Price Action: A Simple Chart Process
Risk warning: Price action can fail on any chart. This is education, not financial advice or a trading signal.
Price action means reading what price does on a chart. You check direction, an important area, candle proof, and risk before any decision.
You do not need ten indicators or a paid signal group. You need a repeatable process and enough patience to skip weak charts.
Demo example — not a signal.
What price action means
Price action is the story shown by changing prices. Each candle records a small fight between buyers and sellers.
The body shows where price opened and closed. A wick shows where price travelled, then got rejected.
You already know these basics from Candlesticks: What Each Candle Tells You.
Price action adds context. A bullish candle closes higher because buyers won that period. A bearish candle closes lower because sellers won.
A bullish candle in the middle of nowhere says little. The same candle at support can deserve attention.
Support is a floor where price has bounced. Resistance is a ceiling where price has dropped. These areas can still break.
The five-point process
Use this order on every chart. If one point is missing, you wait.
1. Protect your risk
Start with risk, not with a Buy button. Decide the maximum loss before you study the chart.
The 1% rule means risking about 1% of your account on one trade. On $10, that is $0.10.
This is like carrying only $0.10 to the market. If it falls from your pocket, your whole week does not collapse.
Use a stop loss, your trading brake pedal, before you enter. Read The 1% Rule and Stop Loss.
Do not increase risk because a chart looks perfect. No chart is certain.
2. Find direction
Look left before you look for an entry. Ask whether price is rising, falling, or moving sideways.
An uptrend makes higher highs and higher lows. Buyers are pushing the market upward.
A downtrend makes lower lows and lower highs. Sellers are pushing the market downward.
A range moves between a floor and a ceiling. Neither side has clear control.
Think of a Lagos road. A car moving north can slow down at a junction without turning south.
That slow move is often a pullback, not a new trend. Read Trends: Trading With the River, Not Against It.
For this series, use EUR/USD on H1. H1 means each candle represents one hour.
Mark the most recent clear high and low. Ignore tiny bumps that do not change the wider direction.
If the chart looks messy, call it sideways. Waiting is a valid decision.
3. Mark an important area
Next, mark a zone where price reacted before. A zone is a small area, not a razor-thin line.
Look for two or more clear reactions. A strong bounce or rejection makes the area easier to see.
Support sits below current price. Resistance sits above it. Old resistance can become new support after a clean break.
Do not cover your chart with lines. Ten lines create ten reasons to click.
Keep one support zone and one resistance zone. If both are close, the market may have little room to move.
On any pair, round prices such as 1.1000 on EUR/USD can attract attention. Use them as examples, not guarantees.
Read Support and Resistance: The Floors and Ceilings of Price.
4. Wait for candle proof
Price reaching an area is not proof. You wait for the candle to close and show a reaction.
A rejection wick shows that price travelled into an area, then moved away. A strong close shows more control by one side.
Neither pattern guarantees the next candle. It only gives you information for a written plan.
For an uptrend, you might watch a pullback into support. A bullish candle closing above that area is one possible confirmation, or sign supporting your plan.
For a downtrend, the mirror image is a pullback into resistance. A bearish candle closing below that area is possible confirmation.
You do not buy because a candle is green. You do not sell because a candle is red.
The location and the wider direction matter more than the colour. The next series lesson will explain candle proof in more detail.
5. Plan the exit
Before entry, the price where your trade starts, write three prices: entry, stop, and target. Also write the invalidation condition that proves your idea wrong.
Your stop should sit beyond the area, with room for normal wicks. A stop exactly on the line can trigger during ordinary noise.
Your target should sit before the next opposing area. Do not place it beyond a wall that price has already respected.
If the distance to the target is too small, skip the trade. A clear chart can still offer poor room.
Position size means how large your trade is. Your lot size is the platform's number for that trade size. It connects the stop distance to your money risk. Use Position Sizing.
A demo example
Imagine EUR/USD on H1 during the London and New York overlap, when both sessions are open, around 1pm–5pm WAT.
The chart shows higher highs and higher lows. You mark support near a previous bounce.
Price returns to that zone. An M15 candle closes above support after a lower wick.
M15 means each candle represents 15 minutes. The candle is information, not permission to ignore risk.
