Price action: trading without indicators
Reading structure from swing points
A swing high is a candle whose high is above the highs of the candles on both sides of it. A swing low is a candle whose low is below the lows of the candles on both sides. These points are not calculated from a formula. They come from the shape of the price alone. On an AUD/USD chart around 0.6640, you mark each one as it forms. The most recent swing high and swing low are the two numbers that matter for the next decision.
Price moves between these points in a sequence. When a new swing high is above the last one, buyers are still pushing. When a new swing low is below the last one, sellers are still pushing. A break of the last swing low tells you the upward sequence has stopped. You do not need an indicator to see that. You only need the two most recent swing points on the chart.
The distance between a swing high and the next swing low is the size of the current move. If that distance is 40 pips, the market is moving in steps of about 40 pips. If it is 12 pips, the steps are smaller. This number sets the scale for your stop and target. You read it from the chart, not from a separate window.
A range as a box with two edges
A range forms when price stops making new swing highs and new swing lows. The high edge is the highest swing high in the box. The low edge is the lowest swing low. In the example already on this page, the box runs from 0.6620 to 0.6660. That is 40 pips tall. The edges are not lines you draw with a tool. They are the prices where the market turned more than once.
Inside the box, price can touch an edge and move away. Each touch is a test. A test that holds leaves the edge intact. A test that breaks closes beyond the edge and then holds there. The difference between a touch and a break is whether the price stays outside the box after the candle closes. You judge it from the close, not from the high or low of a single candle.
The middle of the box is not a signal. It is just the halfway point between the two edges. Many beginners place trades in the middle because it feels safe. That is where the stop has to be widest, because the nearest edge is far away. Structure traders wait for an edge. The edge gives a clear place for the stop and a clear place for the target.
Breaks and the stop that follows
A break happens when price closes beyond a swing point or a range edge. After a break, the old edge often becomes the new reference. If price breaks above 0.6660, that level can later act as a floor when price pulls back. You do not assume it will. You watch whether the pullback holds above it. If it does, the break is still valid. If it closes back inside the box, the break has failed.
The stop for a break trade goes on the other side of the broken edge. If you enter long at 0.6665 after a break above 0.6660, a stop below the edge at 0.6640 gives a distance of 25 pips. That is the same 25 pips used in the example on this page. The stop is not chosen from a feeling. It is chosen from the structure that would prove the break wrong.
A failed break is not a reason to move the stop. It is a reason to exit at the stop and take the planned loss. The account is protected by the size you chose before entry, not by a new decision made while price is moving. If the structure changes after entry, the stop still sits where the plan placed it. That is how a planned A$25.00 risk stays A$25.00.
One entry, two ways: structure against a signal
| Step | Amount | Note |
|---|---|---|
| Instrument | AUD/USD | the pair used throughout this course |
| Price area | around 0.6640 | the level where the range forms |
| Range high | 0.6660 | the highest traded price in the range |
| Range low | 0.6620 | the lowest traded price in the range |
| Range height | 40 pips | 0.6660 minus 0.6620 is 0.0040, which is 40 pips |
| Entry on a break | 0.6665 | price closes above the range high, so the break is confirmed |
| Stop distance | 25 pips | 0.6665 minus 0.6640, placed back inside the range |
| Target distance | 40 pips | the range height projected from the entry |
| Position size | 0.10 standard lots | a size chosen before the entry, not after |
| Value of one pip | A$1.00 | one standard lot is A$10.00 per pip, so 0.10 lots is one tenth of that |
| Risk in A$ | A$25.00 | 25 pips multiplied by A$1.00 per pip |
| Target in A$ | A$40.00 | 40 pips multiplied by A$1.00 per pip |
Your broker may round the pip value, quote a slightly different price, and charge a spread or commission on top. Those charges vary between brokers and are not included in the figures above.
Doing it once, step by step
You will mark the structure on an AUD/USD chart, read the range, and place a stop and a target from the shape of the price alone. Do these steps in order on a demo chart before using real money.
- 01
Mark the last two swing highs and lows
Look at the most recent candles on the AUD/USD chart around 0.6640. Find the last candle whose high is above the highs on both sides. Mark it as a swing high. Do the same for the last candle whose low is below the lows on both sides, and mark it as a swing low. These four points are your first structure map.
- 02
Draw the range box
Find the highest swing high and the lowest swing low in the last 20 to 30 candles. Draw a horizontal line at each. The space between them is the range. In the example on this page, that box is 0.6620 to 0.6660, which is 40 pips tall. Write the two numbers down.
- 03
Measure the range in pips
Subtract the low edge from the high edge. For 0.6660 minus 0.6620, the difference is 0.0040. One pip is 0.0001, so divide 0.0040 by 0.0001 to get 40 pips. This is the height of the box. You will use it to judge whether a stop fits inside the range.
