What is the Price Action Strategy in Forex Trading?
- August 1, 2021
- Posted by: Daniel Richard
- Category: Forex Trading
“Price action” is a trading method that helps traders to exist in the forex market. It is the short form of price action strategy and is said that “price action” is the backbone of trading which mainly depends on technical analysis tools. The fundamental analysis is not needed here. The trader uses the candlestick pattern for the price action strategy.
Price action means the identification of future currency movement without using any methods and indicators. Generally, the currency value depends on demand and supply. When the demand is greater than the supply, the currency value will increase. But, when the supply is more efficient than demand, the currency’s value will go down. The candlestick pattern shows all these facts.
What is Price Action Trading?
Price action trading is a trading system where a trader trades by identifying the price movement without using any indicators. It is suitable for you to trade without using an indicator because sometimes the indicator may show the wrong signal. If you apply the wrong signal while trading, you will lose in a trade.
The price action trading depends on technical analysis tools, which are the chart pattern, support and resistance, trend line, and candlestick. It is not so easy to trade without using indicators because idealizing the price movement is hard. It may take a lot of time to learn.
If you learn about price action trading strategy correctly, you will get a lot of profit from forex trading. The price action trading does not follow the fundamental analysis factors because it mainly focuses on the past and recent movements of the currency.
What is a Trading Strategy?
Trading strategy refers to the entire trading plan that means which way you want to apply for trading. You have to maintain some rules while trading because it is crucial for gaining profit. So, a valid reason is a must for buying or selling. Your trading strategy, which you are following, will indicate which time is suitable for buying or selling, or this is not the right time for trading.
Some features should be present in your trading strategy:-
- When will you buy or sell or stop your trading?
- Actual trading volume
- What amount of risk can be taken for every trade?
- Why do you want to buy or sell?
- How much stop loss, take profit, and trailing stop do you want to use?
In the forex market, there are five kinds of trading strategies which are swing or position, range bond, break out, pull back, and reversal strategy. One trader can not use more than two strategies. The most crucial thing for a trader is to choose the system which is convenient for him/her.
If you trade without using any trading strategy, you may lose. You can select your trading tools from forex and make an appropriate trading strategy. For developing your trading strategy, you can follow others’ styles or can do it yourself.
Price Action Trading Strategy
The ability to read the price chart of any possession is called the price action trading strategy. This ability differentiates between the loser and the winner. For a better understanding, let’s see some examples: –
Pin bar strategy for price action trading
The pin bar is the short form of the Pinocchio bar. It is the prominent price action trading strategy among Forex traders. The pin bar is also known as a candlestick strategy because of its shape. For identifying this, first, you should need an old support and resistance background. Pin bar strategy is reliable for the reversal signal. That’s why traders can trade correctly.
The price will continue to change every moment in the opposite direction. By following the law, traders make decisions which position is suitable for them, short or long. The long lower tail of a pin bar pattern indicates the possibility of rising prices.
Inside bar strategy for price action trading
There are two bar patterns on the inside bar strategy, which are the inner/internal bar and the outer/external bar. The external bar is bigger than the inner bar. The inside bar gives a signal for the turning point in the market. The size and position of the inside bar will show whether the price will go up or go down.
Tools Used for Price Action Trading
All recent historical data and the movement of past price data are related to the price action trading. Traders can choose their trading strategies according to the technical analysis tools, which include support, resistance, chart, price bands, trend lines, and so forth.
Generally, the trader observes the pattern and tools with simple price bands, trend lines, or complex combinations. Channels and candlesticks tools are used in price action trading.
Two traders cannot interpret specific price action in the same way because the understanding of opinions may differ from one another. From the multiple traders, the technical analysis tools can generate the same trading action and behavior.
The price action trading is the technical analysis that derives a logical method. There is no obligation to decide for traders, and also, they can easily take their trade position by using the trading tools.
Why Does the Price Action Work?
When the trader starts to trade, they are profoundly attached to three or four technical tools. The trader spends enough time understanding the structure of the market and learning the reason for price movement. Traders idealize that the advanced technical indicators represent all kinds of price action information.
The price action works, and also it works well because almost all traders see the same chart at the same time. According to the statistics, $4 trillion is exchanged every single day. So, think about how many people are looking at the same chart and also at the same time.
Traders who do not use the price action level but use only indicators, their experience is not the same because thousands of indicators are present in the forex market. The results of using price action levels are the same for every trader, but there will be variations for using different indicators.
The price action trader may face different open and close prices, but the difference may not be a considerable amount. In the forex market, most of the traders are a follower; they follow the recent price movement.
The performance of the price action level is very well in the market because of its high liquidity. For the same reason, it also works well in the forex market, and the forex market also makes some best price action levels.
How to Trade with Price Action Trading Strategies?
For the market participants’ repetitive nature and their reaction to global economic variables, the price action market also changes itself in different patterns. These different patterns of price action are the price action trading strategies. You will find different kinds of price action trading strategies, and the trader uses them in various ways.
The repetition of price action or patterns reflects on the change of market conditions. By learning the price action strategy, you will get ideas about the future price condition. You will be able to take your trading position if you get confirmation about the market situation.
Before starting the price action trading, at first, you have to exclude all the unnecessary things from your chart. It would help if you also ignored the indicators from the chart. Use the candlestick chart, which will be more beneficial for your trading. You need adequate knowledge of the candlestick chart.
After removing all the unnecessary things and the indicators from your chart, you can draw the candlestick pattern and set up the price action to trade.
You can choose a black and white chart for metatrader4. MetaTrader4 is the most popular forex trading platform. You can easily trade here and get a satisfactory profit.
Best Ways to Learn Price Action
Before starting price action trading in forex, you should gather sufficient knowledge about this. First, you can start by learning the demand and supply concept. For the movement of supply and demand, the price has been changed. When supply overcomes demand, the market price decreases. On the other hand, when demand overwhelms supply, the market price increases.
Learning to analyze the market trend is essential for price action trading. First, focus on trend lines and price swings. Market price always follows the zigzag way, not the straight line. You have to deeply observe the price movement and then take the right decision for trading.
Trendline generally draws on support and resistance levels. The trend line connects all the upper points of resistance by one line, and the other line connects all the lower ends of the support level. You can quickly identify the future price movement by using the trendline.
You have to learn how to manage the risk, know which time is suitable for your trading, and when to stop trade. If you are emotional, then control your emotions because a logical trader can tackle the risk. Learn to take profit from the market at an exact time.
Therefore, price action trading is a trading system where a trader can identify the future price movement by using the technical tools and can get huge profit by trading in this way.