How to Profit From Breaking Down price Action

In this post, I show you how to profit from breaking down price action. It is important that you pay close attention to the steps and that you try to identify the same things on your own charts.

First of all, I want you to go to the TradingView platform and open any currency pair. In this example, we will go through price action on EUR/USD.

How to Identify Price Action And Profit From it Step By Step

In this example, we will use the 15 minute time-frame. So, just go to the TradingView platform and then press 15 and then press enter. Otherwise, you may find the option on the top left of your chart.

Now, I will take you through the process step by step

Step 1. Zoom Out And Identify Areas of Consolidation in Order to Break Down And Profit From Price Action

As you can see on the image above, if you zoom out, your chart should look something like that. Contrary to what you might expect, it is the consolidating areas that we want to look for in order to get the best opportunities for trade entries and not the trade continuation opportunities.

Here is the interesting part. We will not go with the trend. We will enter trades on those periods of consolidation or re-distribution which are opposite to the overall trend. This is where we will profit from breaking down price action.

Step 2. Identify a potential period of consolidation

If we trade in real life situations, the first part would look like that. This means, that you see price reacting to this bearish order block (OB) and of course you believe that we will continue with the overall down trend.

Even though you are correct, I will show you step by step what you can do in order to profit from breaking down price action even further. Let’s move on to the same example but a little bit further.

We were expecting price to break structure from the downside and continue with the overall downtrend. Nonetheless, Price broke structure to the bullish side. This is where we can enter trades.

Pay attention though. We do understand that this is probably a period of re-distribution and we do not expect an overall trend reversal. We are day traders and we want to make profits with small price movements. After all, it is up to us how much we want to risk and what our target is. Let’s move forward.

Step 3. Identify Break Of Structure (BOS) Towards The Opposite Side Of The Current Trend

Pay close attention now. On the image above we see the break of structure to the bullish side. Hence, we need to find out where was the last low responsible for this BOS

In this example, the low responsible for the BOS is highlighted with an ellipse and it is pointed out by the yellow arrow. This makes it a high probability area for trades.

Step 4. Highlight The Order Block That Was Responsible For The BOS

We just break down price action. We highlight the OB area which is responsible for the BOS. Then, we extend the highlighted are to the right and we wait for price to retrace back to it in order to enter a trade.

We can also use the Gann Box as we did in this scalping strategy. The Gann Box will help us identify the 50% level of the highlighted area. Then, we can place a pending order (buy limit order) at the 50% of the area, with a stop loss just below it and a take profit at the previous high.

In this occasion, we would get a 13.5/1 reward to risk (RR), which is amazing!

More Examples on How to Profit From Breaking Down Price Action

Price action is king, and you can profit by breaking down price action. Remember the untested OB from the previous example?

More likely than not, price is going to come back and retest this OB as well. This is great news because we can enter another pending order at the 50% level of this OB. Let’s see how this would play out.

We would get a 19/1 RR by targeting the last bearish OB. This is absolutely huge.

Another Example on How to Profit By Breaking Down price Action

We know that the overall trend is a downtrend. The example we analyzed on the 15 min chart corresponds to the small area that we can see on the Daily chart now marked with “BOS”. We will go further on and analyze price action on the right highlighted area now. But first, we will go down to the 15 minute time-frame once again.

This is the second example that we will go through. The highlighted re-distribution area that we see on the right, pointed out by the yellow arrow.

On the image above, we see a re-distribution taking place on the 15 minute time frame. Nonetheless, we would not know about that when price action was playing out. So, how can we capitalize from breaking down price action in this example?

Again, we do expect the overall down-trend to continue. Nonetheless, we see only a minor BOS which looks more like grabbing of liquidity which was lying below the equal lows.

On the other hand, we see a clear BOS on the other side (as pointed out by the top right yellow arrow). All we need to do now, is highlight the last OB responsible for this clear BOS.

As you can see, the last OB responsible for the BOS is the one that I highlighted on the image above. By last I do not mean the lowest. If you pay close attention, there is one more OB that we can use. This is just below the current one, which is the lowest one.

As with our previous example, we would enter trades on both OBs. This would be a win and it would give us an 11.5% RR. The second one would be a loss. Still, the results are amazing

To Sum Things Up

We use the higher time frames such as the Daily or the 4 hour time-frame in order to identify the overall trend. In our example this was a down trend.

Afterwards, we scale down to the 15 minute timeframe and we zoom out the chart once again. We wait for price to retrace. Nonetheless, we do not enter trades with the overall direction of the trend. Rather we trade the pull-back, against the overall trend.

In order to do that and profit from it, we break down price action. When we see price breaking structure from the opposite side (in our example to the bullish side), we identify the last bullish OBs. We place pending orders on both OBs.

Even though we understand that more likely than not this is a re-distribution (in our examples), or a re-accumulation, we can make great profits by breaking down price action correctly.

Here is my video of this strategy

ChrisFX Courses

Day trading strategies (including this strategy on how to profit by breaking down price action) can be very risky if you do not control your emotions and if you do not have a strategy which is giving you a statistical advantage.

It is normal that you will go through periods of consecutive losses and consecutive wins as well. If you want to be able to calculate those aspects of trading in advance and build a robust winning strategy, then you can check out my courses.

In the courses, I teach you elaborate winning trading strategies. Furthermore, I teach you how to build a robust trading plan, starting with the importance of statistics and trading psychology. That way, you can take your trading to the next level.

As with all trading strategies presented here on ChrisFX, if you want to test them out, do so by trading with fake money, or otherwise paper money. NEVER test one of these strategies with real money. When and if you decide to do so, you do so at your own risk and I take zero responsibility for your actions.

Enjoy 🙂