- 04
Choose an entry at an edge
Wait for price to close beyond one edge of the box. A close above 0.6660 is a break upward. A close below 0.6620 is a break downward. Do not enter on a touch that does not close beyond the edge. The close is the confirmation.
- 05
Place the stop from structure
For a long entry at 0.6665 after a break above 0.6660, place the stop below the broken edge at 0.6640. The distance is 0.6665 minus 0.6640, which is 0.0025, or 25 pips. This stop sits where the break would be proven wrong. Do not move it after entry.
- 06
Set the target and size
A common target is the height of the range added to the entry. For a 40-pip range and an entry at 0.6665, that target is 0.6705. With 0.10 standard lots of AUD/USD, one pip is A$1.00, so a 25-pip stop risks A$25.00. Your broker may round the pip value, quote a slightly different price, and charge a spread or commission on top; those charges vary between brokers.
The mistake most people make here
The common mistake is to wait for an indicator to confirm what the chart already shows, so the entry lands late and the stop has to sit further away. A second mistake is to move the stop once price is running, which turns a planned A$25.00 risk into something larger. Decide the entry, the stop and the size from structure before the trade, and write them down. If the structure changes after entry, the stop is what protects the account, not a new signal.Check yourself
A range runs from 0.6620 to 0.6660. How many pips tall is it?
0.6660 minus 0.6620 is 0.0040. One pip is 0.0001, so 0.0040 divided by 0.0001 is 40 pips.
You enter at 0.6665 with a stop at 0.6640 on 0.10 standard lots of AUD/USD. What is the risk in A$?
The stop distance is 0.6665 minus 0.6640, which is 0.0025, or 25 pips. One standard lot is A$10.00 per pip, so 0.10 lots is A$1.00 per pip. 25 pips multiplied by A$1.00 is A$25.00.
Questions that come up next
What is a swing point in plain words?
A swing high is a candle high that is above the highs of the candles on both sides. A swing low is a candle low that is below the lows of the candles on both sides. You mark them by looking at the shape of the price, not by a formula. The most recent swing high and swing low are the two numbers you use for the next decision.
How do I tell a touch from a break at a range edge?
A touch happens when price reaches the edge and moves back inside the range. A break happens when price closes beyond the edge and then holds outside. The close of the candle is what matters, not the high or low of a single candle. If price pokes past the edge but closes back inside, that is a touch, not a break.
Why does the size of the last move matter for my stop?
The distance between the last swing high and swing low shows how far price is stepping. If that distance is 40 pips, the market is moving in steps of about 40 pips. If it is 12 pips, the steps are smaller. That number sets the scale for your stop and target, so you can place them at a sensible distance from the structure.
What do I do if price moves back inside the range after a break?
A move back inside the range means the break did not hold. The structure has changed, and your reason for the trade may no longer be there. If you already entered, your stop is what protects the account. Do not move the stop further away hoping the price will turn back.
How do I work out the pip value for a different lot size?
One standard lot of AUD/USD is A$10.00 per pip. For 0.10 lots you divide by ten, which gives A$1.00 per pip. For 0.01 lots you divide by one hundred, which gives A$0.10 per pip. Multiply the pip value by the number of pips in your stop to get the risk in A$.
Why do two traders see different numbers for the same trade?
One trader uses a calculated line, such as a moving average, to time the entry. The other reads the shape of the price and enters at a swing point or a break. The two methods can give different entries, so the stop distance and the A$ risk will differ. Both can be written down before the trade, but only one matches the structure on the chart.
The words used on this page
- Swing high
- A candle high that is above the highs of the candles on both sides of it. It marks a point where buyers stopped pushing and price turned down. You read it from the chart, not from a formula.
- Swing low
- A candle low that is below the lows of the candles on both sides of it. It marks a point where sellers stopped pushing and price turned up. The most recent swing low is often used to place a stop.
- Range
- A period when price stops making new swing highs and new swing lows. It has a high edge and a low edge, and price moves between them. The edges are prices where the market turned more than once.
- Break
- When price closes beyond a swing point or a range edge and then holds there. A break tells you the previous sequence has stopped. You judge it from the close of the candle, not from a single high or low.
- Pip
- A small unit of price movement, usually 0.0001 for AUD/USD. If the price moves from 0.6640 to 0.6641, that is one pip. Pip value is the money that one pip is worth for your lot size.
- Stop
- An order that closes your trade at a set price to limit the loss. In structure trading, you place it beyond a swing point or a range edge. The distance from entry to stop, in pips, times the pip value, gives your risk in A$.
What to take away
- Read the chart from swing highs, swing lows, ranges and breaks, not from a calculated line.
- The distance between the last swing high and swing low sets the scale for your stop and target.
- A break is a close beyond an edge that holds, not a single poke past it.
- Decide the entry, stop and size from structure before the trade, and write them down.