On demo, you write this plan. Invalidation means the price action no longer supports your idea:
- Direction: H1 uptrend.
- Area: H1 support zone.
- Proof: M15 candle closes above support.
- Stop: Below the support zone.
- Target: Before the next resistance zone.
- Risk: 1% of the practice balance.
You then check the distance and lot size. You do not enter if the stop is too wide for your risk.
You also check the economic calendar, a schedule of major announcements. Major US data around 1:30pm WAT can create a sudden spike.
That spike can hit your stop before the chart chooses a direction. Waiting is often safer for a beginner.
When you should wait
Skip the chart when the five points do not align. You are not paid for clicking often.
- No direction: Highs and lows overlap everywhere.
- No area: Price sits in the middle between zones.
- No close: A wick touched the zone, but the candle has not closed.
- Late entry: Price already travelled far from the planned area.
- Large news: A major release is close on the calendar.
- Small room: The next opposing zone is too near.
- Emotional pressure: You want to recover a recent loss.
The last item matters. FOMO means fear of missing out. It can make you enter after the useful price has gone.
Read FOMO: The Fear of Missing the Move.
Common mistakes
One candle alone
A long wick can appear anywhere. Without direction and an area, it is just one event.
Too many tools
Indicators are calculations drawn over price. They can help describe price, but cannot remove uncertainty. Learn the chart first.
Moving the stop
Moving a stop farther after entry changes your risk. A planned $0.10 loss can become $1.
Copying a signal
A Telegram message cannot see your balance, spread (the small gap between buy and sell prices), or emotions. Learn the process so you can check every claim.
Changing the setup
Do not switch rules after every loss. A setup is your complete group of entry and risk rules. Record twenty demo examples before judging a process.
Your practice task
Use replay mode, a tool that moves through old candles one at a time, or use a demo chart. Do not fund an account for this exercise.
- Choose EUR/USD — open H1 and M15 charts.
- Mark direction — label the last clear highs and lows.
- Mark two zones — choose one support and one resistance area.
- Wait for a close — do not count an unfinished candle as proof.
- Write the plan — record entry, stop, target, and the price that invalidates your idea.
- Save a screenshot — label what you saw before the next candle.
- Record the result — note whether you followed rules, win or loss.
Keep a journal for at least 20 examples. The goal is rule-following, not a winning streak.
Read How to Use a Demo Account Before Risking Real Money and The Trading Journal.
Complete ten-part series curriculum
This hub is Part 1. Study the ten core lessons in order:
- A Simple Chart Process — This hub: the five-point routine.
- Finding Market Direction — Read swing highs and lows.
- Marking Important Areas — Mark two zones on EUR/USD.
- Pullback or Reversal — Tell a pause from a trend end.
- Reading Candle Proof — Spot rejection wicks and closes.
- Real or False Break — Filter out wick traps.
- Choose a Clean Setup — Assemble one repeatable demo plan.
- Plan Entry and Exit — Write entry, stop, and target prices.
- Skip Bad Conditions — Know when to do nothing.
- Test Before Real Money — Complete a 20-trade demo journal.
Price action setup library
Once you understand the five points, choose one setup for demo:
- Trendlines — Slanted support and resistance in trend.
- Channel Ride — Trade parallel trend boundaries.
- Flag Entry — Trade the pause after strong momentum.
- Triangle Break — Wait for the squeeze to resolve.
- Range Break — Trade the breakout from a flat box.
- Double Bottom — Two reaction valleys at support.
- Double Top — Two reaction peaks at resistance.
- Flip Zones — Broken support turning into resistance.
- Round Numbers — Key psychological price levels.
- Engulfing Candle — Strong single-candle reversal at key areas.
- Pin Bar — Long rejection wick showing price rejection.
- Inside Bar — Low-volatility candle consolidation break.
- Head and Shoulders — Warning sign of an exhausted uptrend.
Next in the series
You now have the roadmap. The next lesson explains how to identify direction without forcing a trend.
Continue with Part 2 — Finding Market Direction. Then learn Marking Important Areas.
Bottom line: Check risk, direction, area, candle proof, and exit before every demo decision. Price action can fail, so keep the stop small and skip unclear charts.
Part 1 of the KoboFX Price Action Series. Cross-links: Candlesticks, Trends, Support and Resistance, The 1% Rule.