Price Action Forex Trading: Part II – Trending Vs Consolidating Markets

[tmbaru 10]

As discussed earlier in Part I, price action analysis refers to a study of the movement of price in a given market over certain duration of time. This analysis can help identify a trending and consolidating market. A trending market is one where the price action tends to generate a directional bias either upwards or downwards resulting into uptrend and downtrend respectively. There are cases and times when the market does not show any directional price action. This period is referred to as a consolidating market. The easier way of checking whether a market is consolidating is by looking at the absence of higher highs, higher lows, lower highs and lower lows. The sideways movements in price action and the bouncing between horizontal support and resistance levels is a characteristic of consolidating price pattern.

 

Trading Forex with price action strategies

 

Using price action strategies to trade in the Forex Market requires an understanding of the whole market from the price movement perspective. Market participants and the way they respond to economic variables globally tend to be repetitive in nature and predictive. This results into a price action in the market that is reminiscent of previous price actions. The price patterns created by these repetitive market participants’ market behaviors can be generally referred to as price action trading strategies. There are a number of price action trading strategies which are executed in different ways. The price action patterns can either reflect a changing market sentiment or a continuation of the same. In simple terms, price action patterns can help you predict where the market will move next.

Before you inculcate the usage of any indicators which may be a bit confusing from the onset, it is generally advised that you use the price action data raw as reflected by the candlestick charts. Candlesticks are preferred due to the dynamic and forceful way in which they reflect the price data for a given market or sets of markets.

The removal of the indicators helps create space for the price action charts therefore making it more elaborate and clear for interpretation. Also, the concentration shifts from the indicators to only the price chart. Drawing in the key chart levels and analyzing price action patterns to trade from should be the next step.

Trading from Confluent Points

 

Drawing in key chart levels also helps in identifying confluent levels. In trading, these levels are very critical. The confluence point in a price chart refers to a point in the market where levels intersect each other. Confluence points can occur in an uptrend or downtrend, exponential moving averages, horizontal and support levels and in event areas.

In the analysis of price action, one of the primary goals is to identify an obvious price trading strategy in a confluent point. For you to internalize what constitutes an obvious price action pattern, you have to dedicate time to study and spend meaningful time on the screen. The moment you spot a high probability price action signal, it is advisable that you base the analysis within that particular market context where the signal has occurred. Before you decide whether to risk your money on the signal or not, it is imperative to check for the factors of confluence. These include the horizontal and resistance levels, uptrend and downtrend, exponential moving averages, event areas and 50 % retrace levels.

As a conclusion, it is clear that economic variables are many and cannot be analyzed in isolation. The good news is that these economic variables leave footprints on market price charts. Whether a human trader or a computer enabled trading system is used, a price movement pattern must be created. This pattern embodies the emotions and behavioral patterns of all the market participants. Learning how to trade price action therefore makes you enjoy the collection of all the market variables and traders perceptions in one basket.

[Logic 10]

Looks like you have a solid understanding of price action but you could use an indicator to validate what is happening with price that is a lot more smooth. Let me know if you are looking, are interesting in looking or have looked into any different indicators. I have a couple suggestions but won't offer if you aren't interested in testing them.

 

WS

[tmbaru 10]

WC, thanks for the feedback. I am interested to know more about technical indicators.

[tmbaru 10]

Risk-taking: Never test the depth of the river with both feet.

[BRichard 10]

Price Action Forex Trading is the trading of the Forex markets using an approach based on price itself. The price is the most important information on the chart, and this type of trading approach takes advantage of repeating patterns in the Forex markets. It is the visual representation of the price of a specific market, normally over a specified period of time. It is the most important part of any chart, as it is contains the most recent and relevant price data.