Price Action Forex Trading

[Nial Fuller 10]

What is forex trading with price action?

 

Price action is the behavior of the price of a specific currency, commodity, stock, or other security over a specific period of time. All financial markets display the price movement of a security over varying periods of time on price charts. The price action on a price chart reflects the aggregate belief of all market participants about the value of a security’s price during the specified period of time reflected by the price chart.

 

Price action analysis allows you to see exactly what is happening in any given market at any given time because price action is the visual trail of the supply and demand situation of the given trading instrument over a specified period of time. A chart’s natural price action reflects the expectations and beliefs of all market players; the bigger more informed players obviously leave a more noticeable trail, so by analyzing the behavior of price over a specified period of time we can make an educated guess as to what those “in the know” are doing in the markets.

 

Forex trading with price action is the application of price action analysis to the forex market, or more specifically, to a forex currency pair. Price action analysis deals with the predictive capacity of specific price patterns or setups that occur on a semi-regular basis over a given period of time. Certain price patterns re-occur in the markets and can be used to develop a high-probability trading system or strategy. Price action setups can be used to trade any financial market; however the forex market has the deepest liquidity and lowest startup costs as well as widest accessibility of any financial market, for these reasons and others, it is the most popular market today among retail traders.

Why trade the forex market with price action vs. other methods?

 

Price action trading has many advantages over most other methods and virtually no disadvantages. When you trade the forex market with a “clean” or indicator-free price chart, you are getting an uninhibited view of the movement of a currency pair’s price action. This is in direct opposition to many indicator-laden trading systems and strategies that essentially cover up the most important data that a market provides; price action. Having this uninhibited view of a currency pair’s price action allows you to make clear and accurate decisions about the possible future direction of a particular forex currency pair via price action setups, or patterns.

 

Price action setups and patterns give you an easily recognizable and high-probability edge due to the repeating behavior of the forex market; this edge is clean, logical, and less haphazard than any other trading edge out there. Once you properly learn how to spot and trade price action setups, you will develop a refined market perspective that will allow you to trade the market only at the times you see a high probability price action setup present. Viewing the forex market from this clear and logical perspective also works to positively influence your trading psychology by keeping your charts and your mind clear and uncluttered from any unnecessary or overly-complicated indicators or trading software.

Price action is the foundation for all technical analysis.

 

The ability to interpret price action; the dynamics of a market’s price movement, is necessary to correctly understand all forms of technical analysis and improves your ability to utilize them. Essentially, price action analysis is the foundation which you should build your understanding of technical analysis upon because the movement of a security’s price over time is the single most important piece of information in any financial market, and it is also the information from which every other form of technical analysis is derived.

 

Trading the forex market, or any market, with simple price action analysis, allows you to accurately enter into trending markets, consolidating markets, quite or volatile markets. It is this flexibility of price action, combined with the fact that it is a clear and logical trading strategy which makes use of first-hand market data (price), instead of second-hand data (lagging indicators), that makes price action analysis a necessary and widely traded strategy by professional traders and institutions all over the world.

 

The difference between a clean price action chart and one laden with lagging indicators:

 

By comparing the two screen shots below, we can see a clear difference in the clarity and usefulness of price action on an indicator-laden chart vs. price action on a plain vanilla price chart. In the chart containing the indicators, it is obvious there are more variables to look at; it naturally distracts your attention away from the raw price movement and onto derivatives of this price movement. In contrast, the plain vanilla price chart contains no lagging indicators, therefore, your eyes stay fixed on the raw price data the entire time you are looking at the chart; there is simply nothing else to analyze on the chart, and this is arguably the most accurate and natural way of looking at any financial market.

 

The idea behind using lagging indicators to analyze a markets price movement is that it will somehow give you a clearer view of the impending direction of a market’s price, or will otherwise provide you with some sort of insight not available with the indicators. The fact that is forgotten by most believers in lagging indicators is that raw price action data without any indicators provides traders with the most accurate and clear trading strategy in existence.

 

Price action setups form each day in the markets which give traders obvious and useable clues as to the possible future direction of a security’s price. These setups allow traders to develop their own trading strategy or system, using nothing but a plain vanilla price chart, important levels in the market, and price action setups. The main advantages of trading with Forex price action setups are that they give the most accurate and up to date picture of what a market is doing and what it might do in the future, and also that they allow for nearly stress-free trading assuming one manages their risk effectively and does not over-trade.

 

Nial Fuller is an expert on price action forex trading strategies, you can visit his website at Learn To Trade The Market