PRICE ACTION SIMPLIFIED BY EMZET

This booklet was created only for pure price action

traders and for technical analysis. Please note that
no fundamentals are found in this booklet.

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This booklet will be mainly based on chart patterns,

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candlestick patterns and confirmations in the
market.

CONTENTS:
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BY

Topic
Page
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1. REVERSAL PATTERNS:
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 Head and shoulders pattern

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 Inverse head and shoulders pattern

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 Double bottom
 Double Top
 Rising wedge
 Falling wedge
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2. CONTINUATION PATTERNS
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 Rising and Falling Wedge
 Bullish and Bearish Flags
 Descending and Ascending Triangles

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3. CANDLESTICK PATTERNS

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 Hammer

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 Bullish and Bearish Engulfing Candles
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A List of The Most Important Price

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Action Patterns.
To be a price action trader means having a deep

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understanding of the various different price action patterns
that form in the market. The problem with these patterns, is

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that because there are so many of them that form in the
market, knowing which ones you should take the time out to
learn and which you should leave can be quite challenging. To

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solve this problem, I thought that today I would give you a list
of what I believe to be the most important price action
patterns you need to learn as a forex trader. As some of you
reading this will probably already know, there are three basic
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types of pattern that can form in the market:

• Price Action Reversal Patterns
• Price Action Continuation Patterns
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• Price Action Candlestick Pattern

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I'll begin this article by first showing you what the most
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important price action reversal patterns are, followed by which

continuation patterns you need to have knowledge on, and
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finally I'll show you the two most important price action
candlestick patterns you need to watch out for in the market.
Price Action Reversal Patterns Reversal patterns are probably
the most important set of price action patterns you need to
really have a deep understanding of, as they can give you early
clues about if a movement in the market is coming to an end.

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The six patterns I'm going to be showing you in this section

are all multi-swing shape patterns, which means that each one
of the patterns forms from more than one upswing and
Page | 3 downswing taking place in the market, and they all look
similar to common shapes upon their completion.

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1.REVERSAL PATTERNS

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 The Head and Shoulders Pattern
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- The first price action reversal pattern we're going to
look at is the head and shoulders pattern. Without doubt
one of the most popular and well known price action
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patterns in the market, the head and shoulders formation
is one which all price action traders need to memorize
and understand if they want to become good at spotting
reversals using price action. As you've probably already
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guessed, the head and shoulders pattern is a reversal

pattern which has a swing structure very similar to that
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of person's head and shoulders

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Below is a unique picture of a head and shoulder pattern on

Page | 4 volatility 50 1s Index.

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Most head and shoulders patterns are supposed to look like the
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one you can see in the image above, but a large percentage of
them will actually have features which are a little different from
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one another. For example, you might see a pattern form with one
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of the shoulders being a little bit higher than the other, or the
distance of two shoulders from the head will be smaller or bigger
than what you can see in the pattern above. These small
differences do not alter the pattern in any meaningful way. So
long as the head is always found in the middle and the two
shoulders are found to be either side, it's a head and shoulder

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pattern. If the high of the right shoulder is found to be below the

swing low of the move up which created the head, then it's not a
head and shoulders pattern and should not be treated as such.
Page | 5 The pattern itself comes in two variations. The one we just looked
at in the image above is referred to as being a bearish head and
shoulders pattern, which is a signal the market may reverse to the
downside, whilst the one seen in the image below is a bullish

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head and shoulders pattern, but is often referred to as being an

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inverse head and shoulders pattern due to the way the pattern is
basically an upside down version of the bearish pattern. Here's
what an inverted head and shoulders pattern looks like on a chart.

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You can see that all the features of the pattern are the same as
the bearish version, only the opposite way around. Instead of the
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head pointing upwards like it does with the bearish pattern it

points down, as do the left and right shoulders. The only real
difference between the two patterns is in what needs to happen in
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order for the pattern to become invalidated. With the bullish head
and shoulders pattern if the right shoulder forms below the swing
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low of the move up which created the head, the pattern is not a
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head and shoulders and is instead some other formation. The

bearish head and shoulders follow the same rule, only the right
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shoulder cannot form above the swing high of the move down
which created the head, if it does it's not a bearish head and
shoulders pattern. All in all the head and shoulders formation is
usually quite a reliable signal the current movement is going to
reverse.

