, 2705.30, 2746.65,
2707.30) is 2718.855. Exponential Moving Average (EMA) gives more weight to more recent
prices so it reflects the recent price than past ones. It is more reactive to prices.The following
image shows 50 SMA and EMA of TCS. Both SMA and EMA are shown with the arrow.

30 
 

Mean Reversion

Price moves around a central point that is called the MEAN or moving average. Price of a stock
always move towards the mean or away from the mean. So trader trade in the direction of the
slope of the mean.

Mean reversion is the heart of all market movements. Prices are going away from the mean or
coming towards the mean. Prices are always moving back to central point from an extreme
point and always move towards extreme point from the central point. This is the basic of mean
reversion.

Simple trades using 50 EMA

We can use 50 EMA to trade in the direction of the trend as follow. ​Buy when the current
market price of a security closes above the 50 day EMA and Sell or Short when the Current
market price of a security closes below the 50 day EMA.

That’s it.

As shown in above chart of TCS square boxes indicates the closing of price above or below the
50 Day EMA. So we can trade at that point with strict stop loss.

31 
 

Trade using Moving Average Crossover

As explained in the above example, trading using single EMA system generates too many false
signals. To overcome this we can use moving average crossover system.

Let’s take an example of 50 EMA and 100 EMA crossover of TORNTPHARM.

A 50 day EMA is shorter or faster moving average and 100 day EMA is longer or slower moving
average.

As shown in the figure red line is 50 day EMA and black line is 100 day EMA. 50 day EMA is
closer to current market prices and 100 day EMA is away from current market prices as it reacts
slower. A trader can trade using crossover as following.

Initiate a new buy when short term moving average turns greater than the long term moving
average.

Short it when the short term moving average turns lesser than the long term moving average.
Trader can take combination of various EMA as per their holding period and risk appetite.

32 
 

Some of the famous combination of moving average crossovers are

1. 9 day EMA with 21 day EMA

2. 50 day EMA with 100 day EMA
3. 100 day EMA with 200 day EMA

Let’s take an example of 9 day EMA and 21 day EMA in hourly chart of SUNPHARMA.

Moving Average Crossover shown with the blue arrow that can be traded.

For shorter timeframes short period combination can be taken and for higher time frames high
period combination can be taken.

For shorter time frames 15 Min EMA and 30 Min EMA can also be taken in daytrading.

33 
 

Price Action within trend

Pin Bar

Pin bar is a 1 bar formation. The pin bar is a price bar which has rejected higher or lower prices.
Price will open and move in one direction, and then "reverse" during the session to close at or
past the open.

The candle is easy to spot because it has a "tail" or deep wick. Not all candles with tails are pin
bars. Only a bar with a tail, often much larger than its body can be called a pin bar. Usually, the
market closes past the open, or at the open. It is a common reversal signal which typically
needs to occur near a support or resistance area (horizontal level or dynamic moving average).

Some traders use them in conjunction with Fibonacci retracements as well as trends or simple
pivot/swing Fibonacci retracements as well as trends or simple pivot/swing levels.

34 
 

In a nutshell, Pin bars are the ultimate strategy for picking up major swings in prices.

Let’s check an example of pinbars in HDFC.

Pin bars shown with the red arrows at the support or resistance level shows the reversal of
price and it act as a price action point.

There are 2 ways to enter directly from pin bar.

Aggressive 

 
Sometimes, right after the nose bar closes, the next bar will open and immediately take off in
your favor, but sometimes without you! This aggressive method makes sure that doesn't
happen, but not without a little bit more risk. To ensure that the trade doesn't leave without
you , you may use market entry. This way you are filled and happily making points when the bar
decides to drop like a rock without retracing at all. Place your stop just above the top of the tail.
For an even more aggressive trade, place your stop above or below 60% of the range of the
bar.

Conservative 

 
Many times, on the daily chart, particularly if the pin bar is large in range, I see a market retrace
a little before reversing and plummeting or rallying, it might be 1 day, or even 1 to 2 weeks, but

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often, there is a retracement before the signal comes off in the desired direction. The more
conservative way to enter the pin bar setup, basically wait for the price to retrace to some
extent. The drawback of the conservative method, is that you will sometimes miss out on that
trade.

Let’s understand with the example of HDFC chart.

As shown in above figure first pin bar marked with red arrow created and after that stock
retraced for some extent. In this case conservative entry can be useful as it saves few points
because of getting better entry.

But in the case of pin bar shown with black arrow aggressive entry can be useful as the move
triggered immediately after the pin bar formation.

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Trade with Pin Bar in the direction of trend

As shown in above image pin bar is shown with the red arrows.

The direction of the trend is upside so 1st entry in the direction should be taken with stop loss
but after that for bearish pin bar fresh entry can be avoided because it is against the trend.
At the 2nd entry Bullish pin bar is created so trade can be taken with stop loss at red line.

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Inside Bar
 
Inside bar is a bar or series of bars which is/are completely within the range of the preceding
bar.

An inside bar indicates a time of indecision or consolidation. Inside bars often occurs at tops
and bottoms, in continuation flag, and at key decision points like major support/resistance level
and breakouts. They provide a low-risk place to enter a trade or a logical exit point.

Inside bars often stall market movements, so they are good reversal patterns both with the
trend and against the trend.

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As shown in above image of ESCORT inside bar followed by a pin bar led a strong up move.

Trade with inside bar and other price action indicators

Let’s take an example of Apollo Hospital.

As shown in above image an inside bar created at the support level which indicates trend
reversal and it is followed by massive uptrend with decent move.

Example of HDFC shown below is an example of inside bar creation within the trend itself.

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As shown in above image of HDFC an inside bar is created in the direction of trend only which
confirm and support the direction of trend. So a short trade can be initiated after completion of
inside bar pattern.

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Winning Edge
An ideal Trader would use a method which has a very robust edge, even if its winning ratio is
too small. Depending upon your risk:reward, the winning ratio could be as low as 25% of all
trades.

The higher the risk:reward ratio, lower is the required win ratio and vice versa.

A robust winning edge is a proven market and price event which acts as a signal for the trader
to look after and create an order in the market.

You must learn to read charts, study price action and learn to act upon price action without any
emotions.

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Conclusion
We have covered a lot of strategies and methods so far, remember what I stated at the very
beginning, start small, be precise and confident. Pick a strategy and stick to it, then start
implementing the others.

Being a disciplined trader is of paramount importance, its your weapon, sharpen it, hone and
use it effectively. Discipline with the strategies that I covered will give you the edge in this, dog
eat dog market.

For absolute novices, my suggestion would be start with Tradingview, practise for a while,
before develing in a real account. Then again, nothing gives the kick of real account and money.

Lastly, your feedback will go a long way in helping me improving strategies and my trading as
well, I encourage you to share your journey, so I can learn as well. If you used any of the
strategist that I have written, please do tell me every detail of it.

Join us at unofficed.com to collaborate, test, retest, tinker and discuss every and any possible
knowledge of strategies in our various forums for various at, unofficed.

Loved the book? Then do recommend it to others, so that our tribe grows larger.

Amit Ghosh
E: dexter@aeron7.com
W: ​www.amitghosh.net

Harshit Sanghavi
E: ​harshitsanghavi@gmail.com

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