Best 3 Price Action Setups in the Universe—Seriously, They Work!

Video Transcript:

Hello everyone, it’s Dale here, and in this video, I’d like to show you my three most favorite price action setups. I’ve been using these three setups for over 10 years, so they are battle-tested, and I’ve been using them successfully up until today. I prefer to combine them with volume profile strategies, but today, I’ll focus just on these three price action setups. So, let’s get to it and check them out!

The first one will be the “Support Becoming Resistance” setup, the second one is the “ABCD” setup, and the third one is the “Fair Value Gap” So, let’s start with the “Support Becoming Resistance” setup.

Now, if you look at this chart, notice these two reactions. The price was reacting to this level in the past, meaning it was a resistance level, right? The price doesn’t need to react exactly to that level; it’s enough that it is in the general area. What happened next was that the price went past that resistance, turning it into new support. This is exactly the setup that I like to trade. It’s as simple as that: you simply need to find a level where the price bounces off strongly, like here. Then, the price needs to go past that level, turning resistance into new support. When that happens, you just wait for a pullback to that support and take a long position from there. All right, this is the long trade scenario.

Now, let me show you a short trade scenario. It is the same, only reversed. What you need to see is the price reacting to some level in the past, like this. See, the price was bouncing off a level somewhere in this zone. Because the price was making those reactions, it means it was a support. The more reactions, the better. Here, we have three, which is fantastic. Two are also good, but for me, even one is sufficient if I find a confluence, for example, with a volume profile setup. However, the ideal case is when there are more of those strong reactions, as it indicates a strong level in the past. Then, you need to see the price shoot past that level, like here. When this happens, the support turns into a new resistance, and this is the resistance you want to trade from. So, you wait for a pullback, and when the price hits that resistance, you go short. All right, this is the short trade scenario.

Let me show you one more example. Here, the price made just one, but a strong and aggressive reaction, and then the price went past the zone it was reacting to before. So, there was a resistance in the past, as shown by this strong reaction. When the price blew past this resistance, it turned into a new support. You just need to wait for a pullback, and when the price reaches this support, you go long. All right, this is the “Support Becoming Resistance” or “Resistance Becoming Support” setup.

Now, let me move on to the next price action setup, called the “ABCD” setup. It’s based on the fact that the price likes to move in a wave-like manner, like this for a bullish scenario, or like this for a bearish scenario. Let me give you a little description of this setup before we jump into the charts. The trick behind this is that the distance from point A (a significant swing point) to point B is the same as the distance from point C (another significant swing point) to point D. That’s why it is called “ABCD” because the distance from A to B is equal to the distance from C to D. You measure this with the Fibonacci tool, and I’ll show you how.

Basically, you look for this wave-like movement, and from point D, you can enter a long trade (bullish scenario). For the bearish scenario, it’s the same thing, only reversed. You need to identify an important swing point A. The price goes to swing point B, makes a pullback to swing point C, then goes up again. You identify the level at point D, which is where you enter a short trade. This is the wave-like movement you want to see in the chart. Let me show you how to identify this setup on a chart.

First, you need to identify a significant swing point (we’ll call it point A). The price goes upward to swing point B, then pulls back. The pullback must go below 50% of the AB distance, which you measure with the Fibonacci tool. Point C must be below 50%. Next, you grab the Fibonacci tool and measure the distance from point C (the swing point). This distance will show you point D. You can see that in the example here: point A, point B, a pullback to point C, and then the distance from A to B is the same as the distance from C to D. From there, you go short.

I know this can be hard to explain, so I’ll show you one more example on a live chart to make it easier. This is a bullish scenario: the price moves from swing point A, goes down to swing point B, then pulls back (at least 50% of the distance from A to B). You grab the Fibonacci tool and measure the distance from A to B. The same distance is from C to D. This way, you find D, and from there, you enter your long trade.

Now, let’s look at a EUR/USD chart from yesterday. As you start practicing this setup, it will become easier and easier to spot. Don’t worry if it’s a bit difficult at first; it will only get easier with practice. Anyways, this is point A (a significant swing point). The price goes upwards to point B, and then there’s a pullback. I’ll grab the Fibonacci tool here—the pullback needs to go below 50% of this range. This is point C, so you use the Fibonacci tool to measure the distance. From point D, you go short.

Let me show you the third price action setup: the “Fair Value Gap” setup. This is a concept from smart money trading, involving a formation of three candles. A bullish scenario looks like this: you have three candles, and there’s a gap between the high of the first candle and the low of the third candle. In this case, I like to trade from the bottom of this gap, meaning I wait for a pullback and go long from there. It’s as easy as that. The bearish scenario is the same, only reversed. You need to see three candles and a gap between the low of the first candle and the high of the third candle. I like to trade from the top border when going short. Let me show you on a chart. I actually have an indicator that automatically draws these fair value gaps, which you can download for free via the link below this video.

When looking at the chart, the fair value gaps are highlighted. Let me show you one: a huge fair value gap on the EUR/USD. You’re looking for those three candles—this is candle one, this large candle is candle two, and this green candle is candle three. There needs to be a gap between the low of the first candle and the high of the third candle. This zone is the fair value gap. As I mentioned, the software draws it automatically. For a short trade scenario, I trade from this level. I currently have this level marked on my chart, and I’m waiting for a pullback.

What I like to do is combine these setups with volume profile setups or other trading setups. Let me show you how I use the volume profile over this zone. The first short level I showed you has a fair value gap and a heavy volume zone, creating a nice combo of price action and volume profile setups. The same goes for the higher level. You’ll find similar setups combining fair value gaps and volume profiles.

I also combine setups wherever possible. For example, there’s also the “Support Becoming Resistance” setup here. The price reacted strongly at this level in the past, showing it was a support level until the price broke past it, turning it into a resistance level. In this instance, we have three price action setups: the fair value gap, the support becoming resistance setup, and the volume profile setup.

If you found this video helpful and would like to learn more, visit my website, Trader-Dale.com. If you click the “Trading Course and Tools” button, it will take you to a page where you can browse my trading indicators and education. I’m currently running a special Halloween sale where you can get my education and indicators at a discount until the end of the month. Thanks for watching, and I look forward to seeing you next time. Until then, happy trading!