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 The Double Bottom and Double Top

Page | 6
Patterns
The double bottom and double top formations are another couple
of really important reversal patterns you need to be aware of

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forming in the market. They're two patterns which get their name

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from the way the market will make two downswings with swing
lows at similar prices to one another before reversing, (in the case
of the double bottom pattern) or two upswings with swing highs

case of the double top pattern

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forming at similar prices to one another before reversing, in the

Below is an example of a double bottom formation

on volatility 100.
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You can see the first part of the pattern forms after the market
makes a downswing followed by an up-swing. The swing low that
forms at the bottom of the swing higher is one of the two
Page | 7 bottoms that forms during the pattern. The next swing low and
bottom will always end up forming at a similar point to where this
first swing low has formed, and the overall swing structure will
usually resemble that of the letter W once the pattern has fully

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formed.

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In this image we are looking at an example of the double top

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pattern. The double top is of course the opposite to the double

bottom, which means that its formation involves two upswings
taking place with swing highs forming at similar prices to one
another instead of two swing lows. Both patterns become
invalidated if the second top or bottom in each respective pattern
forms at a price which is far away from the price at which the first

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top or bottom has formed at. There isn`t any exact guidelines on
how far away this should be, but I'd say that if you see two or
three large candlesticks close below the first bottom or above the
Page | 8 first top, then it's probably not a double bottom or double top
pattern. Overally the double bottom and double top patterns are
two decent reversal formations, although they can be quite
difficult patterns to trade effectively, due to the way the swing

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seen after the second bottom or top has formed can easily turn

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into a retracement or consolidation soon after you would have
entered a trade.

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 The Rising and Falling Wedge Pattern
The final two price action reversal patterns we're going to look at,
are the rising wedge and the falling wedge. The rising and falling
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wedges are two patterns which get their name from the way the
market sometimes contracts before the end of an up-move or
down-move. The contraction of the swings is what creates the
wedge and gives the patterns their name.
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Here is an example of a rising wedge pattern.

You can see that at the beginning of the wedge the distance
between the market hitting the upper wedge line and lower wedge
Page | 9 line is quite large. As the pattern progresses though, the distance

between the two lines becomes smaller and smaller until

eventually the two lines are really close to one another, almost as
if they were about to form the tip on an arrow head.

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In this image we're looking at an example of a falling wedge

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pattern. The falling wedge is the bullish version of the wedge

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pattern and is always a signal the market may be about to reverse

to the upside. It forms in much the same way as the rising wedge
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pattern, with the only difference being that the swings contract to
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the downside rather than the upside like they do during the
formation of the rising wedge. In closing, the rising and falling
wedges are two patterns which are important for you to be able to
recognize 0n a chart, but are not patterns which you should use to
look for entries into trades, due to the way many false signals will
appear as the swings contract and the pattern nears completion.

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1. CONTINUATION PATTERNS
Page | 10 So now that we've had a look at some of the most important price
action reversal patterns, I think it's time to move on and spend a
little bit of time looking at the most important price action
continuation patterns you can expect to see form in the market.

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Price action continuation patterns are basically the opposite of

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the reversal patterns we have just looked at. Instead of signaling
to us a reversal is going to take place, their appearance is a sign
the current trend/movement is probably going to continue.

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 The Rising and Falling Wedge Continuation

Whilst the rising and falling wedges are most often found to be
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price action reversal patterns, they can also be continuation

patterns if they happen to form during downtrends and up-trends
respectively.
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Page | 11

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Here's a falling wedge pattern which formed during a retracement
that was taking place during an up-swing on GOLD.
The reversal formation of the falling wedge will always form at the
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end of downtrends or down-moves, but the continuation variation

will only form during up-trends and up-moves. You can see the
wedge forms in the same way as it would if it was signaling a
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reversal at the end of a downtrend. The swings contract as the

pattern progresses until an upside breakout occurs, pushing the
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market above the swing highs which had formed from the market
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hitting the sharper downside slope of the pattern.

