Event Areas
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What is an event area?
An ‘event area’, is basically an area of price which started a major event or break out etc. Essentially, by ‘event’, I mean a significant price move. This can be a breakout of an inside bar pattern that leads to a strong directional move up or down, a strong reversal from a pin bar or fakey or tailed bar. Or, it can simply be a strong burst of momentum that occurred perhaps without a specific / obvious price action signal.
Wherever we see the market initiate a STRONG directional movement, we have an event area.
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 major move started. That is to say, if a market retraces back to the level or area a major move started from, many times (not every time) it will again bounce or fall away from that same level / area. As a price action trader, this is a HUGE clue for us and we can use it to develop several high-probability entry techniques:
How to trade event areas
Event areas can be traded with a price action entry trigger or from a ‘blind entry’, meaning, without a price action entry trigger. The blind entry technique is a bit more advanced, so I don’t recommend you try it until you’re comfortable with trading event areas in combination with a price action signal like a pin bar, fakey, inside bar or tailed reversal bar.
Trading event areas with price action entry triggers
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The chart below should help you visualize and understand how event areas work and how to trade them with price action signals.
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Note the initial decline on the left side of the chart started near 105.4, this strong downward directional move essentially formed the ‘event area’…the ‘event’ was the strong down move that occurred, leaving behind an important level of resistance at the time, or ‘event area’.
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As price eventually worked its way higher, it eventually rotated back down to this event area and it then acted as support as price consolidated just above it for a few weeks. This is why you may have heard ‘old resistance becomes new support’ and vice versa…it’s not true ‘every’ time, but in the case of event areas, this saying often does hold true.
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Note, price then fell below the event area again and it acted as resistance on two subsequent re-tests. Then, price broke back above the event area and about a week later rotated back down to it again and formed a ‘perfect’ pin bar buy signal as price rejected the event area. This pin bar led to a strong push higher…
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The chart below is another clear example of how to use price action entry triggers at event areas.
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Note the large decline from around 0.975 that initiated the event area.
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Price eventually worked its way back up to that event area / key resistance and formed a large bearish pin bar reversal signal.
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Once price rejected this event area, there was a high-probability of another decline in price…
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Trading event areas on a blind entry
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The chart below has a lot going on.
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First off, there is an event area through about 0.7375 that we can see was established following the strong down move from the pin bar sell signal on the far left of the chart.
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We then got three more potential sell entries at this event area as price retraced back up to it:
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1) The bearish tailed bar that formed at the event area…note this is how you would trade a ‘tailed bar reversal’ from an event area…to refresh what you learned about tailed bars last chapter.
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2) The next entry was a ‘blind entry’ at the event area. You would have had to place a limit sell entry order waiting near 0.7375or just below it, as price approached it. It’s called a ‘blind entry’ because we don’t have a pin bar or any other price action signal as the entry trigger…we are just entering blindly at the event area level, or very close to it.
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3) The last entry on the chart was a bearish pin bar reversal signal. This is pretty self-explanatory; obvious pin bar sell signal at key resistance / event area. A pin bar signal at an event area is a VERY powerful trade setup that will often work out in your favor…
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Here’s another clear example of blind entries at event areas.
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This was a trading range scenario where price was oscillating between a key level of support and resistance. Trading ranges like this, that are large in range, often provide good event area entries as price bounces between the support and resistance.
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Conclusion:
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It’s clear upon observing and analyzing the raw price charts of a market that the market truly ‘never forgets’ where major moves started. By learning to spot these key levels and event areas, we can mark them on our charts and when the market starts approaching them on a retrace in the future, we have a good risk/reward scenario setting up to pay close attention to.