Today’s topic of discussion will be price action! If you want to become a forex currency trader then it is important that you know and understand what price action is and how it’s applied in Forex.
Price action trading simply put Is the method of making all of your decisions in trading from a price chart while adhering to a certain set of principles. Generally speaking there are no indicators used in this method except for some moving averages that may help to identify dynamic resistance and support areas and establishing the overall trend direction as well.
In this episode we are going to take a closer look at price action and how it applies to Forex, we will discuss the basics and rules for approaches in price action trading.
What is Price Action?
All financial markets create historical data concerning the movement of market prices. These movements can be represented as candlesticks and are registered over varying time periods which then are displayed on our price charts.
Now always remember that price charts reflect the beliefs and actions of actual market participants, whether human or computers programmed by humans those beliefs are displayed on a market’s price chart in the form of Forex price action.
economic data and other high impact news events are usually the catalysts for price movement in the forex market, price action traders do not have any need to analyse these in order to trade the market as news events are eventually reflected via price action on a market’s price chart. I would still consider them for the purpose of avoiding or negotiating volatile markets but it’s not always necessary.
As price action in a market reflects all the influences for that market for any given time period, the use of lagging price indicators can for the most part be a waste of time. There are traders who stipulate that price movement provides all the Forex price action signals you will ever need to design a strategy around high probability trading set ups making price action trading one of the simplest stand alone strategies.
price action trading strategies can deliver a way of making sense of a market’s price movement, as well as offering insight in to predicting its future movement with a high degree of accuracy.
Take a look at this example, we have a easily identifiable over all uptrend in the market and the price is giving us a very clear indication that it is producing a series of higher high points and higher low points on our chart. We have a higher than the previous high here! and a higher than the previous low here! higher high higher low, higher high, higher low and so on. This is a your standard set up as far as identification is concerned and the opposite of the higher highs and higher lows is obviously the downtrend which presents as a sequence of lower highs and lower lows.
Trading styles vary from set and forget methods and trailing stop loss strategies. With the set and forget method we are looking to enter on the retracements and set our stop loss beyond the last low. if price retreats beyond this low price action has been broken and a shift in the trend may occur, this could also be indicated by a moving average line being crossed.
Regarding your take profit level it should always be at least twice as much as the stop loss level in accordance with our video on risk reward and when your trade is initiated you should leave the trade conclude naturally without interference.
Always be aware of any support or resistance areas that may hinder your trade and interrupt the flow of the price action set up, likewise support and resistance can be used to our advantage.
Secondarily the trailing stop loss method is basically the same except you do not set a determined stop loss and rather you keep adjusting this level just beyond the base of each new higher low allowing the trade to go as far as possible before naturally being stopped out.
Adhering to this strict trading plan and not allowing yourself to compromise should see you make steady consistent gains and you shouldn’t allow your self to be overwhelmed by the psychological aspects of trading, If you have a gamblers mentality don’t forget the house always wins.
price action put simply is the footprint left behind by Financial markets where money is exchanged between its participants. this exchange of money leaves a trail and the trail is a market’s price movement or price action.
As a Forex trader, it is vital to learn to define and trade from the clues left behind from price action, It is an important subject to learn, not just for your general knowledge, but to amplify your trading arsenal generally speaking.
price movement in financial markets have a tendency to be repetitive as the market participants are generally other people and human emotions are to an extent predictable especially where money is concerned.
Market participants actions frequently result in price action formations that repeat from time to time and historically certain prices maintain significance because people give significance to the price. This can be a very accurate predictive tool of upcoming price direction and this is where price action Forex indicators come into play.
What we are saying here is, price action trading encompasses price action strategies from key levels in the market. Sometimes you don’t need to complicate a strategy as a plain price chart and some common sense can be enough to build a foundation for a successful strategy. by combining price action setups with key support and resistance levels and dynamic resistance and support levels, you can learn to identify accurate trade entries that provide you with high probability trade set ups.
Price action strategies can be traded on any financial market and on any time-frame. It is advisable that traders focus their efforts on trading higher time-frames initially, with the main time frame being the daily chart to establish overall trend and use the four hour time frame to observe the market in more detail, using the higher time frames should also prevent you over-trading due to less opportunity but more probable trade set ups.
there is no easy way to make money in forex, Remember that any shortcuts that you believe you have found or weaknesses you can exploit in the markets are merely temporary. By learning price action, you are giving yourself another valuable tool in working toward your Forex trading success.
In Conclusion Whatever strategy or trader you want to be. Knowing how to read and trade from price action will improve your overall progress and success rate, even if you are not solely focused on trading price action strategies you will become a better more rounded trader from mastering this field of knowledge.
I hope you have found our discussion on price action today helpful ladies and gentlemen please sit back and contemplate what you have learnt here today and Remember contemplation is the key to learning.