Price Action Forex Trading
I am sure you have heard a lot of people talk about price action Forex trading, but what exactly is price action trading. Price action is the movement of price over a given period of time.
Price Action Forex Trading
Price is the most important thing in Forex trading as far as i am concerned. Indicators do not work in my opinion as they are lagging, and they do not give you an accurate account of what is happening right now. Indicators will tell you what has happened in the past, not what is going to happen in the future. Price action is the only thing you can use to tell you exactly what is happening to the price right here right now. If you are trading price action you need to trade a clean chart with no indicators. Indicators just confuse the situation and detract from the the important thing, the price.
So how do you trade price action? Studying price over time is what price action is all about. Whether you are studying price on a one minute chart, or on a monthly chart you will be studying price action. If you look at a candlestick chart, each time a candle opens and closes it does so at a certain price. The top of the candle has a price, and the bottom of the candle has a price. The opening of the candle has a price, and the close of the candle has a price. What makes the candle open and close where it does? What makes the candle stop and reverse where it does? This is price action.
High Probability Trading
The most important thing you need to know when trading Forex is when a reversal in price will occur. If you know this, then you have the keys to the city, you have found the holy grail of trading. All as you need to know is where the price will reverse, and you have mastered the art of Forex trading. It sounds easy right? but it is the hardest thing to master in Forex trading.
To give you an idea of when a reversal will occur you need to study historical price action. Historical price can be studied over a period of time to determine what the price did at certain points on the chart. Why did the price stop and reverse when it did? By studying history you can predict, that if the price stopped and reversed at a certain point in the past, then there is a probability that it is likely to do the same when it reaches that point again in the future. My whole trading ethos is based on the principal of identifying future reversal points with high probability.
What causes a price reversal? The reason price reverses is the balance of power shifts from buyers to sellers, or from sellers to buyers. Supply and demand changes places, and a fair value point is established. I call it a fair value point as there are no longer buyers willing to buy, or sellers willing to sell, to take the price higher or lower. Fair value only exists for a very short period of time before the balance of power shifts again. Areas of price reversal or fair value can be mapped on a chart by the use of support and resistance lines. Support and resistance lines are drawn at reversal points, to easily identify the level at which the price reversed. When the price returns to a support or resistance line there is a probability that it will reverse again, based on the fact that when the price last visited that fair value point, the balance of power shifted, and supply and demand changed over.
Price does not always respect support and resistance lines though. Sometimes price will go right through a support and resistance line showing it no respect whatsoever, but at some point in the future fair value will be established and a price reversal will occur. This point can then be marked with a new support and resistance line. SR lines are are used by myself and many traders to identify possible reversal points, and are a good tool to use in your day trading arsenal.
The more you study price action the better a trader you will become, but my tip would be to take all the indicators off your charts and just study a plain uncluttered chart. You will then be able to see what the chart is telling you, and that is the key to making money in Forex.