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Page | 12

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Here we have an image of rising wedge pattern which formed
during a downward move that occurred on the 30minutes chart of
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Crash300.
In contrast to what we see with the falling wedge pattern, the
rising wedge only forms as a continuation pattern during
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downtrends. If you see one form during an up-trend, it's not a

continuation pattern and is instead the reversal pattern we just
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looked at in the previous section. The vast majority of the wedge

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continuation patterns you'll see form in the market will form as

retracements during up or down moves. Their formation will take
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place during the whole duration of the retracement, and the

breakout seen at the end of each pattern will usually signal an end
to not only the patterns formation, but the entire retracement
itself.
 The Bullish and Bearish Flag Pattern

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Bullish and bearish flags (sometimes pronounced bull flag

and bear flag) are two more really common price action
continuation patterns you'll see forming in the market.
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In the image above you can see an example of a bullish flag

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pattern that formed on NASDAQ100.

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You can see the pattern is basically constructed off of two points.
The first point is the sharp bullish move higher which takes place
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right before retracement begins (this is referred to as being the

pole of the flag) and the second point is the retracement itself.
The retracement is the flag part of the pattern and should always
terminate before reaching the 50% fibonacci retracement level of
the downswing which creates the flag pole. If you see the market
retrace beyond the 50% level it's usually a sign the pattern is

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changing from a flag into something else

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This image shows a bearish flag pattern which formed on the
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5minutes chart of CRASH500.

The bearish flag is basically an upside down version of the bullish
flag. Both patterns form in the exact same way and they both
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abide by the same rules regarding their formation i.e if the market
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moves beyond the 50% level of the flag pole swing the probability
of pattern remaining a flag decreases dramatically. Both bull flags
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and bear flags form frequently in the market and are often quite a
reliable signal the current movement is going to continue. Usually
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the point where a flag will terminate is the same point as where a
supply or demand zone has formed. So if you want to try to get an
entry into a flag pattern trade, it's best to do so around the point
where a nearby supply or demand zone has formed, as this is
point where the flag is likely to end and cause the prior
trend/movement to resume.

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 The Descending and Ascending Triangle Patterns

The last couple of continuation patterns we're going to
have a look at are the ascending triangle and the
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descending triangle. Triangle patterns are very much like
the rising and falling wedge patterns we looked at earlier.
They form in the same way and have a similar swing

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structure to one another. The main difference between the
two, is that the two triangle patterns always form with one

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straight edge that acts as a resistance or support level
until the market breaks out of the pattern and continues to
move in the direction of the prior trend.

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Here's what an ascending triangle pattern looks like.

The ascending triangle is the bullish variant of the two triangle
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patterns. It only forms during up-tends or up-swings and is always

seen as being a signal the current move is going to continue. The
straight edge of the ascending triangle is a support level, and this
level stops the market from moving lower during the time the
pattern is forming.

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A typical example of a descending triangle.

The descending triangle is the bearish version of the triangle
pattern and its formation is a sign the current down-
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move/downtrend is likely going to continue. The only difference it

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has with the ascending triangle is that its straight edge is a

resistance level which stops prices from rising higher during the
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formation of the pattern in the market. The ascending and

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descending triangle patterns are good to know but not that great
for trading, due to the way a few false breakouts will usually take
place before the real breakout occurs and causes the market to
move in the direction it was moving in prior to the pattern forming
in the market.

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3 . Candlestick Patterns.
This is probably every price action trader`s favourite
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section. Of course there are a lot of candlestick
patterns out there but I`m going to outline a few.
 Hammer/Pin Bar

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 Bullish and Bearish Engulfing Candlesticks
These candlesticks will also act as a form of confirmation in our

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trading journey.

