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Price Action Framework (PAF) — Entry Models

Overview​

The Price Action Framework uses two entry models that cover all market conditions. The High Timeframe (HTF) market state automatically dictates which model to use:

  • Trending Market → Continuation Entry Model
  • Ranging Market → Reversal Entry Model

Each model has a specific, multi-step sequence that must be fully present on the Low Timeframe (LTF) before an entry is valid.

Prerequisite: You must have mastered the PAF Foundation document. You must be able to identify market state and mark ZOIs correctly on the HTF before using these models.

Strategy Environment & Filters​

  • Pairs/Assets: EUR/USD (Euro) and XAU/USD (Gold)
  • Timeframes: Swing (1H/5m) and Day (15m/2m)
  • News & Session Filters: Strictly adhere to all blackout periods and session timing rules outlined in the PAF Foundation document.

Entry Model #1: Trending Market Continuation​

This model enters a trade in the direction of the established HTF trend during a pullback to a value zone.

When to Use​

  • HTF market state is clearly Trending (e.g., HH/HL structure and recent BOS).
  • Your ZOI is marked in the Discount (0–50% for longs) or Premium (50–100% for shorts) of the HTF dealing range.
  • Price has pulled back into your HTF ZOI.

The Three-Step Sequence (LTF)​

Step 1: Price Interacts with Institutional Zone​

Price must enter and react to a valid Order Block (OB) or Fair Value Gap (FVG) located within your HTF ZOI.

What to look for:

  • Price enters the OB or FVG on the LTF.
  • Watch for deceleration as price enters the zone (e.g., smaller candles, consolidation, wicks), indicating the pullback is losing momentum.
  • Price may briefly wick through the zone to test liquidity before reversing.

Note: If multiple OBs/FVGs exist in your ZOI, give priority to the most recent one (closest to current price).

Step 2: Strong Engulfing Candle Forms​

After price interacts with the OB/FVG, wait for a strong engulfing candle to form in the direction of the HTF trend. This is your signal and confirmation.

  • Bullish Engulfing (for longs): A bullish candle whose body completely engulfs the body of the previous bearish candle.
  • Bearish Engulfing (for shorts): A bearish candle whose body completely engulfs the body of the previous bullish candle.

Characteristics of a STRONG Engulfing Candle:

  • Large Body: The body is ≥ 1.25 × the average body size of the last 10 LTF candles, showing conviction.
  • Decisive Close: It closes in the outer 20% of its range in the direction of the trend.
  • Minimal Wicks: It has small wicks against the direction of the move.

Warning: Avoid entering on weak engulfing candles with small bodies or a close in the middle of the range. When in doubt, skip the trade.

Step 3: Enter at the Close of the Engulfing Candle​

  • Enter your position immediately at the close of the strong engulfing candle.
  • Rationale: Do not wait for a second pullback. In a trending environment, this confirmation of momentum often leads to an immediate continuation; waiting will cause you to miss the entry.

Risk & Trade Management (Trending Model)​

  • Stop Loss (SL): Place your SL beyond the extreme of the OB/FVG zone that price reacted from, plus the volatility buffer amount from the Foundation doc.
    • If the engulfing candle’s wick creates a new extreme, place the SL beyond that wick instead.
  • Take Profit (TP): Fixed TP at the next major HTF swing high (for longs) or swing low (for shorts).
    • Must provide a minimum 1:2.2 R:R. If not, skip the trade.
  • Trade Management: Set and forget. Move SL to entry at 1:1.5R. No partials, no trailing.

Entry Model #2: Ranging Market Reversal​

This model captures a reversal after a liquidity sweep at the boundary of an HTF range.

When to Use​

  • HTF market state is clearly Ranging (balanced, with clear boundaries).
  • Your ZOI is marked at the Top 25% (for shorts) or Bottom 25% (for longs) of the HTF range.
  • Price has reached the boundary of your ZOI.

The Three-Step Sequence (LTF)​

Step 1: Fakeout (Liquidity Sweep)​

Price must execute a rapid move through the HTF range boundary and then quickly reverse.

Characteristics of a Valid Fakeout:

  • A rapid, impulsive move pierces the HTF boundary.
  • The move lacks follow-through and reverses back into the range within 1–5 LTF candles.
  • This often leaves a long wick beyond the boundary. A body close beyond is not required.
  • What this tells you: Price swept liquidity (stop orders) and found significant opposing orders from institutions defending the range, triggering a powerful rejection.

