Forex price action trading can be defined as trade decision making based upon chart price patterns, the patterns being created by traders simultaneous reactions, to news and world events. The logic is that all the fundamentals and the sentiment of all the traders trading the currency pair are reflected in the currency pair you are looking at. You are seeing the true price clearly in front of you and if you have the right strategy, you can develop a high probability trading strategy which will help you make consistent profits by simply trading the price.
Many people who are trading Forex, do not actually understand what they are doing, but instead rely on indicators and luck, hope or intuition, or maybe at best they stick to a general rule (such as trade with the trend, '€˜the trend is your friend', etc.) -€“ but beyond that do not really understand what they are seeing when they look at the charts.
17 The allure of counter-trend trading and the impulse of human nature to want to fade the market in a good trend is very discernible to the price action trader, who would seek to take advantage by entering on failures, or at least when trying to enter counter-trend, would wait for that second entry opportunity at confirmation of the break-out once the market revisits this point, fails to get back into the trend and heads counter-trend again.
Now that you have identified and marked key technical levels on the chart, it's time to analyse the current market direction - the current trend Many Forex Price Action price-action traders take trades only in the direction of the overall trend, as these trade setups tend to have the highest probability of success.
Price action trading is based on trading the naked price chart and uses no indicators whatsoever - there are no momentum indicators such as the RSI or stochastic, no moving averages and no volatility indicators, you simply look at the chart trade support and resistance and look at the open, high, low and close on a bar or candlestick chart.
I will daily you how to read the natural price dynamics of a price chart and how to find high-probability entry points within it. You will develop a discretionary trading sense that will allow forex to trade for yourself forever; this is a skill that you can carry with you to not only Forex but to any market.
When the market is restricted within a tight trading range and the bar size as a percentage of the trading range is large, price action signals may still appear with the same frequency as under normal market conditions but their reliability or predictive powers are severely diminished.
When a market has been trending significantly, a trader can usually draw a trend line on the opposite side of the market where the retraces reach, and any retrace back across the existing trend line is a 'trend line break' and is a sign of weakness, a clue that the market might soon reverse its trend or at least halt the trend's progress for a period.
I really enjoy currencies, but a successful stock trader has told me to stay away from currencies, and that stocks are better to trade since we are buying into businesses, and all we need to do is find great businesses, choose the best from financial reports and then buy and hold for a while or until price action tells us to get out.
When I see traders scrutinizing and drawing complex lines on charts, discussing Bollinger bands, and analyzing candlesticks, I think - "Why are they working so hard when they can get a more reliable outcome with simpler strategies?" Of course, they think I am strange too.
In essence, price action trading is a systematic trading practice, aided by technical analysis tools and recent price history, where traders are free to take their own decisions within a given scenario to take trading positions, as per their subjective, behavioral and psychological state.