 HAMMER
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The hammer is a single candle pattern which can be found
forming across all currencies, synthetic indices and all time-
frames in the market. It falls into the category of price action
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reversal patterns due the fact its appearance is supposed to be a

signal a reversal is going to occur. Although it must be said that
very few hammers actually cause large reversals to take place in
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the market, (I'll explain why in a minute). Like most price action
patterns the hammer comes in two varieties: The bullish hammer,
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which signals a reversal to the upside may be about to take place,

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and the bearish hammer, which is a sign a reversal to the

downside is probably going to occur.
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Here's an image of some bullish pin bars which formed on the 30
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minutes chart of EUR/USD.

You can see that the vast majority of these bullish pins did cause
the market to reverse once they had formed, but they didn't all
cause it to reverse for the same duration of time. Some caused
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large upswings to take place whilst others only created small

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retracements.
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Page | 19

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In this image we can see some bearish pin bars that formed on
the 30 minutes chart of AUD/CAD.
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Again, you can see that the pin bars which formed on here also
caused reversals of varying sizes to take place. The reason why
pin bars cause different sized reversals to occur, is because of
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the action that caused the pin bar to form in the first place. Pin
bars and all the other candlesticks you see forming on your charts,
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form as a result of traders making decisions in regards to the

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market price. Pin bars happen to form exclusively from the bank
traders either placing trades because they want to make the
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market reverse, or from taking profits off trades which they've

already got placed. The reversal created by the pin bar which has
formed as a result of the bank traders taking profits off their
trades, is naturally much smaller than the reversal caused by the
pin which has formed from the bank traders placing trades to
make the market reverse. It's obvious why this is, I mean if you

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took some profits off a trade you would want the market to
continue moving in the direction to which your trade had been
placed so you could make more money from the trade. The bank
Page | 20 traders want the same to happen when they cause a pin bar to
form from taking profits off their own trades, which is why the
reversal caused by some pin bars forming are much smaller than
the reversals caused by other pins forming. Bullish and bearish

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pin bars are really good reversal patterns to watch out for if you're

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a price action trader, but they must be traded in the right way and
you must understand why they form in the market. Most of the
books and guides out there on pin bars do not teach traders what

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causes them to form, when it's knowing what causes them to
form that will allow you to determine which pins have a high
probability of working out successfully.
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 Engulfing Candlesticks
The other really important candlestick pattern I think price action
traders need to have knowledge on is the engulfing candlestick.
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Like the pin bar the engulfing candle is a reversal pattern, which
means that a reversal is supposed to take place immediately after
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you see one form in the market. Unlike the pin bar the engulfing
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candlestick is a two bar reversal pattern, a pattern which requires

there to be two candlesticks present in order for it's formation to
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be complete.

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Page | 21

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Here's an example of bearish engulfing candles which caused
reversals to occur on Volatility 50.
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The formation of a bearish engulf is always a signal that a

reversal to the downside is about to take place. The pattern itself
consists of two candlesticks. The bearish engulfing candlestick
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itself, which I've marked with an arrow, and the bullish candlestick
that formed an hour before. The bullish candle is first candle
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required in the bearish engulfing setup. This is the candlestick

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which the market will always engulf with a bearish candle

immediately after its formation. In order for a bearish engulfing
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candle to form, a bullish candle must have formed immediately

prior. You can't have a bearish candlestick engulfing another
bearish candle, it has t0 be a bullish candle in order for it to be a
bearish engulfing.

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Page | 22

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Here you can see an image of a bullish engulfing setup which

caused a reversal on BOOM1000.
Bullish engulfing candlesticks are of course the opposite to
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bearish engulfing candles, which means their appearance is a

sign the market is going to reverse to the upside. Like the bearish
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engulfing candle they are also a two bar pattern, but instead of
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the first candle in the pattern being a bullish candlestick, like we

see with the bearish engulfing formation, the first candle in a
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bullish engulfing setup will always engulf a bearish candle. A

bullish engulfing candle cannot engulf another bullish candle, it
can only engulf bearish candles. Engulfing candlesticks are best
used as signals to enter trades at pre-existing points where you
expect the market to reverse, such as support and resistance
levels or supply and demand zones. They can be traded on their

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own without any other confirming factors being present, but in my

opinion they don't tend to work out as well as pin bars do.

Page | 23

TO BE CONTINUED…

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