Step 2: Reversal Creates a Fair Value Gap (FVG)​

The aggressive reversal move back into the range must be strong enough to create a new Fair Value Gap (FVG) on the LTF.

  • What to look for: A clear FVG forms in the direction of the reversal. A quality FVG should be ≥ 0.15 × ATR(LTF, 14).
  • What this tells you: The FVG is proof of imbalance created by the institutional reversal. It confirms the rejection is happening with speed and force, leaving inefficiencies behind.

High-Probability Tip: The reversal is even stronger if this new FVG violates and closes through a small, opposing FVG that may have formed during the initial fakeout.

Step 3: Engulfing Candle Confirms Reversal​

The reversal is confirmed by a strong engulfing candle that closes decisively back inside the range. This is often part of the same move that creates the reversal FVG.

  • Key Requirement: The engulfing candle must close with conviction well inside the range, not just barely. This confirms the fakeout has failed and the HTF boundary has held. Use the same quality thresholds as the Trending Model engulfing candle.

Risk & Trade Management (Ranging Model)​

  • Stop Loss (SL): Place your SL beyond the extreme of the fakeout wick, plus the volatility buffer amount.
    • Rationale: If price exceeds the fakeout extreme again, the institutional defense has failed, and the range boundary is likely to break for real.
  • Take Profit (TP): Flexible TP based on a fixed Risk:Reward ratio.
    • Target a level that provides a 1:2.2 to 1:2.5 R:R.
    • The TP must remain outside the opposing ZOI (e.g., for a long from the bottom 25%, the TP must be below the 75% Fibonacci level).
  • Trade Management: Set and forget. Move SL to entry at 1:1.5R. No partials, no trailing.

Confluence Factors (Both Models)​

While entry sequences are mechanical, confluence factors significantly increase probability. A high-probability setup includes 2–3 of these factors plus the core entry sequence.

  1. HTF Alignment: Weekly/Daily supply/demand context supports your direction.
  2. Multiple Touches: The OB/boundary has been respected multiple times before.
  3. Round Numbers: The entry zone is near a major psychological level (e.g., 1.1000, 2000.00).
  4. Fibonacci Confluence: The entry aligns with a 61.8%–78.6% retracement of a prior significant move.
  5. SMT Divergence: Correlated pairs fail to confirm each other's highs/lows at your entry point (see glossary).
  6. Volume Confirmation (confluence only): A high-volume node from a Volume Profile indicator aligns with your ZOI.
  7. Oscillator Divergence (Ranging Model): Regular divergence on an oscillator (e.g., RSI, MACD) forms at the fakeout point.

Entry Model Checklist​

Verify before every trade. If any box is unchecked, DO NOT take the trade.

Pre-Trade Verification​

  • HTF Market State: Clearly identified (Trending or Ranging).
  • HTF ZOI: Correctly marked per the Foundation rules.
  • Price in ZOI: Price has entered your pre-defined ZOI.
  • Full LTF Sequence Present:
    • Trending: OB/FVG Interaction → Strong Engulfing Candle.
    • Ranging: Fakeout (≤ 5 candles) → Reversal FVG → Strong Engulfing Candle.
  • Signal Quality: The engulfing candle is strong (large body, decisive close).
  • SL Placement Valid: Placed correctly beyond the invalidation point + buffer.
  • TP Placement Valid: Target is valid and provides a minimum of 1:2.2 R:R.
  • News Calendar Checked: No high-impact events scheduled per blackout rules.
  • Session Optimal: Trading during a high-liquidity session.
  • Spread Gate Passed: Current spread ≤ 20% of planned SL distance.
  • Confluence Present: At least 2 confluence factors are present (recommended).
  • Position Size Calculated: Correctly calculated based on SL distance and account risk.

Post-Entry Actions​

  • Orders Placed Immediately: SL and TP orders are on the platform.
  • [m] Breakeven Alert Set: An alert is placed at the 1:1.5R level.
  • Trade Logged: The trade is recorded in your journal with all required details.

Final Principles​

  1. Wait for the Complete Sequence: Never enter on partial patterns.
  2. Respect the R:R Requirements: Skip trades below 1:2.2.
  3. Manage Risk Mechanically: Fixed take profits and a mandatory breakeven rule.
  4. Journal Every Trade: Build pattern recognition and refine execution.

Professional trading is repeating a flawless process, not pursuing complexity.