What is the event area?
‘Event area’, is basically a price area that starts a major event or breakout etc. Basically, by ‘event’ I mean a significant price change. This could be a breakout of the inside bar pattern leading to a strong directional move up or down, a strong reversal from a pin or false or tailed bar. Or, it could simply be a strong rally occurring perhaps with no specific/clear price action signals.
Wherever we see the market initiate a move in the STRONG direction, we have an event zone.
To make it very simple, markets often find support or resistance at areas where recent price events have occurred. They become reference points…
A market will often ‘remember’ and respect where a big move begins. That means, if a market goes back to the level or area a major move started from, many times (not every time), it will bounce back or drop off the same level/area there. As price action traders , this is a BIG clue to us and we can use it to develop some high probability entry techniques:
How to trade event zones
Event zones can be traded with price action entry triggers or from ‘blind entry’, that is, without price action entry triggers. The blind entry technique is a bit more advanced, so I don’t recommend trying it until you are comfortable with trading event zones combined with price action signals like pin bar , fakey , inside bar or reversal bar with a tail.
Trade event zones with price action entry triggers
- The chart below will help you visualize and understand how event zones work and how to trade them with price action signals.
- Notice the initial drop on the left side of the chart starting near 1.6660, this strong downward move has essentially formed an ‘event zone’… an ‘event’ is a sharp decline that has occurred. , leaving the key resistance at that point, or ‘event zone’.
- When the price finally worked its way higher, it eventually returned to this event area and then it acted as support as the price consolidated just above it for a couple of weeks. This is why you may have heard that ‘old resistance becomes new support’ and vice versa… it’s not true ‘all the time’, but in the case of event zones, this saying usually correct.
- Note, the price then fell below the event zone again and it acted as resistance in the two subsequent retests. The price then broke out back above the event zone and about a week later returned to that zone again forming a ‘perfect’ pin bar buy signal when the price rejected the event zone. This pin led to a strong push higher…
- The chart below is another clear example of how to use price action entry triggers at event zones.
- Note the big drop from around 105.00 that started the event zone.
- Price finally worked back into that key event /resistance area and formed a major bearish pin bar reversal signal.
- When the price rejects this event area, there is a high probability of another drop…
Trade event zones with blind entry
- The chart below has a lot going on.
- First of all, there is an event area through around 0.8100 which we can see has been established following the sharp down move from the sell pin bar signal on the far left of the chart.
- We then have three more potential sell entries at this event area as the price falls back on it:
- 1) A bearish trailing bar forms at the event area… note this is how you would trade the ‘following bar reversal’ from the event area… to refresh what you learned about the tail bar in the previous chapter .
- 2) The next entry is the ‘blind entry’ at the event area. You will have to place a sell limit entry pending near 0.8100 or just below it, when the price approaches it. It’s called a ‘blind entry’ because we don’t have a pin bar or any other price action signal as an entry trigger… we’re just entering blindly at the regional level. event or very close to it.
- 3) The last entry on the chart is a bearish pin bar reversal signal. This is quite understandable; clear pin bar sell signal at key event/resistance area. A pin bar signal at an event area is a VERY powerful trade setup that will often work out in your favor…
- This is another obvious example of blinded entries at event zones.
- This is a trading range scenario in which the price fluctuates between important support and resistance levels. Trading ranges like this, which have a large range, often provide good event zone entries when price bounces between support and resistance.
Conclusion:
It is clear when observing and analyzing the raw price charts of the market that the market really ‘never forgets’ where the major moves started. By learning to identify these key event levels and areas, we can mark them on our charts, and when the market starts approaching them with a future retracement, we have a well established risk/reward pattern that needs attention.
I recommend you first learn how to trade these second chance entries at event zones with price action signals as an entry ‘confirmation’/trigger, then as you gain experience, you can try the ‘blind’ second chance entry we discussed in this chapter.