Aaron’s Advanced Price Action Trading Strategy

Do you believe in stop-loss hunting practices? Maybe this paranoia has something to it, but the predators here would be other market participants. This article is written by our trader Aaron. He is focused purely on the Price Action and the relationship between big market movers and retail traders. This trading system takes into consideration order blocks in the recent market structure and the strategy scores a good success on higher time frames. Be inspired. 

 

I am an intraday FX trader and have a price-action based strategy.
My strategy is centred around my belief/understanding that only big players in the markets, such as banks can move the markets. But these institutions need liquidity to pair their orders and so they engineer levels (such as S&R) to entice retail traders into the market, in order to hunt their stop losses before moving the market where they want.

My strategy is very simple: Stop Hunt (SH), Market Structure Break (MSB), Return to Origin (RTO).

Stop Hunt in a Bullish market – Price runs the previous market structure low, but the candle closes ABOVE the low. Taking out early retail longs and trapping retail “breakout artists” who shorted the breakout (as seen in the example in the picture below).

Stop Hunt in a Bearish market – Price running the previous market structure high, but the candle closes BELOW the low. Taking out early retail shorts and trapping retail “breakout artists” who longed the breakout (as seen in the example in the picture below).

Market Structure Break in a Bullish market – After the previous market structure low has been taken, price runs up and you get a candle close above the market structure high, hence indicating a break/continuity in bullish market structure with a new higher high being put in.

Market Structure Break in a Bearish market - After the previous market structure high has been taken, price runs down and you get a candle close below the market structure low, hence indicating a break/continuity in bearish market structure with a new lower low being put in.

Return to Origin in a Bullish market – I use something called Order Blocks and those are the points of origin. An order block in a bullish market is the last bearish candle before the move of bullish candles which broke market structure. You can see the order blocks marked out by the shaded boxes. Order blocks from my understanding are areas where the institutions decide to do their business and so the price returns to the Order Block after breaking the market structure, in order to fill all the orders resting in that area before continuing its move.

Return to Origin in a Bearish market - Vice versa. An order block in a bearish market is the last bullish candle before the move of bearish candles which broke market structure. You can see the order blocks marked out by the shaded boxes. Order blocks from my understanding are areas where the institutions decide to do their business and so the price returns to the Order Block after breaking the market structure, in order to fill all the orders resting in that area before continuing its move.

I’ve backtested this strategy and found it to work over 500 times on Cable, Fibre, Gold. This strategy can be used on any FX pair and on any time frame. However, I have found the higher the time frame to have more chance of success and less chance of being stopped out of your position.

The optimal strategy for me is a stop hunt on the H1 timeframe, an MSB on the minute time frame and a Return to Origin on the 15 minute time frame.